Can Vivek Ramaswamy take down ESG?

Of all the controversial figures in the “anti-ESG” backlash, few have drawn more heat than Vivek Ramaswamy, a 37-year-old Ohio-based former biotech entrepreneur, polemicist author and, most recently, founder of a new investment firm called Strive Asset Management.

Ramaswamy has been the target of stark criticism over his merciless assault on the business world’s “stakeholder capitalism” agenda. He claims, probably fairly, that his attacks have helped galvanise the swelling tide of opposition to ESG on the US right.

I started reading Ramaswamy’s book Woke, Inc half-expecting a self-indulgent rant in the vein of Fox News host Tucker Carlson’s ravings on this subject. But the book contained some coherently constructed arguments that will offer provocative and perhaps usefully challenging reading for many in the ESG world. The core of Ramaswamy’s argument is not against action on climate change or social injustice — but rather against the hefty clout of corporate executives and directors (rather than democratically accountable politicians and institutions) in shaping how society tackles these challenges.

My colleague Brooke Masters and I interviewed Ramaswamy for a double serving of FT analysis this week. In her article, Brooke digs into Ramaswamy’s business pedigree, and the details of his attempt to build a major asset management company from scratch. In today’s Moral Money, I focus on the thinking that is guiding both his business and his interventions in the ESG debate.

Have a read and let us know whether you think Ramaswamy is a misguided cheerleader for unsustainable business practices — or whether he might be on to something. And read on for Kenza’s take on new research looking at the climate impact of corporate pension funds. (Simon Mundy)

Vivek Ramaswamy: Tackling climate change ‘is a job for public officials’

For a supposed rightwing poster boy who has given tens of thousands of dollars in Republican campaign contributions, Vivek Ramaswamy is surprisingly keen to declare his common ground with the firebrand socialist Bernie Sanders.

“There are increasing concerns from politicians on the left that really echo the concerns we’ve had,” he told me, highlighting Sanders’ warnings of a dangerous concentration of economic power among a small group of corporate leaders. “Much of our critique is actually the same argument.”

Ramaswamy surged to the forefront of the intellectual battle around ESG last year with the publication of Woke, Inc: a book that claimed the “stakeholder capitalism” paradigm threatened to undermine democracy while expanding the power of the Davos jet set. Now he’s started building upon that with a new financial venture, Strive Asset Management, which has attracted $300mn to its two exchange traded funds in less than two months.

What’s prompted this flood of investor interest? It’s not the stock selection. Both ETFs are passively managed, tracking indices of US energy companies and US large-cap stocks respectively. What Strive will do differently from other fund managers, Ramaswamy says, is to use its votes and engagement with companies to push them “to focus on maximising value, not on any other agenda”.

This may sound callous and distasteful to the many people in modern business who feel that companies have a responsibility to go beyond maximising value. But Ramaswamy argues that this profit-focused limitation of corporate purpose should not be seen as a heartless means of helping the rich get richer — but rather a way of constraining the power of an unelected corporate elite. Fashioning the strategy for tackling climate change or racial injustice, he says, should be done through democratic processes — not by reallocating votes according to “the number of dollars that one controls in the marketplace”.

Strive’s mission as a business is not “anti-ESG” per se, Ramaswamy says, but rather “pro-fiduciary”. If Strive believes that a company’s move to address an environmental or social issue will enhance long-term value, “we’re in favour of it”.

The problem with BlackRock chief executive Larry Fink and other proponents of “stakeholder capitalism”, he claims, is that they refuse to acknowledge the tension and trade-offs between purpose and profit, and talk as though corporate efforts to protect the environment or society will generally maximise profits, too. As Fink put it earlier this year: “Stakeholder capitalism . . . is not a social or ideological agenda. It is not ‘woke.’ It is capitalism.”

Now, Ramaswamy — managing a tiny fraction of the $10tn in assets boasted by BlackRock — is trying to push back. Less than two months in to his career as a fund manager, he’s already started firing off broadsides against companies he accuses of bowing to activist pressure on environmental and social issues at the cost of shareholder value.

He’s urged Disney — which had opposed Florida’s “Don’t Say Gay” bill — against taking public positions on political controversies that are unrelated to the company’s core business operations. He’s tried to persuade Apple’s board to reverse its decision to hold a racial equity audit, having “capitulated” to shareholder pressure that it initially resisted. And he’s exhorted Chevron’s directors to drop their commitments to pursuing “scope 3” carbon emission reductions.

