Conservatives vs. ESG

Hey, this is Tim. Happy New Year. We're on vacation this week, but the Crash Course team wanted to re air an episode we had fun making with a colleague of ours here at Bloomberg. Sagel Kishan is a stellar Bloomberg reporter, and she wrote a really great article about the backlash to ESG, which is an investing practice that takes environmental, social, and governance concerns into account. We worked with her to turn the interview for that story into

Heavenly Father, as we head into our week full of work, we pray that you would go with us, that you'd be with us, Lord, go before us.

Thank you.

That's Robert Netsley, the president and CEO of in Investing. His company does something he.

Calls bysically responsible investing.

Biblically responsible investing for the uninitiated.

What doesn't mean to invest the Word of God means certainly to do what you can to earn a good return and use the returns for redemptive purposes, but also means, like Proverbs chapter sixteen says, better is a little with righteousness, and great gains with injustice. If there has to be a trade off between making a ton of money or being moral, like we should choose righteousness, morality, ethics. And there's very few people that I think wouldn't disagree with that.

So Robert invests depending on what he thinks the Bible might support or not support. He used to label his offerings as faith based ESG in twenty.

Nineteen, like when the latched WWJD. It's the first fund that had ESG in the name. What would you Do WWD?

But now it's just like.

All of a sudden, I'm talking to people who don't even know a sock or an equity or mutual funds and they're.

Like, oh, he is G said that.

Yeah, exactly what.

Does it means?

I don't know, but it's evil wait bad.

Welcome to Crash Course, a podcast about business, political, and social disruption and what we can learn from it. I'm Tim O'Brien, Robert Netsley personifies a bigger war going on in the investment world and American politics over a little acronym called ESG. In the last year, there's been a Republican backlash to the trillions of dollars committed to investing practices that take environmental, social, and governance concerns into account.

It's just over three years, just before the pandemic. We start to the beat, and why ESG?

Why do you love this little corner of the market.

It's complex, it's undefined, it's everywhere but nowhere. Just trying to figure out the complexities is what draw me to the beat.

And you're good at solving complexities. I wish Oh, I bet you are. I think you are. That's why you're here. Now. How did you find out about Robert Netsley? What attracted you to him as a story?

Well?

I first heard about him after the shooting in Yavaldi, Texas last year, and I was looking at whether esh funds held gunstocks and I thought, obviously no. But then I found his funds and we found that he held shares in the firearms company called stm Rugger, one of the big ones, and a shooting sports company called Vista Outdoor. So I called him. He said that gun violence is deplorable,

Okay, well, so why don't you take over the story from there, and then we'll meet back here later in the eppisode to talk more about ESG and.

What you've learned sounds great, Robert Nesle is a small part of a bigger clash that's going on in America. Red versus blue, and the worlds of financing investing haven't been immune. EESG, which stands for Environmental, Social and Governance Investing, has become a pinata and dragged into the cultural wars.

So they got the worst one.

I was about three, reading by my mom, my younger brother's artistic in on food stamps for a little bit, and all that kind of thing, going through life, and just really seeing the faithlesser going.

Through all of that.

As evangelical Christians, they went to church. The community there gave Robert sability and he had a sense that God was providing for his family. But he really found God one day when he was seven years old and on time out.

I remember this really feeling like sorry for myself whatever, whatever, nobody loves me, YadA, yah YadA, And you know, writing in my ciddy and it's remembering what the pastor said that you know, Jesus loves you actually and he will forgive you of your sin. And as a seven year old does, I remember praying and asking Jesus to come into my heart, you know, and I give him mind to him there and then that's when personally I made a decision to really follow Christ in a very childlike way.

Robert went to community college then later got his college degree online. In between that, he met his wife at a tiny church in his hometown. They lived a life of what he called intentional ministry, doing work in the community in the name of God. He worked with high schoolers with disabilities and at a pro life pregnancy center.

On my way home from getting let go, when they told everybody, you know what was going on, like ahead was kind of spending respecting our second baby, and like, I don't know what I'm going to do, So we just kind of pulled over and spraying and really felt the piece of God to say, like, you know what, you've never liked that job anyway, this is your opportunity to do whatever you want to do and.

