Elon Musk says large-money funds such as Fidelity and BlackRock are forcing environmental, social and corporate governance (“ESG”) considerations on investors against their best interests. Corporations have spent the past several years increasingly incorporating ESG considerations into their business plans partly due to money funds such as Vanguard and BlackRock that typically use ESG-based investment strategies.
BlackRock is famous for emphasizing the importance of climate-change impact in its investment decision, and it even offers several ESG-focused funds. Fidelity also incorporates ESG considerations into its investment decisions alongside a suite of ESG products, while Vanguard has corporate goals aimed at cutting carbon emissions as well as a range of actively managed and index funds.
According to Musk, such funds were not acting in their investors’ best interests when they used ESG considerations and reporting to inform investment decisions. He said that ESG is a “corporate rebranded thing” that was “inflicted upon corporate America” without shareholder knowledge or approval.
During a 2023 discussion held on X Spaces with Republican presidential candidate Vivek Ramaswamy, Musk said the public is being lied to. He named some of the top money managers on the globe as examples of funds that aren’t informing their customers of investment decisions that don’t add shareholder value.
In late 2022, PwC projected that ESG-based investment would surge by a whopping 84% from $18.4 trillion to $33.9 trillion in 2026. The Asset and Wealth Management Revolution 2022 Report noted that ESG assets are on track to account for 21.5% of total assets under global management in only five years, with an estimated compound annual growth rate (“CAGR”) of 12.9%.
Consequently, these ESG-inclined financial companies are more likely to influence company decisions when they hold board positions in the companies their funds choose to invest in.
According to Musk, the increasing emphasis on ESG considerations is setting up money managers such as Vanguard and BlackRock for the “biggest class-action lawsuit in the history of class-action lawsuits” because these companies aren’t working to maximize shareholder value.
While Musk argued that money managers were contradicting their fiduciary duties to their customers by basing their investment decisions on ESG principles, Ramaswamy said that the “customers” were actually intermediaries. The GOP presidential candidate said the problem is that money managers invest other people’s money, particularly pension funds or intermediaries such as investment advisors.
He noted that the complex relationship between capital owners and asset managers could complicate Musk’s potential lawsuit but added that the financial sector’s structure makes it susceptible to corruption.
Without going into the merits and demerits of the claims that Musk is making about ESG implementation, it is clear that a number of companies, such as Prospera Energy Inc. (TSX.V: PEI) (OTC: GXRFF) (FRA: OF6B), see that implementing environmental, social and governance principles has the potential to improve their bottom lines and are pressing ahead with the same.
NOTE TO INVESTORS: The latest news and updates relating to Prospera Energy Inc. (TSX.V: PEI) (OTC: GXRFF) (FRA: OF6B) are available in the company’s newsroom at https://ibn.fm/GXRFF
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