Thought ESG was hard to define? Try its antithesis
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The ESG movement has always faced a definition problem. Investors, providers and regulators differ widely on what makes the “environmental, social and governance” grade. But if that debate seemed complex, the anti-ESG movement gives it a run for its money.
Stock-pickers eager to bet against liberal or left-wing values have a few options. Exchange traded funds such as the God Bless America ETF and the America First ETF have sprung up to provide a counterweight to what their sponsors see as a blurring of the line between progressive politics and finance.
Constructing an “unwoke” portfolio requires careful choreography. God Bless America — stock-market ticker YALL — takes the biggest US companies and excludes those where executives have expressed left-leaning opinions unconnected to their business. That approach would screen out a company whose chief executive expresses support for abortion access, but not necessarily one with a quota-based diversity policy.
Elsewhere, the America First ETF from Point Bridge Capital — also known as MAGA — takes a different tack: it weighs companies based on employees’ political donations. That, too, takes no account of what a company actually does to make money. But it rules out some high performers, such as stock-market darling Nvidia, whose workforce donated overwhelmingly to the Democrats.
Then there’s Strive Asset Management, co-founded by Vivek Ramaswamy, an ally of President-elect Donald Trump, which attempts to change companies rather than blacklist them: its S&P index tracker casts the votes that come with its holdings against proposals that support stakeholders rather than shareholders. With $1.6bn of assets under management, its equity funds are more than 10 times bigger than YALL and MAGA combined.
Pro- and anti-ESG shareholders both have to reckon with the $1.4tn headache that is Tesla. YALL includes it. MAGA skips it, because while boss Elon Musk is a committed Trumper his employees are not, according to data from Open Secrets. Deciding whether Tesla is ESG, anti-ESG, liberal or conservative matters, since its stock has done three times as well as the S&P 500 this year.
Perhaps the biggest challenge in avoiding so-called wokeness is that finance is a small town. ETFs rely on the same few Wall Street names to structure products and make markets. That often leads back to companies like Goldman Sachs and JPMorgan which — while walking a fine line politically — are shunned by many anti-ESG investors.
Meanwhile, white-label providers such as Tidal are happy to structure and advise ETFs with tickers like YALL and KRUZ. But Tidal and peers tend to welcome customers of all stripes — making God Bless America an accidental stablemate of the Adasina Social Justice ETF and more than one ESG-screened index. Casting a vote for president is simple enough; creating a portfolio to match is harder than it sounds.
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