I'll take care of it.

So he thought about what jobs could have family friendly hours, and he decided to look for a job at a bank. He applied to everything he could, and then he got a gig with Wells Fargo in their investment department. Even though math was his worst subject in school, he picked it up really quickly, got license and moved into a role advising clients on their investments. He says he was happy as clam until decided to lead a Bible study on finances at his church. He wanted to talk about

Some article came up about the response investing like investing interesting click and introduced this concept of Hayrid thought about what the companies you own, like you're an owner, what they're actually doing to make money? Right? And so if you own Netflix or whatever videos like would you have a video store that sold pornography videos in the back? Like no, I wouldn't, and yet that's exactly what we do as shareholders.

Robert says, there are lots of scriptures in the Bible that say it's bad to make money off of things that are.

Immoral, that is attestable to the Lord.

So he turned to his own investments, and he quickly found what he considers to be a major red flag. He had been investing in companies that manufacture aborta fashions or drugs that help end a pregnancy. His heart sank. Remember he was the president of a pro life pregnancy center, and his reading of the Bible concluded that abortion is bad, So that investment was a complete no no for him.

I remember sitting in my desk sort of slack job like this son, that this was something that I had missed, that the church is obviously missing, and that I couldn't do my job like somebody came to mist right now and asked me to play the trade.

Like I couldn't do it with a queen conscience. And then I go craps because what else was I going to do? And so it's incredibly frightening.

So he quit the bank, and he said he felt God was calling him to do something else, he dabbled with what he called biblically responsible investing, and then in twenty fifteen he started his own firm called Inspire Investing. Essentially, Inspire invests in companies it seems worthy, engages with those that it hopes to convert, and excludes or divest from ones that it finds immoral.

In the Apostle Paul, in one of his letters to churches, it talks about how he's like he's compelled to preach the gospel and there's there's nothing else that he can do.

He's just he's compelled to preach the gospel.

And I really felt like that, like I'm compelled, like there's nothing else I can do other than then this, you know, goes share this story with people, and I don't know how it's going to end up, you.

Know, maybe terribly financially, but this is what I have to do.

So of course of my eye step out of the mote, and you know, trusted God, and he's been he's been faithful.

The market was exceptionally bad last year because of inflation, the war in the Ukraine, and fears of a global overcession. So maybe it doesn't mean a lot that his biggest fund slumped about twenty four percent last year. If we look back to a good year twenty nineteen, his fund was up twenty eight percent, but it was still slightly below the overall startle markets. But remember what Robert said at the beginning of this episode. For him, it's not all about making money.

I'm not an investor who's a Christian, like I'm a Christian who has to work and investment industry.

Many of the biggest and most profitable companies are excluded from his portfolio, which is almost a guarantee that his investments will underperform.

We exclude companies that you know, support legislation that is anpathetical to a biblical viewpoint, like pushes a certagy or doing money to an activist organization that's explicitly pushing an unbiblable viewpoint on those areas.

So Robert's reading of the Bible says abortion is bad. We'll think of all the companies that announce that they would pay for employees to travel for an abortion after the Supreme Court overturn rov Wade last summer, They're out of his portfolio. Also excluded all of the companies that support or finance floats during the Pride Parade. His reading

So, who likes costco wholesale fans of free samples in the room.

He's on the stage at a conservative conference in twenty eighteen.

Last summer, we were alerted to the fact that they had begun sponsoring certain gay pride parades throughout the country, a handful of different cities. Obviously, this is concerning to us. So I picked up the phone and I just called Investor Relations, he said.

The CFO called him back and they had several conversations.

About six weeks after that initial phone call, got another call from this gentleman telling us that Costco had made the executive decision not to support divisive issues his word, divisive issues such as gay pride parades.

