{"id":1088,"date":"2022-04-04T14:30:17","date_gmt":"2022-04-04T14:30:17","guid":{"rendered":"https:\/\/www.rubinwealthadvisors.com\/rubinreport\/?p=1088"},"modified":"2024-08-08T18:45:38","modified_gmt":"2024-08-08T18:45:38","slug":"investing","status":"publish","type":"post","link":"https:\/\/www.rubinwealthadvisors.com\/rubinreport\/investing\/","title":{"rendered":"ESG Investing corrosion of corporate America"},"content":{"rendered":"\t\t
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This article was written by Bill Flaig<\/a>.<\/em><\/p>

\u2022\u00a0Bill\u00a0<\/em>Flaig is the co-founder of American Conservative Values ETF<\/a>, an investment fund for ideological conservatives. His founding partner is Tom Carter.<\/em><\/p>

Investment decisions should be based on maximizing the individual investors\u2019 returns, both purposeful and financial. Unfortunately, more and more investors have unwittingly or unwillingly fallen prey to doing what\u2019s in the best interest of others rather than making the best decisions for themselves.<\/p>

These investment options have become one of the asset management industry\u2019s fastest-growing investment products as well as sources of revenue, referred to as Environmental, Social and Governance. Known colloquially as \u201cESG,\u201d these types of investments involve, according to Forbes, \u201cinvesting in companies that score highly on environmental and societal responsibility scales.\u201d Examples include considerations of a particular company\u2019s carbon footprint or the diversity of its board of directors.<\/p>

In just a few years, ESG has taken the investment world by storm. It\u2019s been lauded by the likes of BlackRock CEO Larry Fink, who in his recent annual letter declared that planning for a \u201cnet-zero\u201d future is an important part of creating \u201cdurable returns for shareholders.\u201d<\/p>

We don\u2019t necessarily disagree with many of the goals of ESG, but the problem Mr. Fink and other proponents of ESG fail to see (or just ignore) is that companies and asset managers are implicitly expected to support ESG and invest accordingly. Otherwise, they\u2019re likely to face the tedious task of dealing with the ruling class of social justice warriors who dominate the discourse.<\/p>

Our larger concern is ESG\u2019s impact on corporate America. Senior managers should be focused on maximizing their shareholders\u2019 returns, not necessarily doing what\u2019s popular in the news. Let individual investors allocate capital; for example, if an investor believes investment in a zero-carbon future maximizes their return, they likely won\u2019t invest in Exxon. It makes sense.<\/p>

In contrast, an investor with a less clear view of the future might invest in Exxon based on their track record of profits, the result of a successful business strategy that focuses unapologetically on efficiently extracting and distributing fossil fuels. The management team is fully aware of carbon emissions and renewable energy and has concluded that focusing on fossil fuels is the best strategy to maximize their shareholders\u2019 returns.<\/p>

It\u2019s a textbook example of how investing should be done and has been done for years. Yet ESG\u2019s coercive mindset has allowed a handful of activists in the asset management industry to misuse their delegated proxy power to elect \u201cAnti-Fossil Fuel\u201d directors to Exxon\u2019s board. Exxon\u2019s actual shareholders didn\u2019t do this, and, as a result, environmentalists cheer while Exxon\u2019s actual shareholders and employees suffer.<\/p>

We have yet to hear a rebuttal to this conclusion, which doesn\u2019t involve clairvoyance and an extremely long investment horizon.<\/p>

The ESG mindset results from intimidation by vocal political activists (not shareholder activists), direct government intervention, political influence on large public pension funds and the beliefs of a few asset management executives in New York. In what is supposed to be a free-market economy \u2014 wherein theory financial decisions are driven by, well, finances \u2014 this kind of practice is downright unacceptable. It is a paradox in the very heart of American capitalism.<\/p>

Consequently, we are now seeing some negative knock-on effects, such as increased regulatory\/compliance costs and political speech by senior executives not connected to business strategy. Damage to a company\u2019s brand is caused by the hypocrisy of greenwashing, pandering to political issues and ignoring inconvenient human rights and censorship issues.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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