I think Cullen Roche is correct when it comes to ESG: > 2) The secondary market is a bad place to enact change. The intelligent defense of ESG is “by reducing

I think Cullen Roche is correct when it comes to ESG: > 2) The secondary market is a bad place to enact change. The intelligent defense of ESG is “by reducing the demand for a stock we can increase its cost of capital and impact its operating performance.” This is true to some degree, but I think this is dramatically overstated. For instance, the firms in the S&P 500 are all large established firms that have more than enough capital to finance their operations. They aren’t using the secondary equity markets to fund their operations. In fact, most firms have so much capital that they’ve been net buyers of stock in the last 50 years. So, this puts the cart before the horse. The better way to think of public companies is to think of them like horse betting. We can bet on the horses, but secondary market purchases are just private exchanges, not cash issuance to firms. As a result, betting on the horses doesn’t change the outcome of the race. Similarly, our secondary market purchases and sales have a far smaller impact on the firm’s operations than we might think.[1] > 3) ESG investing puts more money in the hands of bad actors. Point 1 is the most basic arithmetic of markets. A smart indexer decides to own all the firms in the market because we don’t know which firms will perform better or worse. So, when you reduce exposure to certain firms because they aren’t aligned with your moral views then you increase the odds that you’ll earn a lower return. This means that someone else is earning a higher return and potentially investing more of that money into the causes you don’t believe in. You are, in essence, choosing to earn a lower return thereby funding the very types of people you might disagree with. * https://www.pragcap.com/my-view-on-esg-investing/ https://www.pragcap.com/my-view-on-esg-investing/ There seems to be decent evidence for Point 3 that ESG generally gives lower returns: * https://www.pwlcapital.com/sustainable-investing-how-will-it-impact-your-returns/ https://www.pwlcapital.com/sustainable-investing-how-will-it... So if an oil tycoon can get extra returns, he can then 'invest' some of those returns in funding astroturfing campaigns and false studies to cause confusion about climate change, thus helping to keep climate initiatives at bay. People who ESG invest may have lower returns and so may have fewer resources to fight against the oil tycoon.