Costco wouldn't respond to requests for comment, but these sorts of campaigns show that his work is about more than just investing in this faith. He's having an influence. It doesn't always go his way, though, He says he's tried to persuade Smuckers against supporting lgbth wrights and other quality issues. He's also tried to press six Sporting Goods against paying for employee travel for abortions, but so far he's been unsuccessful. Yet, Robert says he avoids the shame game.

One of the big criticisms of physically responsible investing generally is that it can be easily perceived or assumed that it's a guilt trip game, right, like, hey, did you know that you're invested in this thing?

Shame?

And unfortunately, I think historically there have been those that have taken that approach. Good intentions maybe, but you know, run approach. And you know, we've heard a lot of people, especially from the early days and like before we got involved in like the decades, you know, nineties and eighties and whatnot, that that really was the perception that it was like a guilt and shame sort of legalistic approach,

So take that as you will. But one thing that really struck me was that he decided to label his funders e SG. When I thought about it, it made sense in some ways. I mean, Inspire certainly screens companies by a variety of categories that fall under E S and G topics, which is environmental, social and governance issues. Inspire will screen for human rights violations, forced labor and

I don't know if there was some meeting that they had in conservative radio land or something, right, but like, hey, this year, let's talk about USU every.

Single time we go on here. So the you know, just we noticed the rhetoric is like increasing. Hmm. Watching this, I don't know how that's going to go.

We're committed to like trying to be alive, trying to be redemptant influence on ESG, and meanwhile we're getting like lambassad from the left for like staying reesg.

Roberts says he got blowback from liberal corners for claiming the ESG label while investing in socks that might contradict a more traditional understanding of what ESG means. Meanwhile, his more conservative clients were also getting confused by the label. Conservative talking heads like Glenn Beck and Tucker Carson had been attacking ESG on air, describing it as what they call a leftist agenda. So have high profile politicians such as Florida Governor Ron de Santis and former Vice President

It's a narrative that we are powerless to counteract. If we had a bigger microphone than maybe we would try. But the amount, Yeah, like when every conservative pundit is calling an evil, like, we just cannot.

Counteract that narrative.

Not that Robert necessary wants to counteract conservative talking points. He is on the conservative end of the spectrum, after all, and he shared the stage at conservative conferences with big names from the Republican Party. He says he won't endorse candidates, but his work naturally leads him to back or speak as against companies based on whether they're handling of socially shoes conforms to his reading of the Bible.

We believe that a healthy business respects all viewpoints, right, and they certainly they claim to be tolerant and inclusive, then they should actually be so in practice.

So do you want them neutral or do you want them to keep kends what you mean by neutral? Right, So it means neutral by allowing all points.

Just making shoes, just sit to making cheese.

If it's Nike, yes I would like him Betral, not if it's Bobby Lobby or just like what I'd like them to keep not being neutral, you know.

But even those companies they respect new point, diversity and all sorts of people working there, so they're not It's neutrality in you know, not imposing your beliefs, you know upon people working there in a way that is you know, heavy handed or whatever else like it's respecting all viewpoints.

Wow. Wow, I'm sorry to interrupt Segel, but this is just so interesting to me. Robert sounds like such a likable man, and he has goals of realizing his values as an investor and through his portfolio. But I also think there's some hypocrisy and contradictions going on here that are worth exploring. He's asking companies like Nike, for example, to be neutral and to not put values ahead of their product line for example, or do not put values

Well, that's where it gets all murky. A lot of conservatives feel that corporate America has been co opted by liberals who are pushing goals like climate change, for instance. These conservatives want businesses to focus on business and to be more neutral and not following liberal goals.

Yeah, but neutrality is in the eye of the beholder, too right, right, too right, and at least classically with investment, if you're saying you're being neutral, you're trying to look just at the numbers. And now you have these conflicts between people who say, we have the numbers, but we also have values. But then you have Robert Ntsley who's saying, my values are good for me, but your values aren't good for you.

Maybe this is a good place to pause on the story.

I agree. Let's take a break, and then where are we going When we get back.

I want to step back and talk to some of the experts I've been speaking to about what's going on in the issue space, and then we'll go back to roberts and here's some of his sorts.

