When the letters E S G appear in successive order, my blood immediately boils. In the money management world ESG stands for environmental, social, and governance metrics that are supposedly designed to gauge the most socially responsible publicly traded companies. I’m all for companies being socially responsible, but some of America’s most ethically challenged corporations garner highly favorable ESG ratings.
UnitedHealth, a company whose business practices are among the reasons that U.S. healthcare is the most expensive and dysfunctional in the developed world, is one such company. UnitedHealth in 2021 eeked out $17.3 billion in profits, a feat it accomplished by driving up the costs of medical care, charging more to insure against the inflated costs, and then denying claims customers thought they had paid to cover those costs. Another critical UnitedHealth profit center is stealing from U.S. taxpayers.
Yet UnitedHealth is the seventh largest holding in the iShares ESG Aware ETF, a fund with $20 billion in assets.
This is what happens when investors look to an asset management firm run by a Wall Street billionaire for moral and ethical guidance. BlackRock, the world’s biggest asset manager, owns iShares and Larry Fink, the firm’s CEO, is the poster boy for ESG investing.
Fink’s incessant preaching about ESG and stakeholder capitalism has led to accusations that politics, not investment fundamentals, is driving BlackRock’s investment decisions. Some Republican states, including Texas and Louisiana, are pulling their funds from BlackRock because they believe ESG’s anti-fossil fuels stance is harmful to returns. They also are concerned about how Israel boycott activists have successfully used ESG to further their goals.
For the record, BlackRock isn’t pure when it comes to fossil fuels opposition. ExxonMobil is the eighth largest holding in its ESG Aware fund.
Nevertheless, ESG backlash prompted UBS analyst Brennan Hawken to downgrade BlackRock’s stock last week, which struck me as particularly noteworthy given that UBS is a big promoter of ESG investing, so much so the company is banned from doing business with state entities in Texas. I also find it comical that UBS proffers itself as an authority on social responsibility given the litany of wrongdoing the company has engaged in, including convictions for facilitating money laundering.
Given my longstanding ESG skepticism, I obviously wasn’t pleased to retrieve the November issue of Kiplinger’s Personal Finance from my mailbox this past weekend featuring this cover headline: “Invest Your Money to Match Your Values,” promoting ESG investing. I instinctively wanted to toss the magazine in the garbage, which would have given me a feeling of empowerment. I stopped reading Barron’s because of that publication’s ESG hucksterism, as any journalist who touted the metrics had no credibility with me.
For reasons unknown, I opened the magazine and immediately spotted editor Mark Solheim’s column, “Why We Cover ESG.” Solheim did Dale Carnegie proud; his column is a masterful example of reader engagement.
In his book, How to Win Friends & Influence People, Carnegie says making people feel heard and understood is critical to persuading them of your ideas and beliefs. Solheim began his column with the acknowledgement that in previously writing about ESG, “we’ve heard from a small but vocal group of skeptical subscribers. Most call it woke investing, or worse.”
I felt Solheim was talking to me, although I suspect that Kiplinger’s has more skeptical ESG subscribers than he’s aware. It is said that for every customer complaint, there are 10 people with the same beef. I’ve never shared with Kiplinger’s my opposition to ESG, so there’s at least one additional ESG reader skeptic Solheim isn’t aware of.
Solheim went on to acknowledge that ESG has become “politicized” and “the heart of the struggle is climate change, although other social issues get mixed in.” He cited an advocacy group report that said, “Republican state treasurers around the country are working to thwart climate action on state and federal levels, fighting regulations that would make clear the economic risks posed by a warming world. . .and using the tax dollars they control to punish companies that want to reduce greenhouse gas emissions.”
Solheim noted that attorneys general from 19 states wrote to BlackRock, questioning whether the firm was putting a partisan agenda above clients’ investment returns. He also cited Vivek Ramaswamy, author of Woke, Inc: Inside Corporate America’s Social Justice Scam, and alerted readers that Ramaswamy co-founded an energy index exchange-traded fund called Strive US Energy ETF (DRLL), which supports a “new mandate” to frack and drill again. Solheim even provided a link to the fund.
What I appreciated is that Solheim articulated the arguments against ESG and highlighted those who oppose the metrics without judgment. He avoided the usual media label denigrations such as “climate deniers,” “right-wing conservatives,” “MAGA supporters,” and “red state politicians.” Solheim devoted three-quarters of his column demonstrating to ESG skeptics that he knew all our arguments and understood our concerns.
As Solheim treated me with respect, I was open-minded about hearing and understanding his position.
Here it is:
Despite some readers’ concerns that our coverage of ESG demonstrates a woke agenda, we would be remiss to ignore this strategy. At Kiplinger we take a libertarian view of investing and recommend investments we think will pay off over the long term. But we assume our readers will decide for themselves if an investment is right for them, and that includes an assessment of risk, asset allocation and values.
ESG represents a huge commitment of capital, and the prospects for growth are undeniable. The recent growth-stock sell-off hurt our ESG 20 picks. But sustainable investments are long-term plays that may not reward short-term investors.
At Kiplinger we fully acknowledge that we cannot pivot to renewable energy without supplementing it with oil and gas. In fact, in January we wrote about energy investments (mostly fossil fuel), and if you were inclined to act on our suggestions, your portfolio would have had a nice pop.
Compare Solheim’s ESG position to arguments advanced by Nell Minow, a commentator on corporate governance. In a recent LinkedIn Post, Minow dismissed Ramaswamy as an “anti-ESG crank” who is “just like a short-seller using trash talk to promote his position.”
Here’s a snapshot of Ramaswamy’s background, according to his posted bio: Yale law degree, Harvard A.B. biology degree; a first-generation American, he founded Roviant Sciences in 2014 and led the largest biotech IPOs of 2015 and 2016, eventually culminating in successful clinical trials in multiple disease areas that led to FDA approved products. He also has founded other successful healthcare and technology companies.
Ramaswamy’s bio says he worked as an investor while attending law school. By comparison, Minow’s LinkedIn bio indicates she has no experience managing money, no financial industry certifications, and very limited experience running a business. She has a law degree from the University of Chicago and writes movie reviews.
Then there’s Toronto Globe and Mail columnist Rita Trichur who last week called for a boycott of Tesla because of her disagreement with founder Elon Musk’s political positions. She included the hashtag #esg in a LinkedIn post linking to the column, indicating that a boycott of Tesla was socially responsible.
As is too often true of people claiming the moral high road, Minow and Trichur believe the best way to engage with people they disagree with is to denigrate or censor them. They would be wise to study Solheim’s column and learn the art of being a mensch. Admittedly, I need to learn from his example as well.
Solheim didn’t make me a believer in ESG, but when he talked, I listened.
Mmm. That line has a familiar ring to it.