Anti-woke activism: A turning point for ESG?

The importance of ESG has become almost unquestioned in recent months. Issuers, investors and most of the financial markets are convinced of the material importance – and financial reality – of ESG issues for companies. But that has not stopped what has been termed the market’s first anti-woke ETF from gaining significant backing in its first months of operation.

In September, Strive Asset Management’s US Energy ETF – with the ticker symbol ‘DRLL’ – reported it had attracted $315 mn in less than a month even as other anti-woke funds failed to attract nearly as much.

At the time, Vivek Ramaswamy, executive chairman of Strive, said it showed everyday people did not agree with asset managers using their cash ‘to advance social and political agendas they do not agree with’. The fund’s success, he added, showed that ‘people are voting with their feet’. 

Though the numbers are relatively small, the US Energy ETF has been backed by PayPal co-founder Peter Thiel and hedge fund manager Bill Ackman. So far, it is largely pegged to the XLE Energy ETF, which in turn tracks the largest US oil firms, with the majority of its holdings split between ExxonMobil, Chevron, ConocoPhillips and EOG Resources.

Strive has also launched another fund that tracks the Solactive GBS United States 500 Index and a US Semiconductor ETF that promises to back only US makers of computer chips, to avoid any problems that might arise from geopolitical issues in Taiwan.

Ingrained in all of them, says Ramaswamy, is a mission to ‘serve clients’ financial interests without regard to social or political objectives’. He has already started writing to firms including Chevron and Disney to lambast them for bowing to pressure from other holders like BlackRock, State Street and Vanguard to adopt climate-friendly measures. 

Meanwhile, lawmakers in Republican-leaning states have claimed asset managers are pushing a political agenda by divesting from fossil fuel firms. Texas officials cite a 2021 law that it said should protect its oil firms from being boycotted by BlackRock or other investors. BlackRock, for what it’s worth, has pushed back on claims it is putting its climate agenda ahead of its clients, sending a letter to attorneys general in 19 states to defend itself. 

A movement or a moment?
For Justin Danhof, Strive’s head of corporate governance, it’s about the tide turning. ‘The more interesting debate has begun regarding what we refer to as ‘green smuggling’ – managers using ESG and stakeholder capitalism principles in corporate governance matters – both proxy voting and engagement in funds that have nothing to do with ESG or stakeholder capitalism,’ he explains. ‘In other words, many asset managers are using client funds to advance politicized corporate agendas that those very clients disagree with.’

Danhof adds that the response from state officials ‘calling out’ asset managers and proxy advisers shows that awareness is growing among investors, retail and institutional alike, of the importance of fiduciary duty: the proper stewardship of assets to promote their best interests. He points to UBS downgrading BlackRock to a neutral rating based, in part, on ‘the firm’s ESG positioning’ and the possibility that it may lose more funds on that account.

Whether that can turn this current momentum into more of a movement remains to be seen, says Todd Rosenbluth, head of research at VettaFi. ‘I am skeptical that there is a strong pushback against ESG happening,’ he says, adding that while Strive has done an ‘excellent job’ of getting attention and raising visibility, it is still a relatively small player on the grand stage. He describes anti-ESG ETFs as a ‘niche’ product, despite the recent launch of products similar to Strive’s, such as the God Bless America ETF that launched on Wall Street in October.

This is an extract of the article published in the Winter 2022 issue of IR Magazine. Click here to read the full article.