By Christine Idzelis
Hello! For this week’s ETF Wrap I spoke with Todd Rosenbluth, head of research at VettaFi, about the battle he sees forming around ESG.
Environmental, social and governance criteria seem to be getting on some people’s nerves lately, although ESG funds represent just a tiny slice of assets in the U.S.-listed exchange-traded-fund market, according to Todd Rosenbluth, head of research at VettaFi,
“ESG has become the villain for many people who are using it as a way of speaking to their narrative,” Rosenbluth said in a phone interview. It’s not just politicians in states such as Florida or Texas pushing back on ESG, “we’ve seen asset managers like Strive take a more investment-focused stand,” he said.
Strive Asset Management, which last month launched the Strive U.S. Energy ETF /zigman2/quotes/237549507/composite DRLL -0.86% , announced Sept. 6 that it sent a letter to Chevron Corp. /zigman2/quotes/205871374/composite CVX -1.10% urging the oil and gas producer to “liberate itself from constraints imposed by its ESG-promoting ‘shareholders’ and to focus exclusively on maximizing long run value for the company’s ultimate owners.”
Strive, which recently became a Chevron shareholder, wrote the letter on behalf of its clients to “deliver what we term a ‘post-ESG’ shareholder mandate,” according to the announcement. Strive Executive Chairman Vivek Ramaswamy addressed the letter to Chevron chairman and chief executive officer Michael Wirth, saying Chevron should “produce and distribute more fuel to customers around the world – proudly, publicly, and without apology.”
Ramaswamy wrote “we are concerned that Chevron faces immense pressure from its large institutional “shareholders” including BlackRock, State Street, and Vanguard to adopt value-destroying limitations on its business that do not align with Chevron’s best interests.”
BlackRock, State Street and Vanguard Group are giant asset managers whose offerings to investors include ESG funds. But ESG represents “a very small slice” of the exchange-traded-fund market at about 1.5%, according to Rosenbluth.
BlackRock has pushed back on claims that it is putting its “climate agenda” ahead of clients, the New York Times reported Thursday , citing a letter that the asset management giant sent to attorneys general in 19 states.
ESG funds go beyond climate change concerns and “they serve a great purpose for many investors,” said Rosenbluth. They aren’t just about the environment, or the “e” in the acronym. The “s” and the “g” pillars are linked to areas such as labor management, a diverse workforce and product safety, he said.
Investors in ESG-focused funds may get “broad market exposure tilted toward companies that are relatively strong across multiple metrics,” said Rosenbluth.
Battle over ESG?
BlackRock’s iShares ESG Aware MSCI USA ETF /zigman2/quotes/208081415/composite ESGU +0.03% and the Vanguard ESG U.S. Stock ETF /zigman2/quotes/205112700/composite ESGV +0.16% rank among the biggest ESG ETFs, according to a research report from Strategas at the end of August.
The iShares ESG Aware MSCI USA ETF, with about $22 billion of assets under management as recently as Sept. 6, invests in large and mid-cap companies with “strong ESG traits,” FactSet data show. The Vanguard ESG U.S. Stock ETF, with almost $6 billion of assets on that same date, offers “an ESG slant” on U.S. stocks of all market capitalizations, according to FactSet data.
ESG ETFs tend to have holdings that are “extremely” similar to the S&P 500, the Strategas report shows. The SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY -0.07% , which tracks the S&P 500 index and has around $360 billion of assets, held Chevron shares as of Sept. 7, as did BlackRock’s iShares ESG Aware MSCI USA ETF, holdings data from the funds’ webpages show.
Meanwhile, oil prices were trading higher Thursday afternoon, with West Texas Intermediate crude for October delivery up 1.9% at $83.50 a barrel. That’s after settling Wednesday at the lowest level since January, amid fears of a global economic slowdown and Russia’s threats to walk away from energy contracts.