Opinion from a Libertarian ViewPoint

ESG: Another Fraudulent Hustle That Progressive Elites Have Foisted on the Economy | Mises Wire

Posted by M. C. on April 29, 2023

ESG funds have done worse than their S&P counterparts, and the typical ESG fund fees can be three times the reported figure.

Research from Massachusetts Institute of Technology asserts that ESG goals don’t always align with shareholders’ preferences. Even when there is an explicit mandate to pursue social objectives, ESG funds still vote against shareholders.

Lipton Matthews

The allure of environmental, social, and governance (ESG) goals has hypnotized corporate America into offering ESG funds that score investments for prioritizing social goals. Companies that account for environmental, social, and governance goals in their decisions collectively held $8.4 trillion in US investment assets at the beginning of 2022. Leading investment firm BlackRock more than doubled its holdings to over $500 billion and other players are following its lead.

ESG investing is becoming a permanent fixture in the global corporate landscape, but not without backlash. Some entrepreneurs and politicians in the United States argue that prioritizing ESG investing at the expense of shareholder welfare will diminish returns for investors. Strong concerns about the viability of ESG investing led Florida to pull $2 billion worth of assets from BlackRock in a nationwide ESG purge.

But the battle is only heating up because President Joe Biden overturned a Senate bill that prevented fund managers from factoring environmental, social, and governance goals into their investment decisions. In the private sector, tycoons have been launching firms to counter ESG investing by buying shares in companies like Apple and Disney to undercut the activism of management.

Undoubtedly, ESG investing is creating a storm in the United States, but aside from the excitement surrounding ESG investments, what are the implications? Maximizing shareholder welfare is the primary objective of an investment fund and ESG funds should not be pursued if they fail to meet this goal. Some posit that since shareholders are the owners of the company, they must be free to advocate policies that achieve ESG goals. Therefore, ESG investing can be compatible with maximizing shareholder welfare.

However, companies must ensure that shareholders are appreciative of the costs and benefits of ESG investing. Shareholders might perceive virtue in using their investments to effect social change, but learning that ESG funds are uncompetitive will surely alter their outlook. Although research on the feasibility of ESG funds is in its infancy, studies show that they have not been delivering for investors.

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