uUntil recently, There are two iron laws of investment. One popularized by the Nobel Prize-winning economist Milton Friedman, who argued that a corporation’s primary responsibility is to provide returns to its shareholders. The second is advocated by Jack Bogle, founder of investment firm Vanguard, who believes that asset management fees must be kept to the lowest possible level.
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The growing importance of environmental, social and governance (ESG) standards undercut Friedman’s shareholder primacy, perhaps fatally.Global ESG Funds manage $7.7 trillion in assets, doubling in size over the past seven years. Even the Business Roundtable, a talking place for American bosses, declared in 2019 that companies must put the interests of their various customers, customers and communities on an equal footing with shareholders.
But like all revolutions, this one had reverberations.anti-ESG The backlash is booming. Vivek Ramaswamy, co-founder of Strive Asset Management, author of Woke, Inc., announced his candidacy for the Republican presidential nomination on Feb. 21. The firm he left to pursue his political ambitions promoted an exchange-traded fund (ETFss) and proxy voting services against what it sees as the politicization of corporate governance.
be opposed to-ESG The legislation is also having ripple effects in state legislatures across the United States.Florida Gov. Ron DeSantis, who is also expected to enter the Republican primary, proposed legislation in February to ban the use of ESG Criteria for all investment decisions in the state. Given the regulatory role of many state legislatures over public pension funds, many of which have hundreds of billions of dollars in assets, such legislation could have a significant impact on the asset management industry.
have a lot of questions ESG move.Determine if the asset ESG-Compliance is complex and prone to bias, miscalculation and PR bluff. Proponents of feel-good investing want to have their cake and eat it too, insisting that focusing on stakeholders is actually better for shareholders too.
But in defense of Friedman’s law, the antiESG Crowd is grappling with another part of the investment code — the importance of low fees.Currently, taking a stand against ESG Much more expensive than going with the flow.This is especially true when it comes to anti-ESG law, more focused on bashing ESG-Promote corporate growth over prioritizing shareholder returns and cost-cutting taxpayers.
A study by Daniel Garrett of the University of Pennsylvania and Ivan Ivanov of the Federal Reserve Bank of Chicago argues that a counterESG attitude.It found the Texas antiESG The law, which had the unfortunate side effect of reducing the number of bond underwriters, raised issuers’ interest costs by $300 million to $500 million in the first eight months.Meanwhile, Indiana’s anti-ESG The bill was watered down after the state’s fiscal watchdog suggested cutting the state’s public pension fund’s annual return by 1.2 percentage points because it would discourage the use of many active managers and limit investment in the private equity industry and private markets.
Likewise, counter costESG, etc.s are quite large, and their benefit is questionable.strive for the most popular ETFs, drill, focusing on the US energy industry. But the fund charges 0.4% per year on assets, compared with 0.1% xlemaximum conventional energy ETFs, created by another investment firm, State Street Global Advisors. This amounts to a significant loss in compounded returns for buyers. Moreover, the top ten holdings of the two funds are the same.
Holders of other energy funds will also enjoy any success Strive has in changing corporate governance and improving returns.Therefore, anti-wake-up investors are best advised to stick with lower fee funds and wait to see whether anti-wake-up effortsESG Activists can do anything.It could be a long wait: it’s hard to see exactly howESG Products will expand their audience beyond the most loyal travellers.
For a level-headed investor who still believes in Friedman’s doctrine, the reverseESG Movement would have obvious appeal if the cost came down. But there is only one rational choice at the moment. Investors and taxpayers are much better off when they follow the herd. That means striking a deal with Woke, Inc., rather than paying huge fees to fight back.■
Learn more from our financial markets columnist Buttonwood:
Wall Street takes China with reservations despite bullish rhetoric (Feb. 23)
Investors expect economy to avoid recession (February 15)
Soaring Stocks Ruin the Sacred Investing Rules (February 7)
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