Great, we'll be right back with all of that. Okay, we're back with Bloomberg's ESG reporter Segel Kishan.

Thanks for having me.

So we've just heard the story of Robert Netsley, a faith based investor in Idaho. But he's not the first person obviously who's invested this way. So Sagel, why don't you take over the story again and give our listeners some of that history.

Faith based investing is the oldest full of sag Old capitalism.

Sure, I mean going back to you know, slave trade in the UK.

This is Robert Netsley again.

Yeah, you had the Quakers and others who just refused to invest in the slave trade. And we're outspoken about slave trade. So it was people of faith, specifically Christian faith in that context, and scripturally, like even thousands of years before that, you've got proverbs and rules surrounding commerce that prohibit immorality, like including the slave trade. You know, kidnop exhilivating in Moses. This is an a moral business.

You don't steal people and sol THEO.

I called Nikita Singal to learn more about this. She's the co head of Sustainable Investment and ESG at Lizard Asset Management in New York.

Esg's birthplace was kind of from the Sri movement.

SRI that's socially responsible investing. She pointed to religious groups like the Methodists as well. As sharer law in the Muslim faith.

And many other religions have some form of influence over how the followers of that faith should invest in line with the principles of that religion.

When hot butts in is shoes later arose around the Vietnam War and Apartheis in South Africa, a lot of consumers started using their purchasing power to boycott companies turning a profit there.

All of that time period was about investing in companies that were we believed they were engaging in activities that were not positive for society, and the tool that was used was to just simply exclude investing in those companies because it was signaling a specific value or a virtue. I think ESG is very different from all of that.

In the Keysa's eyes as a person who does this kind of investing every day.

ESG is not virtue signaling. It's not a product, it's a process. It's actually part and parcel and a very essential part of good investing. And what it is about is thinking on behalf of our clients as their fiduciaries. What are these emerging risks and opportunities related to the environment and society that are increasingly becoming market issues.

When I told Nikisa about Robert's fund, she was unequivocal.

I would not consider that ESG.

She highlights it for me, the difference between ESG and what she calls impacts investing. That's where an investor might try to use their investments to affect change or influence a company's policies.

There is a healthy and growing subst set of our clients who are interested in that, and we need to make sure that we can do it while keeping in mind their risk return objectives. But it's not the place of a global asset manager like us to be able to have an opinion on that.

To learn more about what makes EESG ESG, I called an expert who I've spoken to you while on the beat.

VET told Hennish and I'm Weistein and faculty director of the ESG Initiative at the Wharton School, and I'm also the Deloitte and Tusche Professor of Management.

Viz has a similaritate to Nikisa when it comes to what factors go into an ESG investment plan.

ESG is about doing hard financial analysis and it's not at all driven by ideology. It's driven by economics.

He'll study data to try to understand how companies are analyzing environmental, social, and governance factors. Then he'll look into how those factors might affect a company's bottom line. Here's an example. Palmle is a common ingredient found in cosmetic products like lipsticks, but it's also leading to a lot of deforestation around the world.

That's just one of many examples. Or an agricultural company by changing its mix of supplies, by changing where and how it's sourcing, can have an impact on deforestation and an impact on clear cutting and other environmentally damaging practices. Companies are going to be increasingly pressured to undertake those actions. Some companies are head in that transition. Some companies are behind.

It's not a short term gain. He's really trying to map out how a company's decisions today will affect its profits in the future.

There may be periods of time like twenty twenty two, where you outperform the market, but you will underperform over the medium to long term.

Of industry groups report that trillions of dollars are already weighing ESG issues to some degree. That's a massive pool of capital, and Fitz says it's only going to get bigger. But the southern political polarization of ESG worries him. Sure, ESU models need work, but he doesn't think that's a reason to give up on the strategy or ignore how these factors affect the market.

What I'd point to is the unfair standard they're holding the ESG movement to. They say, we haven't built the data set yet that can predict future stock market returns, that we haven't built the financial model that can predict which stock will outperform the others over the next ten years. Show me anyone in the financial service space who has a data set that can predict which stocks are going to outperform the others over the next ten years. Anyone who had such a data set would be a billionaire.

