TOMS RIVER, NJ, July 02, 2025 /24-7PressRelease/ -- The reckoning within the ESG movement is long overdue.

What began as a well-intentioned call for more responsible corporate behavior has, in many cases, devolved into a rigid orthodoxy—replacing judgment with slogans and reducing leadership selection to box-checking exercises. Responsibility matters. But as long-term investors, we believe meritocracy matters more. Board members should not be selected for their gender, race, or ideology, but for their ability to safeguard and compound shareholder capital.

Too often, ESG strategies have rewarded style over substance. Companies have been elevated not for how they operate or what they earn, but for how they align with third-party frameworks. This approach may feel virtuous in the short run, but when tested by real economic pressure—like a rising cost of capital—it fails. And fail it has. Many ESG-branded funds struggled mightily as rates climbed and subsidies wavered. Their foundations, it turns out, were not built on durable economics.

Charlie Munger captured the danger succinctly: "If you mix raisins with turds, they're still turds." ESG, as currently practiced, has too often been an exercise in combining noble rhetoric with weak businesses. Warren Buffett has echoed similar caution. He's consistently said that while ethics are non-negotiable, they must come from culture and leadership—not scoring systems. "I don't know of anyone who's behaved better because someone gave them a score," he once remarked. At BlackBird Financial, we agree.

Our discipline is grounded in fundamental analysis. We don't rely on consultants to classify companies as "good" or "bad." We study businesses in depth—looking at operating history, leadership behavior, capital allocation, and pricing power. Some of our investments may overlap with ESG objectives. Others do not. It's incidental, not intentional. We buy companies that are durable, undervalued, and competently run—not those that check superficial boxes.

It's no surprise that many ESG-labeled funds have disappointed. For years, they offered a shortcut—an illusion of alignment that appealed to investors more interested in appearances than outcomes. But investing is not about appearances. It's about sound judgment, discipline, and understanding long-term risk and return. That can't be delegated to a scoring agency or distilled into a single metric.

When interest rates rose, many of these illusions were exposed. Companies that relied on narrative and subsidy couldn't withstand the new environment. Capital fled. In 2024 alone, over $35 billion was withdrawn from ESG-labeled products. Several asset managers quietly dropped ESG branding altogether—a silent admission that the strategy was more marketing than method.

While much of the industry chased narratives, BlackBird Financial stayed focused on fundamentals. We invested in companies with real assets and recurring free cash flows—some of which had been excluded from ESG portfolios for political or optical reasons. That never made sense to us. A good business is one that can sustain itself—not just talk about sustainability.

One example is our investment in Tidewater, Inc., a company that operates offshore support vessels for the oil and gas industry. ESG screeners might have overlooked it, but we saw a structurally attractive setup. Virtually no new vessels have been built in over a decade, and day rates would need to rise meaningfully—likely to around $40,000—for new supply to enter the market. That supply constraint gives Tidewater operating leverage in a tightening environment. We didn't buy it because it's politically correct. We bought it because the fundamentals made sense.

Environmental concerns, of course, are serious—and they demand serious solutions. But those solutions must come from public policy, not corporate marketing departments. The most straightforward and effective step Washington could take? Raise the federal gas tax. It's remained at 18.4 cents per gallon since 1993. In real terms, its impact has been nearly halved.

Rather than micromanaging outcomes through subsidies and mandates, government should harness the power of the market by pricing carbon-intensive behavior appropriately. A higher gas tax doesn't dictate the solution—it simply signals the problem. It doesn't favor electric vehicles over hybrids, hydrogen, or future innovations. It just says: use less gas. And it does so without spending taxpayer money. It raises revenue instead.

Subsidies, on the other hand, often freeze innovation in place. They direct capital toward politically favored technologies and away from potentially better alternatives. When governments pick winners too early, they prevent markets from discovering them organically. A gas tax avoids that trap. It lets the market compete on ingenuity, not lobbying.

If we're serious about environmental progress, we need durable, principled policy—not temporary handouts or symbolic virtue. Public policy must lead. Companies will follow. Expecting the private sector to drive structural environmental reform through diversity committees and investor decks is not just inefficient—it's a distraction from their core mandate: delivering value to shareholders.

And the truth is, companies that do deliver value tend to get the big things right. In our experience, good businesses behave responsibly without being told to. They treat employees with respect, serve customers honestly, and deploy capital with care and discipline. They also take their environmental responsibilities seriously—because that's part of good stewardship. But these behaviors stem from culture, character, and leadership—not from ESG compliance checklists.

That's why we've never used ESG ratings as a filter. Some of our holdings might score well. Others might not. It doesn't matter. We're not managing a rating—we're managing capital. When a company meets our standards—when it earns high returns on incremental capital, is led by trustworthy people, and offers a margin of safety—we invest. If it doesn't, we move on. That framework has served us well, and it's not changing.

The ESG movement isn't going away, but it is being recalibrated. Investors are coming to realize that real value doesn't come from acronyms—it comes from businesses that work. The shift back toward substance over symbolism is not only welcome, it's necessary. It means capital is being allocated more rationally again, with less regard for narrative and more focus on fundamentals. That's how healthy markets are meant to function.

We'll ignore noise. We'll avoid trends. And we'll invest with the same principles that have guided us from the beginning: buy good businesses, pay a low price, wait. Everything else is noise.

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