If there is one giant takeaway from the sudden collapse of Silicon Valley Bank (SVB), it is that Environmental, Social, and Governance (ESG) scores are utterly pointless in assessing the health and vitality of a major financial institution.  On the other hand, as the SVB saga demonstrates in spades, ESG scores are extremely helpful in determining whether or not a bank is likely to receive a government bailout when it goes belly-up because it was fanatical with its fidelity to the ESG cult instead of making sound financial investment decisions.

Incredibly, the now insolvent SVB, which held $200 billion in net assets not that long ago, remains in good standing when it comes to its ESG score.  As the record shows, to this day, SVB is still in the good graces of the ESG crowd.  In fact, all three of the big ESG ratings agencies still give SVB a solid ESG score despite its pending bankruptcy.

So how did SVB attain such a stellar ESG score while it was making terrible risk assessment decisions and putting its clients' funds in peril?  The answer is simple: SVB played the ESG game like an old pro.

Consider: according to its 2022 ESG report, SVB has devoted a mountain of its (limited) resources solely toward ESG implementation.  For example, SVB touts that it has an ESG Executive Committee, ESG Program Office, ESG Advisory Committee, and eight ESG Working Groups, which includes the "Climate Risk Working Group," "Operational Climate Working Group," "ESG Communications and Disclosures Working Group," "DEI Governance Working Group," and the "Green Team."

SVB's president and CEO, Greg Becker, has also gone to great lengths in recent years to pat himself on the back regarding his firm's allegiance to ESG.  As Becker recently wrote, "[o]ur values guide everything we do.  We start with empathy, take responsibility, speak and act with integrity, embrace diverse perspectives, and keep learning and improving.  These values inform our business decisions, determine how we support and reward our employees, shape our relationships with our clients and communities, and help drive our progress toward our ESG priorities."

Is it just me, or does it seem strange that a bank, which one would assume would be mostly concerned with asset allocations, risk calculations, and macroeconomic trends, seems to be utterly obsessed with championing itself as a vessel for social justice?

I wonder: had Becker been more focused on developing short-term and long-term investment strategies as opposed to adhering to arbitrary ESG metrics, perhaps SVB would not be on the verge of ruin.  However, like many things in life, that will remain a mystery.

What we do know is that Becker and the executives at SVB definitely felt that ESG was the firm's primary priority, even if that meant that resources would be funneled from necessary departments to frivolous initiatives, such as SVB's Diversity, Inclusion, and Equity (DIE) office.

According to SVB's chief DIE officer Angela Lovelace, "[t]his is a transformative time for diversity, equity and inclusion at SVB.  We have made many strides by building a strong foundation; and we look forward to furthering our journey to create, nurture and sustain a global, inclusive culture — where different perspectives drive innovation."

Yet, while SVB was investing precious time and resources in its flourishing DIE department, it couldn't find the time to hire a replacement chief risk officer for almost an entire year after Laura Izurieta left that vital role in early 2022.  Astonishingly, as SVB was bleeding money due to its overleveraged position in long-term Treasury bonds throughout 2022 and early 2023, its executives were more concerned with DIE and ESG protocols.

To make a long story short, SVB's downfall was not due to outside factors or macroeconomic events.  Instead, it was a self-induced wound brought on by SVB's fixation with trivial matters like DIE and ESG.  I just hope the mistakes made at SVB will be studied by other banks, financial institutions, and businesses so that they don't suffer the same fate as SVB.

Although ESG and DIE are still all the rage among our wannabe woke overlords, the evidence is becoming clearer every day that these are just ploys to distract us from realizing that the economy has been rigged for far too long.  Instead of emphasizing ESG and DIE, banks and corporations would be much better of focusing on what matters most: providing quality goods and services that customers want and need at an affordable price.  Had SVB followed this simple road map, odds are it wouldn't be on the brink of the abyss.

Chris Talgo (ctalgo@heartland.org) is editorial director at The Heartland Institute.

Image: SVB.