Ramaswamy laid out his anti-ESG thesis in a book published last year titled “Woke, Inc.” As much as it contains useful observations, so much is his thesis overworked. However, it can be useful for the ESG movement – environmental, social and governance – to tackle it.
Ramaswamy’s central argument is a warning about the growing power of passive fund managers. It has merit. The Big Three own, on behalf of their clients, about a fifth of every member of the S&P 500, on average, with potentially negative implications for governance and competition. There is already a lively debate and a body of academic literature on this subject.
Yet it remains a leap to conclude that there is now a cartel – a loaded term – that does indeed force certain political positions on American businesses and Americans in general. It’s far from clear that companies are setting the tone on social issues rather than taking inspiration from below. For example, many people – in fact, a majority in the United States – are concerned about climate change, and it hasn’t required the imprimatur of any corporate executive.
Indeed, while Strive cites a Brunswick Group survey which it says demonstrates that “most American consumers, voters and shareholders overwhelmingly agree” with its approach, that survey’s findings are more nuanced. It shows that only 36% of respondents think “unequivocally” that companies should speak out on social issues. However, a further 44% think companies should, but only if the issues are directly related to their core business. Only 20% say “no” to coverage. The takeaway is not that companies should avoid taking a stand on these issues, but that they should choose their battles carefully and, above all, pay more than lip service if they speak out.
Brunswick’s investigation reinforces another of Ramaswamy’s criticisms, namely corporate hypocrisy. In his book, he does a good job of recounting examples of companies posing on this or that, often to distract from a more mercenary or outrageous story. Undoubtedly correct, this is hardly a revelation. About 60% of survey respondents said that companies speak up about social issues in order to look better to consumers. Rather, such common skepticism undermines the idea that top-down social conditioning via fiat fiat and corporate campaigns is actually effective.
Companies can clearly get away with it over their skis. Walt Disney Co., for example, in its run-in with the governor of Florida, seems to have been pressured into taking a stand before it was sure of its ground. But that’s a gray area. It may not be obvious why, for example, a software developer would want to take a stand on voting access or transgender rights. But one justification may be considerations for the morale of young workers amid a high quit rate. Would it be a “wake-up call,” risk management around the “S” in ESG, or just a way to retain staff without offering raises? Even hypocrisy can have useful results.
Strive also cites Exxon Mobil Corp. for example. Last year, Exxon lost a proxy battle against upstart ESG fund Engine No. 1 LLC. Ramaswamy says he would have voted against the three dissident directors elected to the board and that the oil price spike that followed shows Exxon would have been better off ignoring the green stuff and drilling more wells. Yet, as Engine No. 1’s own campaign showed, the environmental part was inextricably linked to the governance part. Exxon’s lagging financial results (and stock) were plausibly blamed on the financial indiscipline of a board that seemed underqualified to oversee a large traditional oil company, let alone a company facing the new challenges of climate change. The relative restraint on drilling that Exxon and others have in the face of triple-digit oil prices is precisely what has persuaded ambivalent investors to buy up the sector.
Exxon’s example addresses perhaps the biggest problem with Strive’s approach — but also with the investment philosophy that Strive opposes. Google articles on Strive and you’ll find terms like ‘ESG’, ‘SRI’ – socially responsible investing – and stakeholder capitalism used interchangeably. Similarly, Ramaswamy’s book uses the catch-all term “awakened”:
Basically, being woke means being obsessed with race, gender, and sexual orientation. Maybe also climate change. That’s the best definition I can give.
If you say so. To dismiss climate change as another militant obsession speaks to the logical disconnect in urging Exxon to focus on delivering a high-quality product without acknowledging that said product has an inherent climate-related flaw that requires a strategic response. One person’s liberal hobbyhorse is another’s systemic risk.
The blurring of boundaries between ESG, SRI and everything else has done sustainable investing a disservice, in part by creating space for blanket redundancy. As my colleague Nir Kaissar has written, part of the blame lies with apparent champions such as Fink himself, who mixes calls for companies to adopt pragmatic ESG risk management with very different SRI proposals to exit investments in sectors deemed unsustainable. This sows confusion and invites derision.
In that sense, Strive’s coverage offers a useful wake-up call for ESG to refine its message and methodology. The great strength of ESG is its use of objective criteria rather than subjective beliefs to reduce financial risk or improve financial performance. It also allows for more nuance; one could, for example, invest today in an ESG manner in a coal-intensive utility company in order to help it (and benefit from) its future renewable energy projects.
The fuzziness of the investment movement opposed by anti-reawakening asset management is a double-edged sword. Most passive investors appreciate the low costs that come with scale, and “prime capitalism” seems too loose talk to mess with that. Nonetheless, Strive’s timing is impeccable, effectively taking the opposite side of what has become a crowded trade.
This moment also makes him suspicious. Strive launches amid a rallying Republican campaign against companies taking positions that oppose the party line on corner issues. The day after Strive’s announcement, former Vice President Mike Pence delivered a speech in Texas attacking ESG and social investing, savagely claiming that Exxon’s new directors “were now working to undermine the ‘business from within’. Even though Strive brags about “depoliticizing corporate America,” I’m afraid you can’t credibly do so while bragging about Thiel’s startup money.
More other Bloomberg Opinion writers:
• Institutional investors flex their ESG muscles: Nir Kaissar
• Wood and Musk get index investing wrong: O’Brien and Kaissar
• More employers should cover abortion-related travel: Sarah G. Carmichael
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Heard on the Street section of the Wall Street Journal and a reporter for the Lex section of the Financial Times.
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