There has been such a concentrated push towards ESG investing, with arguably more focus on social, cultural and non-financial aspects of corporate life, that some wealth industry figures are becoming concerned that important objectives are getting lost. Here's an example from the US.
A young US health and technology entrepreneur has had enough of “woke” business practices and has raised $20 million to launch a fund that presses companies to focus on making money rather than political stances, according to a media report.
Vivek Ramaswamy, the author of Woke Inc who made his fortune investing in pharmaceutical companies, has won the backing of hedge fund manager Bill Ackman and billionaire tech entrepreneur Peter Thiel to launch the new venture, which is called Strive, the Wall Street Journal reported on 10 May. Ramaswamy said Strive will only invest in firms that focus on maximising profits and shun those that espouse political beliefs.
Such a story highlights how some figures in wealth management – not under bright lights at the moment – are questioning the direction of the trend of environmental, social and governance-themed investment. It raises questions over the proper role of publicly listed firms. Half a century ago, Chicago economist Milton Friedman famously stated that the role of companies is to maximise shareholder returns, not to foster social or non-financial objectives not explicitly stated in articles of incorporation. Since then, however, the trend has shifted to the point where Friedman’s argument is treated as incomplete. Whether opinion changes as inflation hits some portfolios remains to be seen.
In the US, the Securities and Exchange Commission has drawn controversy by proposing to force listed firms to disclose the impact they have on the environment. In other jurisdictions, governments can require firms to disclose data such as senior female hires, and other measures of performance that aren’t strictly financial.
Russia’s invasion of Ukraine – highlighting Europe’s dependence on Russian natural gas – coupled with skyrocketing energy prices and dislocations caused by Covid-19, means that some investors aren’t happy with where asset management has been going. For example, when Larry Fink, chief executive of fund titan BlackRock issued a regular note to investors, he was at pains to deny that his firm was engaging in “woke” politics. (The term is a play on the idea of people "waking up" from certain previous states of presumed ignorance about topics such as gender and race relations. The term is sometimes an alternative to what can be dubbed “political correctness” and is usually seen as a left-wing phenomenon because it focuses on equality of outcomes, the alleged evils of unfettered capitalism, etc).
The WSJ report about Ramaswamy, who at 36 is a relative youngster in the sector, has called his approach “excellence capitalism”. He criticised the stance from what he dubbed the “ideological cartel” of BlackRock, Vanguard and other major money managers.
“We will tell oil companies to be excellent oil companies and coal companies to be excellent coal companies and solar companies to be excellent solar companies,” he is quoted as saying.
Mr Ramaswamy said he “naturally took the next step” to launch his own fund after the Manhattan Institute invited him and BlackRock’s Fink to debate stakeholder capitalism in 2020 and Fink declined.
Meanwhile, as this news service attests, ESG investing remains one of the dominant trends in wealth management. This publication has its own “Wealth For Good” awards programme that is designed to highlight what firms do in the space. We continue to track this space, including controversies such as “greenwashing”.