These positions have painted Ramaswamy, in the eyes of many, as a reactionary who has joined the forces opposed to serious action on some of the world’s biggest challenges — in particular climate change. “Vivek Ramaswamy is using climate denialism as a marketing platform,” the Sunrise Project campaign group said last month.

I raised that criticism with Ramaswamy, and asked him whether he accepted the scientific consensus on climate change. Unlike World Bank president David Malpass last week, he quickly stated that the fundamentals of human-driven global warming “are not up for reasonable debate”.

“However, I think that what we ought to do about that is very much up for debate,” he continued. “Our view is that this is a job for public officials . . . The division of responsibility between the public and private sector to address this problem, in my opinion, is and ought to be clear.” (Simon Mundy)

The outsized climate impact of UK corporate pension schemes

The UK’s largest companies could be responsible for seven times more carbon emissions through their staff pension schemes than through their own operations, according to a new estimate.

The financial sector’s impact on the climate is easy to overlook because emissions that arise as a result of investments can be fiendishly difficult to quantify, and detailed disclosure of these emissions is not yet mandatory in any jurisdiction.

So while net zero commitments by institutions in the City of London, Paris and New York abound, individual banks, investors, asset managers and financial service providers are still light years away from an accurate assessment of their contribution to global emissions.

Pensions of UK-based staff at FTSE 100 companies were linked to an estimated 131mn tonnes of carbon emissions disclosed at the end of the past financial year, according to the Make My Money Matter campaign. That is equivalent to around a third of the UK’s carbon emissions in 2021.

The findings, compiled by Lloyds-owned pension provider Scottish Widows and the sustainability research firm Route2, are based on the financial accounts of 65 out of the UK’s 100 biggest companies by market capitalisation, and on disclosure of the size and make-up of defined benefit scheme pensions (for which there were more data available than for defined contribution schemes, the lead researcher for the report told me). The carbon emissions typical for industries that these pensions finance are extrapolated using the MSCI ACWI index, a broad index of stocks across developed and emerging markets.

Banks, insurers and other financial institutions are responsible for 158 tonnes of CO₂ emissions through staff pensions for every one tonne arising from direct operations and energy usage, the report finds. That reflects the wider imbalance between the huge “scope 3” emissions of financial companies — linked to their support for various industrial and other activities — and the relatively modest emissions from their offices, IT operations and staff travel.

Telecommunications companies had a ratio of 55 to one, while it was 26 to one for the pharma, biotech and health sector. Carbon-intensive industries such as construction, mining and power generation all had ratios of between 2 and 3 to one, while the oil and gas sector was the only one to have a bigger footprint through its direct operations and energy usage than through its pension scheme, with a ratio of 0.6. The overall figure for all companies in the study was 7.4 to one.

Make My Money Matter, a campaign fronted by Love Actually director Richard Curtis, argues the high discrepancy between pension emissions and direct emissions in the UK is down to business leaders’ lack of awareness about how relevant pensions are to climate change. Only one in 10 of the FTSE 100 companies it looked at referred to staff pensions in their sustainability plans.

But most large companies, including Danone and Amazon, already publish detailed emissions data, and this should, in theory, allow savers and fund managers to start working out how much carbon their investments are responsible for, including in pension schemes.

This can be calculated using methodology devised by the Partnership for Carbon Accounting Financials. But opinions differ on the proportion of emissions that should end up on the financiers’ books — particularly if they have underwritten a security rather than bought it.

Even trickier definitions of “lawyered emissions”, “insured emissions” and “accounted emissions” are currently being thrashed out by industry groups. (Kenza Bryan)

Smart reads

• West Virginia senator Joe Manchin has dropped his controversial effort to include provisions to speed up energy permitting approvals within a vital bill to extend US government funding.

• In an interview with the FT, the net zero emissions adviser to new UK prime minister Liz Truss has urged investors to steer clear of shale gas fracking in the country.

• Despite the supposed focus on improved corporate governance in the age of ESG, the cult of the CEO is alive and well, warns Andrew Edgecliffe-Johnson. “The age of ESG has certainly pushed boards to review their composition and monitor a wider array of risks. But it has not changed the imbalance of power between directors and the chief executive.”

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