Much has been made in recent months about the rising trend of ESG (environmental, social and corporate governance) ethical investing. Many investors are increasingly concerned about which companies their money ends up being invested in. Especially younger ones in the Millennial and Gen-Z demographics.
Some investors dislike the idea of investing in businesses that invest in fossil fuel extraction. Or else tobacco or alcohol production, mining, nuclear energy, gambling or other ethical concerns.
This trend has resulted in a number of exchange-traded funds (ETFs) popping up on the ASX, and receiving significant attention. These include funds like the BetaShares Global Sustainability Leaders ETF (ASX: ETHI). This fund currently has $1.43 billion in assets under management.
However, it's not all rainbows and lollipops in this space it seems.
A report from the Australian Financial Review (AFR) today informs us that an 'anti-ESG' fund manager is looking to set up shop here in Australia. 2ndVote Advisers is an American asset manager and research firm. It is reportedly "set up to counteract political campaigns by activists and company management on environmental, social and governance issues (ESG)".
Image source: Getty Images
The ASX draws an anti-ESG fundie
The firm has constructed a political scale to measure "the costs and extent of social activism" of companies. It rates them from 1 to 5. 1 being 'very liberal' and 5 being 'very conservative'.
2ndVote boss Daniel Grant told the AFR that 73% of the US S&P 500 Index (INDEXSP: .INX) leans "too far left" on ESG issues and rates as a 1 or 2. Apparently, Mr Grant sees "a growing demand from investors for politically neutral, or even conservative, companies".
Although 2ndVote Advisers rate companies on issues that are more controversial in the United States than here, such as the Second Amendment (gun laws) and abortion, Grant still reckons Australia is a fertile hunting ground. Here's some of what he told the AFR:
Our aim is to pick the stocks that are neutral… There are a lot of investors who do not want their funds to be used for politically driven social justice agendas… We are very open to Australia. Many large company CEOs think they are running these companies for all stakeholders not just shareholders and that does not match the view of everyday Americans or Australians. That's why we think Australians are interested.
He is particularly piqued with the fossil fuel industry here in Australia, believing that there is significant opposition to pushing ASX companies on the ESG issue of climate change. He told the AFR that, "given the attack on fossil fuels, our message may resonate with investors in Australia".
It will remain to be seen whether Mr Grant is on to something. But as we discussed a fortnight ago, there is sure to be a large group of investors who might beg to differ.
