Republican bashing of E.S.G. gets a bit more complicated

The case for fighting E.S.G. gets messy

Many Republicans have made railing against the environmental, social and corporate governance investing movement a cornerstone of their political success. (Indeed, Vivek Ramaswamy, the financier who rose to fame battling against “woke capitalism,” announced a long-shot bid for the 2024 G.O.P. presidential nomination yesterday.)

But that stance is growing increasingly complicated — especially given new revelations that lawmakers who have publicly berated companies for pursuing E.S.G. strategies have also taken big donations from those same businesses.

Bashing E.S.G. and left-leaning companies has been highly fruitful for Republicans. Gov. Ron DeSantis of Florida, widely considered a front-runner for the Republican presidential nomination, has scored political points for picking a fight with Disney over its opposition to his state’s so-called “Don’t Say Gay” law.

And he and other G.O.P. state officials have taken on investment giants like BlackRock, one of the biggest proponents of E.S.G. policies, and Vanguard, threatening to pull billions in state money from those firms over their support of environmental and social considerations in investing. Mike Pence, who may also run for president, last year accused “a few Wall Street financiers” of pushing a left-wing agenda that Democrats hadn’t been able to get approved at the ballot box.

(Mr. Ramaswamy, who wrote “Woke Inc.” and whose Strive Asset Management has targeted Apple, BlackRock and Disney, has sought to capitalize on that stance in the business world.)

But the money trail complicates things. CNBC reports that 10 of the 29 Republicans on the House Financial Services Committee (including its chairman, Representative Patrick McHenry of North Carolina) took in a combined $140,000 in campaign donations from BlackRock, State Street and Vanguard during the 2022 election cycle, according to Federal Election Commission filings. All three of those companies are regularly criticized by conservative lawmakers.

That’s on top of recent pushback in states like Kentucky against G.O.P. efforts to remove public pension funds’ money from firms like BlackRock.

Some Republicans are moving away from strident opposition to E.S.G. Among them is Mr. Ramaswamy himself, who wrote in a Wall Street Journal opinion piece last month that it’s actually acceptable for investors to support environmental goals, so long as they’re transparent about their efforts.

HERE’S WHAT’S HAPPENING

Stocks plunge on worries about bigger interest-rate increases. Markets in Europe and Asia followed Wall Street’s big tumble yesterday as investors grew concerned that strong economic data in the U.S. and Europe meant central banks would keep rates higher for longer. All eyes will be on today’s release of minutes from the most recent meeting of the Fed’s Federal Open Market Committee for clues about where it might go next.

Citigroup bucks the trend on C.E.O. pay. The firm awarded Jane Fraser a nearly 9 percent increase in compensation for last year, to $24.5 million. She’s the only Wall Street chief to get a raise, as rivals saw their pay remain unchanged or cut.

McKinsey reportedly plans to cut up to 2,000 jobs. The consulting giant is planning one of its biggest-ever rounds of layoffs, according to Bloomberg and other news outlets. The cuts are expected to focus on back-end employees who don’t interact with clients; they’re meant in part to preserve McKinsey’s compensation pool for partners.

Credit Suisse keeps falling after reports of another inquiry. Shares in the embattled Swiss bank were down again today, after Reuters reported that Switzerland’s financial regulator was examining comments by the firm’s chairman, Axel Lehmann, about client withdrawals in December.

Tech’s big shield may live on

A fundamental law governing today’s internet — Section 230 of the Communications Decency Act, which protects social media companies from lawsuits over users’ posts — faced a big test yesterday in a highly anticipated case before the Supreme Court.

But those hoping the high court would move to curtail the tech giants’ legal shield were likely disappointed: Justices appeared skeptical that they could, or should, go that far.

Justices heard arguments for nearly three hours in a lawsuit filed against Google’s YouTube by the family of a victim of the 2015 terrorist attacks in Paris. The plaintiffs argue that YouTube’s algorithms pushed Islamic State videos to interested users and that the company bore responsibility. (The Biden administration has largely argued in support of the family’s position.) Lawyers for Google argue that recommendation algorithms are neutral.

