Elon Musk, Tesla’s CEO, criticized ESG investing guidelines in a series of tweets yesterday afternoon. ESG ‘’should be deleted if not fixed.’’ ESG Investing has caught a lot of slack in recent years, as frameworks often contradict its very purpose.
Musk took aim at the Environmental, Social, and Governance (ESG) framework in Europe, amid new policy support for investing in defense companies. The Russia and Ukraine war exposed the hypocrisies of ESG investing, as frameworks altered at a political whim. In addition, the criteria of the fund can have many different meanings. There is no ”one size fits all” approach, which many ESG funds use to define their investment strategy.
Marc Andressen Tweet – Elon Musk
Venture Capitalist Marc Andressen, also voiced his displeasure for ESG investing. On March 8th, he tweeted out a screenshot of a Reuters article. This quoted a CitiGroup analyst, who noted that defense is ‘’likely to be increasingly seen as a necessity that facilitates ESG as an enterprise, as well as maintaining peace, stability and other social goods.’’
“Recent events in Europe, we think, will significantly increase the likelihood of defense’s inclusion in the EU’s Social Taxonomy”, they said.
Andressen replied, ”ESG funds will invest in defense companies to make the weapons required to fight wars with hostile regimes we buy energy from, because ESG funds won’t invest in energy companies.” It is odd that the same European ESG funds that were against defense stocks companies, are now allowing funds to buy.
Musk replied, ‘’ESG rules have been twisted to insanity.’’ Elon Musk is notorious for speaking his mind on controversial topics. On March 5th, he tweeted his support for increased oil & gas production in the United States amid sanctions on Russia oil imports. After all, Musk is the most prominent and most successful sustainable energy entrepreneur.
ESG Investing Guidelines – European Union (EU)
ESG investing in the EU is becoming more controversial, with decision making processes often swayed by political interests. As war struck Ukraine, Sweden’s SEB announced that its new sustainability policy will include defense stocks.
They began to review its position in January, as a result of ‘’the serious security situation and growing geopolitical tensions in recent months.’’ The bank’s swift changes in policy has many questioning the merit of ESG frameworks.
Sweden’s Skandinaviska Enskilda Banken AB recently said it would revise its ESG rules. From April 1st, the bank would allow six funds to invest in the defense sector. This comes as a surprise, as banks and financial institutions in Europe have shied away from the defense sector in recent years.
Since the start of Russia’s invasion of Ukraine, defense stocks have soared. Lockheed Martin (NYSE: LMT) is up more than 10% in the last month. Furthermore, new policy support for defense stock investing is quite contradictory. In reality, investors in the EU are largely against investing in the defense industry.
As new policy sways ESG guidelines, investors and supporters of ESG investing will be at the forefront of the controversy. However, this might not be the last time, as political interests have a strong hold in bank’s decision making processes.
