Summary: The ongoing trend towards greater environmental, social, and governance (ESG) impact in the corporate world has influenced business practices across the spectrum. However, it also gave rise to the “anti-ESG” movement. This loosely defined but vocal group challenges its fundamental values and claims that ESG is little more than political greenwashing and threatens business practice in general. This article will attempt to define the anti-ESG movement, explore its arguments, and determine whether its claims reflect better financial returns.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
-
eToro USA is registered with FINRA for securities trading.
What is the anti ESG movement?
The anti-ESG movement is not a formal organization and does not have a unified structure or a central authority. Instead, it rose as a collective term for a diverse group of proponents, from individual stakeholders to entire organizations.
It rose as a response to the ESG movement, a trend of including non-financial factors in investment decisions to foster positive societal change besides gaining financial returns. Standing for Environmental, Social, and Governance, ESG investing considers eco-friendliness and sustainability, social factors like labor practice, and responsible and ethical corporate behavior.
Furthermore, as ESG investors believe these values will only grow in importance in the future, these investments also mitigate risk and enhance long-term performance.
Despite its fragmented and, at times, incoherent nature, the movement remains influential, especially in conservative and right-wing circles. It continues to fuel debates about sustainability within the corporate world and the role business should play in shaping our society.
Key points of the anti ESG movement
The anti-ESG movement proponents raise several key arguments against the practice, which could be boiled down to:
- Inefficiency and market manipulation: The anti-ESG movement claims that taking non-financial factors into account leads to a distorted financial picture and causes market inefficiency by taking away resources from primarily for-profit businesses;
- Greenwashing: The anti-ESG movement also points out the risk of “greenwashing,” the practice of companies intentionally overstating or falsifying their environmental and societal impact without making any meaningful difference or changing their business model to accommodate the ESG values;
- Inconsistent standards: The critics point out that the lack of consistency when applying ESG metrics results in false claims and misinformed investment choices. Since there is no authority or unified standard when comparing companies and industries, these metrics are inaccurate and easily manipulated;
- Investment returns: Proponents of the anti-ESG movement doubt the correlation between ESG commitments and better returns on investment, claiming that prioritizing such factors does not necessarily lead to a better investment outcome;
- Stifled economic growth: ESG skeptics argue that overemphasizing environmental, societal, and governmental factors hinder economic growth, leading to fewer jobs and a block to development, especially in industries that struggle to meet strict environmental standards, like fossil fuel and traditional agriculture companies.
ESG investing vs. Anti ESG investing
It is difficult to dispute the good intentions of ESG investing, and its critics do not necessarily argue against sustainability, social justice, and corporate ethics. However, the anti-ESG movement is highly critical towards including these metrics as core investment factors.
The movement’s proponents claim the ESG trend harms risk management, does not offer better returns, allocates inflated funds to non-financial business departments, espouses anti-democratic behavior, and ultimately fails to extract any meaningful change from the corporations.
So, how can the anti-ESG investing capitalize on the supposed flaws of its counterpart?
First, if many investors flock to ESG-positive stocks, it will increase their price due to higher demand, and stocks with low ESG scores will likewise decrease in price due to lower demand. Therefore, it makes sense to invest in ESG-negative stocks since they will be undervalued, especially so if this undervaluation stems from non-financial factors.
Second, the anti-ESG movement believes that modern corporations prioritized shareholders’ returns and evolved into an effective business structure. By refocusing on ESG principles, the companies would lose the financial focus and underperform given enough time and the expansion of the ESG bureaucracy.
Anti ESG funds and other assets
In mid-2023, Morningstar made a report that included 27 anti-ESG funds. As anti-ESG funds cover highly diverse industries, they split them into different categories, including:
- Sin stock funds: These funds invest in “vice” assets like military stocks, porn stocks, and tobacco companies, which are virtually prohibited in socially responsible funds;
- Conservative values funds: These include funds that align with typically conservative political values;
- ESG renouncer funds: Renouncers represent funds that used to follow ESG principles but opted out;
- Countervoter funds: Passive funds that vote to counterbalance ESG-driven shareholder motions;
- True anti-ESG funds: The only proper anti-ESG fund in the report that bought shares in companies with negative ESG scores, believing them to be undervalued, was Constrained Capital ESG Orphans ETF ORFN. However, it filed for liquidation in June 2023.
Anti-ESG funds apply various approaches and have differing portfolios but tend to risk with more exposure to ESG than other funds. Besides Vice funds, all other categories tended to have much more exposure to fossil fuels like coal, oil, and gas.
For example, Strive U.S. Energy ETF DRLL, classified by the report as a Voter fund, has 97% of its portfolio earning revenue from fossil fuels, with ExxonMobil accounting for nearly a quarter of its portfolio. ExxonMobil is also within the top 10 holdings in Unusual Whales Subversive Republican Trading ETF KRUZ, labeled by the report as a Political fund. As one of the world’s largest petrochemical producers, the company has gained notoriety for oil spills and legal and financial liabilities.
Somewhat surprisingly, most of the anti-ESG funds hold major positions in Nvidia, a leading technology company that has made substantial contributions to the climate action theme. In one of its most visible projects, Nvidia launched an initiative to build the world’s most powerful artificial intelligence supercomputer designed to track and predict the consequences of climate change.
Overall, some of the anti-ESG funds mentioned in the report are:
- Unusual Whales Subversive Rep Trd ETF (KRUZ);
- Strive 500 ETF (STRV);
- Strive U.S. Energy ETF (DRLL);
- Strive U.S. Semiconductor ETF (SHOC);
- Strive 1000 Growth ETF (STXG).
