Environmental, social, and corporate governance (ESG) continues to be a partisan boogeyman in the investment world—but anti-ESG funds have performed well amid the culture war.
- Recent analysis from Morningstar Investor finds that anti-ESG indexes have performed very well in the past year, peaking at $376 million in the third quarter of 2022.
- The outcry against ESG indexes over the past two years has carried multiple highly-partisan indexes—including VICEX, MAGA, YALL, and DRLL.
- Morningstar’s research has found 26 anti-ESG funds that are marketed as investing against ESG policies and ideas, penalizing “woke” agendas, promoting vices like tobacco, weapons, or gambling, and preferring funds that have backed away from ESG. However, many still invest in climate-related investments.
- ESG investment continues to be a hot commodity for Wall Street, with 12.6% of all American assets—worth $8.4 trillion—being managed by ESG indexes last year, according to ALM Benefits Pro.
Why It’s News
ESG has become one of the most controversial issues of the past year, with numerous Republican politicians like Florida Governor Ron DeSantis and presidential candidate Vivek Ramaswamy rooting “anti-wokeness” as a core element of their campaigning and self-promotion. Major asset management companies like Vanguard and BlackRock have publicly disagreed on whether ESG is good or bad for business—although the latter has conceded that the term “ESG” is too politically poisoned to be useful.
As we previously reported, ESG is a financial shorthand for a company’s approach to environmental impact, social issues, and transparency and describes how companies approach investment strategies. Republican politicians have attempted to crack down on the practice as being financially irresponsible, while the Biden administration used its first veto to strike down a bi-partisan anti-ESG bill earlier this year.
“Anti-ESG funds come in different shapes and sizes. The oldest invest in companies known as ‘sin stocks’ that were traditionally excluded by socially responsible funds. Some invest in companies aligned with politically conservative values. Others are traditional passive funds with anti-ESG proxy-voting policies,” says Morningstar.
“It is important to note that Morningstar does not view ESG investing as specific to any one political party, but the recent explosion in anti-ESG sentiment is driven primarily by a vocal subset of Republican politicians. One Political fund—American Conservative Values ETF ACVF—seeks to avoid companies ‘perceived as hostile to conservative values’ based on the philosophy that ‘politically active companies negatively impact their shareholders’ value by … supporting issues and causes, which are opposed to conservative political beliefs.”