A few years ago, a guy with a famous last name who ran a socially responsible investment fund asked me to lunch. I was hesitant because I figured he was planning to yell at me for a column I had recently written: “Stocks Weren’t Made for Social Climbing.” I wrote, “Profits are the best measure of a business’s value to consumers—and to society.” Instead, he was quite pleasant, though while I ate, he complained that most other environmental, social and governance funds weren’t all that socially responsible compared with his—“not ESG enough.” I asked him what was in his portfolio, expecting Tesla or some oat-milk company. He answered, “ General Motors. ” OK then.
These days ESG is big business, with $2.77 trillion in “global sustainable fund assets.” The average expense ratio is 0.41%. And sure enough, apparently some funds aren’t ESG enough. Police in May raided the European offices of Deutsche Bank’s DWS unit in an investigation of “greenwashing”—saying its investments were more sustainable than they were. The authorities claim, “We’ve found evidence that could support allegations of prospectus fraud.” In June the Securities and Exchange Commission announced an investigation into Goldman Sachs for claiming some of its funds were sustainable and ESG when they really weren’t. This is a fight over branding. What has the investment world come to?
Then there’s this: On May 18, the S&P dropped Tesla from its S&P 500 ESG Index. Exxon is still in. The S&P explains why, unconvincingly citing “Tesla’s (lack of) low-carbon strategy.” Tesla CEO Elon Musk tweeted, “ESG is a scam. It has been weaponized by phony social justice warriors.” Those are strong words. Let’s investigate.
Larry Fink, CEO of BlackRock, which has around $10 trillion in assets under management, wrote in a letter to CEOs, “We focus on sustainability not because we’re environmentalists, but because we are capitalists.”
Let’s look inside. BlackRock’s ESG Aware MSCI USA ETF has almost the same top holdings as its S&P 500 ETF with Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, JP Morgan Chase, Johnson & Johnson and United Healthcare, dropping Berkshire Hathaway and moving Meta and Home Depot to higher weightings. Fees on ESG Aware are 0.15%, or 15 basis points. BlackRock’s plain-vanilla iShares Core S&P 500 ETF index fund charges only 3 basis points. That’s right, BlackRock charges five times as much for juggling a few names and slapping ESG on the name. Capitalists indeed. As of June 30, ESG Aware was down 23.7% vs. down 20% for the S&P 500 index.
Look away if you’re squeamish, but BlackRock helpfully notes that the S&P 500 has investments of 0.92% in controversial weapons, 0.59% in nuclear weapons, 0.68% in tobacco and 0.12% in United Nations Global Compact violators. Yikes. But not the BlackRock Sustainable Advantage Large Cap Core Fund
