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The anti-ESG industry is taking investors for a ride
https://www.economist.com/finance-and-economics/2023/03/02/the-anti-esg-industry-is-taking-investors-for-a-rideIf paywalled, https://archive.ph/HtIvC
environmental, social and governance (esg)
Until recently, there were two iron laws in investing. One, popularised by Milton Friedman, a Nobel-prizewinning economist, posited that a company’s responsibility above all else was to provide returns to its shareholders. The second, promoted by Jack Bogle, founder of Vanguard, an investment firm, held that asset-management fees must be driven to the lowest level possible.
The growing importance of environmental, social and governance (esg) criteria has weakened Friedman’s doctrine of shareholder primacy, perhaps fatally. Global esg funds manage $7.7trn in assets, having doubled in size in the past seven years. Even the Business Roundtable, a talking shop for American bosses, declared in 2019 that companies must place the interests of a variety of clients, customers and communities on equal footing with shareholders.
But like all revolutions, this one has generated a reaction. The anti-esg backlash is flourishing. Vivek Ramaswamy, author of “Woke, Inc.” and co-founder of Strive Asset Management, announced his candidacy for the Republican presidential nomination on February 21st. The firm he left to pursue his political ambitions promotes exchange-traded funds (etfs) and proxy-voting services that push back against what it sees as the politicisation of corporate governance.
But in defending Friedman’s law, the anti-esg crowd is struggling with the other part of the investing canon—the importance of low fees. At the moment, taking a position against esg is much more expensive than going with the crowd. This is particularly true when it comes to anti-esg laws, which are more preoccupied with bashing esg-promoting firms than with prioritising shareholder returns and cutting costs for taxpayers.
The growing importance of environmental, social and governance (esg) criteria has weakened Friedman’s doctrine of shareholder primacy, perhaps fatally. Global esg funds manage $7.7trn in assets, having doubled in size in the past seven years. Even the Business Roundtable, a talking shop for American bosses, declared in 2019 that companies must place the interests of a variety of clients, customers and communities on equal footing with shareholders.
But like all revolutions, this one has generated a reaction. The anti-esg backlash is flourishing. Vivek Ramaswamy, author of “Woke, Inc.” and co-founder of Strive Asset Management, announced his candidacy for the Republican presidential nomination on February 21st. The firm he left to pursue his political ambitions promotes exchange-traded funds (etfs) and proxy-voting services that push back against what it sees as the politicisation of corporate governance.
But in defending Friedman’s law, the anti-esg crowd is struggling with the other part of the investing canon—the importance of low fees. At the moment, taking a position against esg is much more expensive than going with the crowd. This is particularly true when it comes to anti-esg laws, which are more preoccupied with bashing esg-promoting firms than with prioritising shareholder returns and cutting costs for taxpayers.
