Explaining the anti-anti-ESG argument |
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The shift to environmental, social and governance (ESG) standards in investing has been less of a trickle and more of a tidal wave. Abandoning shareholder primacy—the idea that companies should simply strive for the highest possible returns for their shareholders—has caused ructions across the industry. Around $7.7trn in assets are now managed by funds with some version of an ESG mandate, roughly twice as much as in 2016.
As with every revolution worth its salt,
there is an inevitable reaction.
The anti-ESG movement has gone from strength to strength. Vivek Ramaswamy, author of “Woke Inc.: Inside Corporate America's Social Justice Scam” and co-founder of Strive Asset Management, reckons that the backlash is strong enough to drive a presidential campaign. A couple of weeks ago he threw his hat in the ring for the Republican nomination.
But the anti-ESG movement faces a problem: it is not sufficiently cheap to do any real damage to the financial industry’s do-goodery. Take Strive Asset Management’s own DRLL exchange-traded fund, which invests in American energy companies and seeks to push them away from ESG criteria. It charges fees of around 0.4% a year on assets. That is considerably more than XLE, the largest regular American energy exchange-traded fund. The two funds’ ten largest investments form a list of the same companies.
Likewise, the push against ESG in American statehouses is hitting taxpayers with significant costs. Cutting out underwriters who engage in ESG practices, and restricting which asset managers public pension funds can invest in, raises costs and limits options. Proponents of anti-ESG legislation in Indiana had to revise their approach after the state’s watchdog said it would cost the state’s pension funds $6.7bn in returns over a decade.
ESG, which became fashionable at warp-speed, is prone to inconsistencies, mismeasurement and an unhealthy dash of public-relations peacocking. But the anti-ESG crowd is unlikely to have much success as long as it offers a more expensive alternative. Until less costly opposition emerges, return-hunting investors are likely to stick with Woke, Inc.
Give us your thoughts at
moneytalksnewsletter@economist.com.
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We calculate that nine American states, home to 23% of the population, have restrictions in place that either prevent state bodies from using ESG frameworks themselves, limit co-operation with companies that use an ESG framework or prevent them from working with companies which discriminate against firms such as gun manufacturers. | | |
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