So much confusion about what ESG is. It means different things to different people. The data is incomplete, it's difficult to compare, and overall the field is still a work in progress, and even experts acknowledge that ESG analysis is still in its infancy. Nikisa says people just have to appreciate where the industry is.

That's the wild wild West that we're still in.

Nikita also says she doesn't see bias at work in ESG analysis. Regardless of how the models are built.

There is no such thing as a good ESG company or a bad ESG company, because you're throwing in three very different variables and you're somehow assuming that that is going to make some sense. Our job as an investor is not to say whether that's good or bad for society. It's about saying how does that impact the financial markets.

Roberts agrees with Nikisa and fits that ESH shouldn't be prescriptive, but he thinks that's actually what's happening.

The Pollyanna and me probably wishes that there could be a two part of UHG system.

And how would that work. We'll take the E for example.

There are those who just think mining is bad and oil production is literally evil and it's killing mother Earth and we should stop all drilling period, no matter what the costs. The Bible says that we're here. God has put us in his earth to exercise his dominion over this world. We have a right to extract things from the earth. Right we have a right to use the resources to benefit mankind.

Robert's biblical view of mining lines up with a more conservative way of thinking. So the conservative ESG system miight grade mining companies highly and invest in more of them, whereas a liberal EESG system miight grade them poorly and not invest one issue cheaper, and two very different approaches.

Okay, hang on a second, I'm going to butt in here again to clarify. Nikita and Vitt are saying that ESG is not political and it's not partisan. They say they're just looking at data that shows how a company will perform in the future depending on how they handle environmental, social, and governance factors. But some conservatives think that issues like climate change, for instance, are inherently political, even if the vast majority of scientists agree that climate change is real.

Yeah, that's a pretty good summary, tim, And actually there may be even more approaches to issue than what I've laid out. I spoke to another faith based investor Mark Regier who works in Wisconsin, and he has a different reading of the Bible than Robert does.

I make it a rule not to tell anybody what Jesus would do, because I don't know.

That's what makes the difference between somebody who's the son of God and somebody who's definitely not.

Like I said, there's no clear definition of ESG. There's lots of different takes on it. It depends on who you speak with.

What a minefield. I want to talk more about this, but we have to take an ad break first. We'll be right back. Okay, we're back with Sagel Kishan, the ESG wizard of Bloomberg News. I've found this whole story so fascinating, Sagel, and a lot's gone on since you interviewed Robert the last time. Tell me about some of the most significant things that have happened within the ESG movement during that period.

Gosh, so much has happens. We've had Ronda Santis Pylon An attack EESG. We've had attorney generals across different states launch investigations into ESG. We've had billions of dollars pulled out of black Rock, Wall Street's biggest champion of ESG and plenty of anti ESCH bills being pushed through states.

You know, it's very interesting to me when these things happen in the US, where a momentum comes behind a movement, whatever the movement might be. We saw this happening with another acronym CRT or critical race theory that invaded the discussion of education and what's appropriate for the classroom and what isn't it's rare that you get that same phenomenon on Wall Street and that it becomes so clearly politicized so quickly, And what do you think gave it this

Why now? I mean, the E issue movement, if you can call it a movement, has overtaken in some ways asset managers and banks. Everybody's been pushing to look at things like climate change, c suite diversity, inequalities.

The composition of boards exactly exactly.

And so that's why we've had this big pushback because Wall Street has gone big on this in the last three years.

And is that pure lunacy. Has Wall Street gone off its rocker that it's now actually trying to embrace things like climate change, or corporate diversity or boardroom diversity. I mean, clearly its critics think it has and they're painting it as dangerous, but just trying to step back for our

It's funny that you say that, because progressives who are trying to push and act on things like climate change and inequalities in society, they don't feel that capital markets corporations are doing enough. In fact, they think it's something called greenwashing, where a company saying they're doing good things, but really they're not. So it's been pushed and pulled from both sides at the moment.