Additionally, prominent stocks thus labeled as anti-ESG include:
- Chevron Corporation (CVS);
- Philip Morris (STRV);
- Nvidia Corporation (NVDA);
- RTX Corporation (RTX);
- ExxonMobil (XON).
How to invest in anti ESG funds and companies
Investors willing to try tapping into the anti-ESG method can do so in a few simple steps and within minutes. Our recommended choice for this is an investing service called eToro. Enjoying widespread popularity with over 30 million registered accounts, it stands out for its robust features, including:
- Commission-free stock and ETF trading;
- 2,000+ stocks from 17 exchanges;
- Fractional shares available;
- Charting tools;
- User-friendly platform.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
-
eToro USA is registered with FINRA for securities trading.
Anti ESG criticism
The anti-ESG movement has also accrued much criticism, notably from the countering movement, but also from various non-aligned activists and experts. Some of the most glaring points refer to:
- Gains over sustainability: Critics claim that the anti-ESG movement prioritizes short-term financial gains over long-term sustainability. By downplaying ESG factors, businesses ignore risks that could harm their performance in the long run.
- Missing on long-term value: Pro-ESG investors argue that effective management of ESG risks and opportunities creates long-term value. On the other hand, ignoring them causes missed opportunities and undervaluation of companies with strong ESG performance.
- Risk: ESG factors may represent significant liabilities for companies, such as regulatory fines, lawsuits, supply chain disruptions, and reputational damage. Ignoring these risks can lead to losses and volatility.
- Brand reputation: Anti-ESG strategies may disregard the importance of intangible assets like brand reputation and cause customer alienation, employee dissatisfaction, and investor reluctance.
- Sustainability: Critics of the anti-ESG movement claim that focusing solely on financial returns is unsustainable in the long term. Ignoring ESG factors will ultimately cause environmental degradation, social inequality, and governance failures, which all have economic downturns as a consequence.
The anti ESG movement controversy
Both ESG and anti-ESG movements sprung out of politics and activism, and they could be argued to represent the left and right sides of the political spectrum, respectively. Therefore, the clash between these two ideas is usually presented as a part of culture wars, especially in the United States, where anti-ESG represents a sort of proxy for those who oppose what is seen as the spread of the left or liberal values.
A showcase example was in 2022 when the then-CEO of the Walt Disney Company spoke out against Florida’s “don’t say gay” bill. The state attempted to limit the discussion of sexual orientation and gender identity in schools, and the state’s biggest employer reacted. However, the reaction came only after outrage and protests from Disney’s employees.
Since the U.S. Supreme Court’s decision to rescind the right to abortion, many companies, including Amazon, Microsoft, and PayPal, have offered to pay the transportation costs to other states where abortion is not outlawed. The big pharma and drug companies have likewise been under pressure about whether to sell legal abortion pills or not.
Anti-ESG advocates frequently attack diversity, equity, and inclusion (DEI) measures. After the Silicon Valley Bank collapsed, some, including Florida’s governor, claimed the fall was a consequence of “wokeness” and diversity. An op-ed in the Wall Street Journal stated, “I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands.”
The consequence of controversy and culture wars spurring from the ESG debate is that a significant portion of companies trying to avoid the allegations of “greenwashing” started practicing “greenhushing,” which essentially means continuing with the ESG practices but not making them (overly) public.
Alternative ESG investment
If you find the anti-ESG movement not to be your cup of tea, you might be interested in some of the following ESG investment opportunities:
- Microsoft (MSFT): The company is a leader in the energy conservation movement, working toward being entirely run on renewable energy by 2025 and offsetting all carbon emission it produced by 2050;
- Adobe (ADBE): Adobe has embraced gender pay parity and invested about $87 million to benefit minorities. Half of the company’s energy comes from renewable sources, with the goal of going full-renewable by 2035;
- Intuit (INTU): Intu achieved carbon-neutrality in 2015 and has global gender pay equity;
- Amazon (AMZN): Amazon strives to achieve 100% renewable energy by 2025 and achieve net-zero carbon by 2040. It has introduced the Climate Pledge Fund to foster the development of sustainable technologies and has participated in numerous nature-based and renewable energy projects in Europe;
- Visa (V): Visa achieved carbon neutrality in 2020 and meets all its energy needs from renewable sources.
In conclusion
The anti-ESG movement has made some correct criticism regarding greenwashing and the occasional inefficiency of ESG investing, but finds it difficult to defend some of its more unpalatable opinions regarding its conservative backlash origins.
Furthermore, it has yet to show definite proof that ESG investing distorts the market and introduces inefficiency that could jeopardize the economy.
Ultimately, whether you should practice ESG or anti-ESG investing (it seems impossible to remain neutral on the topic, especially today) depends on your personal choice and investment style. Whatever you decide, make sure to do your research before investing.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about the anti ESG movement
What is the opposite of ESG investing?
While ESG investing principles incorporate social, environmental, and ethical factors, the anti-ESG movement renounces these metrics and advocates solely financial investment aspects.
What is the anti-ESG movement?
The anti-ESG movement denies the importance of environmental, social, and governance values in investing, advocating for the conventional approach to business and prioritizing financial returns over the societal impact of investment.
How is the anti-ESG movement different from ESG investing?
Anti-ESG advocates claim that certain practices companies do to comply with the ESG expectations harm profitability and limit returns on investment, especially in industries like fossil fuel, tobacco, and military defense. They advocate sustainability, diversity, and inclusion should be left out of the investing equation.
What is the controversy with the anti-ESG movement?
Critics argue that the anti-ESG movement sacrifices long-term value over short-term gains, claiming such actions are unsustainable. Additionally, they state that profitability and sustainability are not mutually exclusive.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
-
eToro USA is registered with FINRA for securities trading.
