When times get tough, the tough get going, and in this case investors are going away from ESG financial funds in search of higher yield elsewhere without a cause.
With the multi-year bull market coming to an end, and with the printing of a second quarterly negative GDP, investors now need returns more than ever, and appear willing to sacrifice the environment for it. After all, the mission statement for most publically traded companies still is to increase shareholder wealth, not to make sure sea turtles have adequate nesting facility.
The green investing movement has perhaps peaked of late, but isn’t really going away. Proposals via proxy at investing funds are higher than ever, exceeding that of the pinnacle in 2017.
While the record number of woke issues being shoved down shareholders throats has risen, the number that is actually being approved has declined.
If you wonder why investors are beginning to get fed up, it’s probably because of the ridiculous nature of the proxy causes themselves. McDonalds is fielding questions about animal welfare, and it has nothing to do with whether you like your steak medium-rare or not.
Meta is being confronted with concerns that its metaverse creation is causing psychological damage to those that venture in to it. And of course, the omnipresent concern for the environment that far exceeds the concern for you. These risk issues and a plethora of others keep fund managers up at night, as they have to navigate the fine line between being just woke enough to make front groups and regulators happy, and receiving a decent return for investors.
With that said, there are still a myriad of funds pushing these issues on corporate America. Green Century Capital Management Inc., a fund manager that pushes companies to take responsibility for environmental and social problems, is pressuring Home Depot to do more to eliminate deforestation in its supply chain.
People like to use toilet paper, and when push comes to shove, my guess is they decide to sacrifice a couple of trees instead of having to use their leaves in the restroom. At least with funds like Green Century Capital, you know what you’re getting into when you put your money with them. Large funds like BlackRock are slowly changing their tune in reference to the current market environment, saying in a recent memo that it is supporting fewer shareholder proposals on climate disclosures this proxy season than last because many are too “constraining” and “prescriptive.”
To go one step further, funds are actually being created that have a mission as a “hands-off” social and environment issues where they actively urge companies not to get involved. One such fund, Strive, is that started by Vivek Ramaswamy, the author of “Woke, Inc.,” and backed by the billionaire investors Peter Thiel and Bill Ackman.
These guys wouldn’t be doing this unless there was demand for such a product. I never thought I would have to attack the SEC as much as I have of late, owing my living for a long time to the regulatory filings that came from the agency. However, they too have used a scorched earth rule making agenda to push regulation on businesses large and small.
Europe can be viewed as the canary in the coal mine here, accounting for roughly 81% of the $2.7 trillion global ESG fund market. So how did the folks who brought us the Euro do in these investment endeavors? Not so well as it turns out. What a surprise.
According to a Journal of Finance article from the University of Chicago, although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds.
One might expect this however, as investors may be willing to sacrifice return in exchange for perceived global good. What you’re not told is that this doesn’t actually happen either.
It’s two-card monte. You not only don’t get better returns, but these sustainable funds aren’t as green as you think. Research from Columbia University and the London School of Economics shows that companies in the ESG portfolios had worse compliance record for both labor and environmental rules.
Quantitatively through June, European green ESG funds lost on average 14% year to date, compared with its bellwether Stoxx Europe 600 index, which was off only 11% for the same period. In the U.S., ESG funds lost 16%, which was only marginally better than the S&P 500.
In addition to lower proxy approval, shareholders are voicing discontent with capital allocation. Flows into ESG funds globally slumped 36% in the first quarter, according to data provided by Morningstar Inc. Outflows continued in May with record numbers.
Perhaps the most vocal political critic of what he calls “woke capital” is Florida Governor Ron DeSantis. DeSantis has proposed legislative and executive changes to prevent fund managers in Florida from even considering ESG factors when investing the state’s money. In addition, such proposals would bar banks from discriminating against customers based upon their political or social beliefs.
You thought that all the radical left wanted was fairness and inclusion, but little did you know that they work night and day to make sure if you don’t think like them your bank won’t give you that loan for your new home. DeSantis states, “We are protecting Floridians from woke capital and asserting the authority of our constitutional system over ideological corporate power.” Milton Friedman would be proud.
