New Report Offers Critical Scrutiny for ESG Investing Claims

Updated on

RealClearFoundation Senior Fellow Rupert Darwall shows that ESG’s climate, market claims are contradicted by the evidence

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 2021 hedge fund letters, conferences and more

The Central Claim Of ESG Investment Strategies

Washington, D.C. (May 13, 2021)—In a new report, “Capitalism, Socialism, and ESG,” RealClearFoundation Senior Fellow Rupert Darwall takes on the central claim of environmental, social, and governance (ESG) investment strategies. While proponents say that ESG will reconcile society to capitalism while making investors more money, Darwall shows that “doing well by doing good” is “no more than Wall Street sales patter.”

While fund managers are pushing ESG as part of a marketing pitch to millennials—who put “improving society” ahead of “generating profits”—Darwall shows that much of the buy-side pressure for ESG comes from state and municipal pension funds playing politics with taxpayers’ and pensioners’ money, many of which are in poor financial shape.

Key takeaways of Darwall’s report also include:

Defying The Modern Investment Theory

  • ESG investing runs counter to modern investment theory. ESG investing shrinks the universe of stocks that can be invested in, defying modern investment theory, which emphasizes portfolio diversification; yet we’re told that ESG will somehow boost investor returns.
  • Money managers are legally obligated to try to make money for clients, not to try to “save the world” by looking to fight climate change and/or push social justice causes. Making money for trust beneficiaries is what trustees are legally required to do; a trustee must consider only the interests of the beneficiary. Seeking collateral benefits, whether in the form of a just and sustainable world, higher corporate tax revenues, or lower greenhouse-gas emissions, would violate trustees’ exclusive duty of loyalty.
  • Climate and market claims from ESG leader BlackRock are contradicted by the evidence. The observable evidence contradicts BlackRock’s claims that climate risk is not being adequately priced by the market and that climate models underestimate global warming. That the world’s largest asset manager opts for climate hyperbole rather than hard data makes it difficult to view BlackRock’s climate stewardship as a genuine attempt to understand climate risk from an investor perspective.

Not Consistent With The Architecture Of The Paris Agreement

  • When it comes to climate, ESG ratings are in conflict with the Paris climate agreement insofar as they treat the globe as a homogenous regulatory space. This assumption is not consistent with the architecture of the Paris climate agreement, which is based on bottom-up nationally determined contributions and penalizes carbon-intensive corporations operating in faster-growing markets where emissions regulations are weak to nonexistent. 
  • Far from promoting inclusive capitalism, as proponents such as BlackRock CEO Larry Fink claim, ESG is the essence of insider capitalism, with huge societal decisions being taken by democratically unaccountable Wall Street oligarchs and public-sector pension chiefs, often at the behest of representatives of billionaire foundations. By usurping the functions of democratic institutions and the ballot box, ESG undermines the legitimacy of capitalism.
  • ESG is the continuation of politics by other means. The weaponization of finance by billionaire climate activists, foundations, and NGOs threatens to end capitalism as we know it by degrading its ability to function as an economic system that generates higher living standards. This usurpation of the political prerogatives of democratic government invites a populist backlash.

To read Darwall’s full report, please Click Here.

MEDIA CONTACT: To book an interview with Rupert Darwall, please contact Leigh Harrington at LMH Media, [email protected].

About Rupert Darwall

As a senior fellow of the RealClearFoundation, Rupert Darwall studies and reports on issues from international climate agreements to the integration of environmental, social, and governance (ESG) goals in corporate governance. A renowned scholar on both sides of the Atlantic, he previously worked as an investment analyst and in corporate finance, as well as serving as a special advisor to the UK’s Chancellor of the Exchequer. The author of two books—Green Tyranny and The Age of Global Warming—and numerous think-tank reports, Darwall has also written for the Wall Street Journal, The Hill, and Daily Telegraph, among others.