The war on ‘woke capitalism’ has only just begun

Here we go again. Unless you’ve spent the last week or so living under a digital rock, you’ve heard about the unexpected collapse of Silicon Valley Bank (SVB), the 16th-biggest bank in the United States and the go-to place for tech investors and their companies to store their piles of cash. Those piles have dwindled in recent months, and at some point last week, the bank holding them became insolvent when its larger customers started pulling their money out en masse. Throw Twitter and its ability to add gasoline to almost any fire into the mix, and you had the first major bank run of the 21st century unfolding online and in real-time.

Here’s the good news: on Sunday evening, the United States government took over the bank, guaranteeing the value of its deposits and preventing wider economic panic from setting in. Even better, it will be other American banks that pay the bill there, not the government. But because everything in America right now seems to get sucked into the vortex of the culture war being waged by its Republican politicians and pundits, the bank’s failure is being cited as yet another example of the problem with “woke capitalism.”

In an appearance on Fox News Sunday, Republican presidential candidate and Florida Gov. Ron DeSantis suggested the bank was “so concerned with DEI (diversity, equity, and inclusion) and politics and all kinds of stuff. I think that really diverted them from their core mission.” This is on brand for DeSantis, who has made his disdain for environmental, social and governance (ESG) metrics a key part of his political brand. In his own Fox News appearance, James Comer, chairman of the House Oversight Committee, described SVB as “one of the most woke banks in their quest for the ESG-type policy and investment.”

Oh, but it gets dumber. Andy Kessler, a columnist for the Wall Street Journal, suggested the bank’s willingness to put women and minorities on its board of directors may have contributed to its poor decision-making. “I’m not saying 12 white men would have avoided this mess,” he wrote, “but the company may have been distracted by diversity demands.”

This is, to be clear, utter nonsense. Research consistently shows diversity within a company’s leadership and management teams is positively correlated with improved performance. But speaking of distractions, this ham-fisted attempt to tie SVB’s collapse to diversity and inclusion is a useful way for Republicans and their proxies to avoid the real issue here: the lack of regulation on banks of its size — a direct result of decisions made by the Trump administration in 2018.

As tech-watcher Ed Zitron wrote, “The collapse of Silicon Valley Bank was created by a combination of abysmally short-sighted investment decisions (namely a portfolio that consisted of low-rate, long-term treasury bonds that lost value the minute the Fed raised rates), the deliberate removal of stress tests that would have prevented the bank from making such stupid decisions, and then exacerbated by a large-scale prisoner’s dilemma where every single party chose to turn on their friends.” Ironically, it was tech investor (and Trump whisperer) Peter Thiel, that paragon of anti-wokeness, who may have helped trigger the run in the first place.

It wasn’t just Americans trying to use SVB’s failure to tarnish the ESG movement. In a column for the Globe and Mail, former TD chief economist Don Drummond drew a direct line between the energy transition and the failure of Silicon Valley Bank. “Can they support, hopefully even lead, the necessary economic transformation without taking on unacceptable risk?” he asked about Canada's big banks. “The Silicon Valley Bank experience must be studied as a lesson on how not to do this.”

The Silicon Valley Bank experience (coming soon to a theme park near you!) doesn’t actually say anything about the risks of climate finance or ESG-oriented investing, though. If anything, it’s a lesson on why more banking regulations are needed — and why they need to be more prescriptive when it comes to managing the growing risks posed by climate change.

That is, on some level, what ESG is all about. And while Blackrock CEO Larry Fink noted in his most recent chairman’s letter to investors that it’s not his company’s job to be “the environmental police,” he’s also not backing down from his belief that climate concerns will reshape the global economy. “I wrote last year that the next 1,000 unicorns won’t be search engines or social media companies. Many of them will be sustainable, scalable innovators — startups that help the world decarbonize and make the energy transition affordable for all consumers. I still believe that.”

That belief won’t stop people like DeSantis or Texas Gov. Greg Abbott from attacking ESG metrics or using the spectre of “woke” capitalism to rile up their base. But like most rearguard battles, theirs is bound to fail. For all the criticism coming from conservative circles, ESG investment is still expected to double over the next three years to nearly $34 trillion — one in every five dollars invested globally. As American professor David Bach wrote in a piece for The Conversation, “This is not an aberration of free-market principles but a reflection of them.”

Canadian conservatives who might be tempted to follow in these footsteps (hello, Danielle Smith! Come on down, Pierre Poilievre!) would do well to remember that. Yes, they can try to channel their inner DeSantis and rage against the global stewards of capitalism and their nefarious plans for Alberta and Canada. The more fervent members of their base would surely be delighted by this defiant attempt to piss into the wind. But in the end, all they’re going to have to show for it is a wet pair of pants — one whose pockets don’t have the keys to power.