Posted on by Californiacontrarian

ESG Investing … Yea or Nay ?

How has the liberal push of ESG investing turned out thus far? 

From CNS News:

While powerful asset managers, such as BlackRock, are pressuring companies to cater to liberal environmental, social and governance (ESG) agendas, a new analysis finds that companies that aren’t influenced by politics outperform those that are.

During the period from June 30, 2021-January 31, 2023, companies were far more likely to be liberal than either neutral or conservative.

In a Wall Street Journal commentary, “Is ESG Profitable? The Numbers Don’t Lie,” veteran investment industry experts Mike Edleson and Andy Puzder present the findings of their study of the effect of ESG politics on company fortunes.

The study uses a ratings firm’s five-point sale (1 = most liberal, 5 = most conservative) scoring of U.S. large and midcap companies’ social and political involvement regarding the following six issues:

  1. Environment,
  2. Education,
  3. Abortion,
  4. Second Amendment rights,
  5. Other basic constitutional freedoms, and
  6. Support for a safe civil society.

When the performance of politically-neutral companies (those with a composite score of 3) was compared to that of either the overall market (S&P 500 and Russell 1000) or ESG-registered funds, the non-political companies came out on top.

The overall market and ESG indexes were down:

  • S&P 500 down 1.8%,
  • Russell 1000 down 3.2%
  • ESG funds performed worse, with most losing 2.5% to 6.3%.

In contrast, a simple index composed of only neutral companies gained 2.9%, “significantly outperforming both broad-market and ESG indexes in up and down markets,” Edleson and Puzder report.

They also note that the performance-gap between neutral and politically-driven companies began to widen in 2017-2018, about the same time that powerful asset managers like BlackRock, State Street and Vanguard began to wield their considerable influence to pressure companies to embrace ESG, at the expense of profit.

Other studies appear to support their finds. A Bloomberg analysis found that, over the past five years, an ESG portfolio would have garnered a 6.3% return, while a non-ESG one would have increased by 8.9%.

One of my readers recently commented that she was going to get out of her Black Rock investments because of the politics involved  – a principled decision. If this present trend continues it appears that she has also made the right financial decision.

3/29/23

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