What’s at stake: Tech companies and their allies, as well as the original drafters of Section 230, worry that allowing exceptions could make sites with user-generated content — from Instagram and Twitter to restaurant review platforms and marketplaces — liable for every decision to present or not present third-party content.

Critics of Section 230 say the law is outdated and too broad, giving tech giants nearly unlimited legal protection.

The justices mostly suggested they weren’t ready to hold tech giants liable just yet:

Justice Clarence Thomas defended recommendations as a vital part of the internet. “If you’re interested in cooking, you don’t want thumbnails on light jazz,” he said.
Justice Brett Kavanaugh worried that imposing limits on Section 230 “would really crash the digital economy, with all sorts of effects on workers and consumers, retirement plans and what have you.”
Justice Elena Kagan cracked more broadly about how ill-equipped she and her colleagues were: “These are not the nine greatest experts on the internet.”

That doesn’t mean the Supreme Court favors the status quo. Kagan noted that Section 230 was a “pre-algorithm statute” that offered little guidance in “a post-algorithm world.” And Justice Neil Gorsuch questioned whether algorithms were truly neutral, since the formulas are “designed to maximize profits,” implying that companies are making decisions that could incur liability.

Ultimately, several justices suggested, this wasn’t a matter for the courts, but for Congress.

Microsoft draws red lines in its deal fight

After testifying yesterday in Brussels about Microsoft’s $69 billion takeover bid for Activision Blizzard, the tech giant’s president, Brad Smith, issued a challenge to regulators: Don’t try to force Microsoft to divest parts of Activision in exchange for approving the deal.

Proposals like selling off popular games are a nonstarter, according to Mr. Smith. It isn’t “feasible or realistic to think that one game or one slice of this company can be carved out and separated from the rest,” he told reporters after he spoke with the European Commission.

It was a rejoinder to Britain’s Competition and Markets Authority, which this month suggested that it would only approve the Activision deal if Microsoft chose so-called structural remedies, like divesting the popular “Call of Duty” franchise. (In the U.S., the F.T.C. has already sued to block the deal.)

Mr. Smith pointed to less onerous concessions that Microsoft was willing to make. He noted that the company had just signed deals to give access to “Call of Duty” and other games to rival gaming companies, including Nintendo and Nvidia. Mr. Smith also reiterated that Microsoft was prepared to reach a similar deal with Sony.

It’s a bet that Microsoft can rely on what are known as behavioral remedies, where a company promises to address regulators’ concerns, instead of taking the more drastic step of selling off businesses. But it’s a risky gamble, given regulators’ increasing skepticism about anything short of permanent structural changes to avoid antitrust violations.

“Five days ago, the chart we shared showed nearly 350 of these submissions. Today, it crossed 500. Fifty of them just today, before we closed submissions so we can focus on the legit stories.”

— Neil Clarke, the founder and editor of the sci-fi magazine Clarkesworld. His publication has stopped accepting stories after being inundated with submissions enhanced with generative A.I. programs like ChatGPT.

A church’s hidden billions

The Church of Jesus Christ of Latter-day Saints, commonly known as the Mormon Church, isn’t usually known for financial riches. But the church and Ensign Peak Advisors, a nonprofit that runs its investment portfolio, agreed yesterday to pay a combined $5 million to settle charges by the S.E.C. that they had illicitly sought to obscure its $44 billion in assets for nearly 20 years.

Ensign Peak used a web of shell companies to hide its portfolio, an arrangement approved by the church, according to the S.E.C. Ultimately, it created 13 entities that filed regulatory disclosure forms with the S.E.C. that claimed they managed parts of the portfolio — even though Ensign Peak was the real manager.

Behind the move was the church’s concern that public knowledge of its vast holdings — by comparison, Yale’s closely watched endowment as of last summer was worth just over $41 billion — might discourage its members from donating, an Ensign Peak official told The Wall Street Journal in 2020.

The scheme first came to light via a huge leak of documents in 2018, when the website MormonLeaks disclosed the existence of the shell companies. The next year, the S.E.C. began an inquiry into the church’s finances. Ensign Peak began filing consolidated regulatory disclosures in its name in 2020.

In a statement, the church said it had relied upon legal advice in the matter and didn’t admit to or deny breaking the law. “We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed,” it said.