Be Wary of ‘Anti-ESG’ Investing
As environmental, social, and governance (ESG) scores have become the darling of the “sustainable investment” community, it is vitally important that those of us who oppose ESG are wary of the path forward. To simply invest in “anti-ESG” or “conservative” companies as a way of mitigating ESG’s influence would play directly into the hands of those who have championed ESG. In fact, it would lead us further astray from the foundation of free-market capitalist theory, which holds that a company’s sole responsibility is to increase its profits and act in the interests of its shareholders, as Milton Friedman famously espoused in 1970.
A few years ago, most individuals would have been hard-pressed to explain what ESG is -- this author included. Now, ESG has become a political lightning rod, with most on the right becoming increasingly aware of and lining up in opposition to ESG, while most on the left embrace ESG with open arms. This is unfortunate, considering ESG should not be framed as yet another “left versus right” battleground. In reality, ESG investing ultimately represents an attempt by a monopolistic consortium of neo-fascist overlords to concentrate power and control over the remainder of society -- aka, everyone reading this article, regardless of your net worth or ideological predispositions.
Despite this intentional obfuscation by both the right- and left- wing mainstream media apparatus, what is certain is that ESG would wreak destruction upon free markets, democratic institutions, national sovereignty, and individual freedoms. As such, it is vital that we implement effective solutions to the burgeoning ESG problem.
As the calendar turns to 2023, 35 states and counting have enacted, formally proposed, or are planning to propose legislative and/or regulatory policies that either hinder or promote ESG practices. Scores of bills will be circulating through state legislatures in the first half of 2023, most of which are geared against ESG in a variety of fashions. Multiple anti-ESG bills have been proposed at the federal level as well, though these stand virtually no chance of passing due to Democrats’ control of the Senate. Moreover, President Biden would certainly veto any and all anti-ESG bills based on his administration’s regulatory actions in support of ESG investing principles.
The myriad objections to ESG are all valid and laudable, as are many of the proposed solutions, such as prohibiting state pension funds from investing in ESG funds that do not put financial factors first, and keeping financial institutions from discriminating against companies and individuals based upon their commitment to “climate change mitigation” or “social justice.” Neither of which, by the way, do ESG’s promulgators care a whit about.
Another increasingly popular solution to the ESG problem is the development of “anti-ESG” funds, as a way of balancing the scales against the preponderance of “pro-ESG” funds. Unfortunately, this approach is not only unproductive, but may be substantially counterproductive to the bigger picture of returning to a system in which financial returns -- rather than ideological principles -- are the sole focus of businesses.
So, why is anti-ESG investing a problem? The basic mechanism by which ESG operates is by reducing or altogether eliminating access to capital and credit from “low-scoring” companies that do not adhere to ESG’s subjective and politically motivated metrics. In tandem, that capital and credit -- in addition to tax breaks, grants, preferential contracting, special financial vehicles, and other advantages -- is allocated to companies that have high ESG scores.
To be clear, those who are sponsoring anti-ESG funds have not attempted to design a metric system in the same way that ESG’s overlords have. Yet, these funds operate according to the same principles of ESG, only in reverse.
For instance, Point Bridge Capital’s MAGA ETF “allows you to invest in companies that align with your Republican political beliefs. The MAGA Index is made up of 150 companies from the S&P 500 Index whose employees and political action committees (PACs) are highly supportive of Republican candidates.” So, essentially, a company in excellent financial shape that might publicly pay lip service to certain social justice objectives would not be included, even though it may maximize investor returns.
For another example, consider the God Bless America ETF (YALL) managed by Toroso Investments. The fund’s Securities and Exchange Commission (SEC) filing states that the investment advisor will eliminate companies from its portfolio that -- in the investment advisor’s subjective assessment -- have “emphasized politically left and/or liberal political activism and social agendas at the expense of maximizing shareholder returns.”
Now, if there were a way to truly determine whether a company values political agendas over shareholder returns, this would work. Yet, the SEC filing states that making this determination would be based on analysis of “articles, websites, newspaper advertisements, press releases, TV appearances, other forms of mass communication and comments made by company spokespersons.” A company can easily claim support of, for example, LGBTQ+ rights, but still focus on maximizing returns. Would such a company then be screened out?
Moreover, if certain “left-leaning” companies receive reduced access to capital and credit, it may stifle innovation and macroeconomic growth. For example, most technology companies openly favor left-wing political causes. If those companies are screened out of certain funds, their ability to develop new products and invest in research and development may be stifled, which would have trickle-down effects upon the rest of the economy.
These types of funds are becoming ever more prevalent. Unfortunately, these funds basically act as the “yin” to ESG’s “yang.” They elevate ideology above profits and returns. Though investors obviously have a choice to allocate their money as they see fit, going down this path is a slippery slope, and takes our economy further away from maximizing economic productivity and financial well-being. Both ESG and anti-ESG investing should be avoided at all costs.
Jack McPherrin (firstname.lastname@example.org) is research editor at The Heartland Institute.
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