The CEO of Vanguard, one of the world’s largest asset management companies, says ESG investing is not smart investing.
- Environmental, social, and corporate governance (ESG) has become a critical buzz term in business as companies lean into “stakeholder capitalism” and focus on how power and influence can be a force for progress worldwide.
- Vanguard has been a leading voice in avoiding ESG investing, getting out of some of its climate commitments, and not being part of Net Zero Asset Managers in December due to pressure from investors and Republican lawmakers.
- CEO Tim Buckley, speaking with The Financial Times, dismissed ESG as an irresponsible investing tactic, going against the prevailing wisdom of the entire investment world by claiming the business world is totally caught up in climate fears at the expense of the bottom line.
- Former Vice President Al Gore called Vanguard’s statements “irresponsible and shortsighted.”
Why It’s Important
ESG indexes heavily underperformed last year, with average large-cap stock ESG funds losing as much as 20%, according to CNBC.
The rise of “stakeholder capitalism” has reflected a desire within the financial industry to meet the moment as the world pushes for net-zero carbon emissions by 2050. The Wall Street Journal’s Terrence Keeley notes that less than one in seven equity investors have outperformed the market and that investment firms are only committed to ESG practices as a non-exclusive investment strategy.
ESG has been a hotly debated partisan issue, with BlackRock CEO Larry Fink and Governor Ron DeSantis (R-FL) debating the topic in a public spat this past December. DeSantis pulled $2 billion in assets from BlackRock in response to the company’s ESG policies. Tesla CEO Elon Musk is very publicly against the ESG corporate grade for measuring climate impact and other effects of corporate activity, tweeting in November that “ESG is the devil.”
“Our research indicates that ESG investing does not have any advantage over broad-based investing … Politicians and regulators have a central role to play in setting the ground rules to achieve a just transition,” says Buckley.