And that critique from the left is you actually are not putting your money where your mouth is, exactly, and now you have Wall Street step being up or at least attempting to to put its money where its mouth is. The left says it's not enough money, and the right saying watch your mouth. And caught in the middle are essentially money managers trying to figure out both profitable ways to invest and socially responsible ways to invest in hence a firestorm.

Absolutely, by the end of the day, Wall Street is about making money. They're doing this to generate fees, to generate revenue, but the antiesh backlash is actually now sent a chill down Wall Street's spine. We've seen a lot of banks, a lot of investors who two years ago would wax lyrical about climate change and sea suit diversity. Now they've gone on the down load.

And is that because they see reputational risk baked into that that at the end of the day they're saying to themselves it might be socially responsible, we even might make money off of this, but this sort of firestorm of criticism we're getting doesn't make it worth it, because we might lose business in the long run.

Absolutely, I mean Larry Think, the chief of Black Rock, he's really been attacked in many ways by the Republicans.

And deeply personally attacked.

Absolutely, they've really called him.

On billboards anti semitism.

And so he's had to then tone down his rhetoric on climate change. And last year he went down to Texas to even meet all executives who explain to them the energy transition and they need to shift to cleaner fuels. But the atacks on him and the company have been pretty relentless, and that's why a lot of other companies have kind of duck for cover and they're really toning

I guess so as we both know, no one really has all their ducks lined up, no matter what they're doing, whether they're investor, a corporate manager, a parent, or a teacher. I think one of the things I wonder about in all this is if there is a consensus, a scientific

No.

Absolutely, But to people on the right, a lot of diversity initiatives smacks of affirmative action of quote, and historically they've hated all of that.

Yeah, I wonder how many of those people on the right come from lots of different countries historically and have lots of different backgrounds, and now they kind of want just one thing. But that's probably for a different podcast. I want to come back to money in ESG here. I also think it's useful to frame exactly how vast the ESG realm is, because most money invested in Wall

Well, it's certainly not a majority of the assets. It's probably less than ten, if not five percent of the assets. But ESG investors they have said, like trillions is involved in ESG. But what's happening now because of concerns of greenwashing when people exaggerate their environmental claims, we're seeing a sort of shrinkage going on both in Europe and the US. So the numbers are in flux at the moment.

So from where you sit, do you think this means that the SG movement is going to run out of steam? Does it die? Does it get repackaged with different initials and sort of sneak past its critics? How does this play out?

There are even people within the ESG who want to get rid of the acronym altogether because of all the bad press in the past year. They're thinking of more mundane labels like sustainable investing or de risking or material risk factors, which they don't really excite people, but that's really what the issue is.

Maybe they could call it save the planet so your grandchildren can still live on it, but that's too long for an investment them, isn't it.

But despite the malaise, we're not really seeing companies or banks, even though they're being less vocal about it, they're still pushing on behind the scenes on man these initiatives, something called green hushing, where you don't talk about your green activities but you do it anyway, but you do it anyway. Yeah, this backlash isn't going to go away. There's gonna be ebbs and flows. But we've got the elections next year.

Uh huh yeah.

So yeah, it's going to continue to be bashed.

Okay, So Joe, I don't let anybody escape this show without sharing with our listeners what they've learned, that little aha that they've discovered by examining the subject we're talking about. So, what have you learned about ESG and the anti ESG movement that you didn't know before you began talking to Robert Netsley and others.

I guess maybe this is naive of me. But in Europe, in other parts of the world, there isn't this backlash. It's only in America where this backlash. So I've been surprised by the pushback by the rights on an investment strategy that people on the left are saying is not really doing much. What I've learned things aren't so black and white.

They never are. Thank you for joining us today.

Thank you.

You can find Segel Kishan's reporting on Bloomberg dot com and if you want to become a subscriber the Bloomberg terminal here at crash Course. We believe the collisions can be messy, impressive, challenging, surprising, and always instructive. In today's Crash Course, I learned that there are many ways to skin the cat when you're talking about what is and isn't a value based investment strategy. What did you learn?