ESG, a poisoned chalice

An update on the ESG fraud, illegality, and under-performance.  From The ‘Giant Grift’ That Swallowed Wall Street—and Maybe Your Savings by Rupa Subramanya.  The subheading is ‘The only healthy endgame for ESG is another acronym: RIP. And it will not be a moment too soon.’

In 2022, eight of the top ten actively managed ESG funds in the United States fared worse than the S&P 500’s 14.8% decline—compounding long-percolating fears that ESG is a ruse.

[snip]

Over the past several months, however, the momentum has picked up. Now a growing cadre of executives, lawyers, and Republican officials has taken to lashing out against what it views as social justice parading as a serious investment strategy. The backlash reflects a growing sense that millions of Americans—those who do not subscribe to the new orthodoxy around DEI, the climate, and “stakeholder capitalism”—feel ignored by, and even at war with, the institutions charged with protecting their interests. 

Former attorney general William Barr, who served under Donald Trump, told me ESG is “a form of extortion” that is forcing “companies to take particular actions whether or not those actions are in the financial interests of shareholders.” 

What is most disturbing about ESG, Barr told me, is the way it’s being implemented. “It’s completely non-transparent,” he explained. “And that, to me—that’s the worst. That is affecting a lot of decisions in corporate America in a non-transparent way, because of the political predilections, or the policy predilections, of a small group of people who are not using their own money, but leveraging off other people’s money.”

[snip]

Aswath Damodaran, a finance professor at NYU’s Stern School of Business, said in an email: “ESG is a scam, an idea that was born in sanctimony, nurtured in hypocrisy and sold with sophistry. The inhabitants of this space are either useful idiots, who think that they are making a difference to society when they are, in fact, just pushing problems behind curtains, or feckless knaves, who use it to make money. The only healthy endgame for ESG is another acronym: RIP. And it will not be a moment too soon.”

The big question looming over ESG is whether it’s legal, given that asset managers like BlackRock have a fiduciary duty to maximize investment return.

[snip]

Nor do those funds generally achieve their goals. On the contrary, a 2021 Columbia University and London School of Economics study showed that 147 American companies that were part of ESG funds had worse compliance records when it came to labor and environmental rules than companies in 2,428 non-ESG portfolios.

We have unsustainable levels of deficits and national debt.  We have uncontrolled inflation.  We have demographic headwinds which potentially undermine various social welfare and savings programs.  We have real challenges around increasing economic productivity.  We have a surfeit of government programs unable to deliver the promised benefits used to justify their budgets.  

The last thing we need is some nonsensical ESG which at best is an excuse for baseless moral preening and at worst will destroy the capital upon which we all depend to fund growth, buffer us from exogenous shocks, and secure us in old age.