Powerful asset managers, such as BlackRock, are forcing corporations to adhere to liberal environmental, social, and governance (ESG) agendas. Nevertheless, a recent study reveals that companies that are not influenced by politics perform better than those that are.
According to a Wall Street Journal column entitled “Is ESG Profitable? Mike Edleson and Andy Puzder, investment industry veterans and authors of “The Statistics Don’t Lie,” share the conclusions of their study on the influence of ESG politics on corporate fortunes.
The research employs a ratings firm’s five-point scale (1 = most liberal, 5 = most conservative) to evaluate the social and political activity of U.S.
Major and midcap firms over the following six issues:
- Rights under the Second Amendment
- Other fundamental constitutional liberties
- Support for a secure civic society.
From June 30, 2021 to January 31, 2023, corporations were much more likely to be liberal than either neutral or conservative:
Approximately one-fourth of the S&P 900 large/mid-cap corporations surveyed scored 3 (no political or social position), more than half (59%) scored liberal, and about one in six (15%) scored conservative, with only one company scoring a 5.
Politically neutral firms (those with a composite score of 3) outperformed the entire market (S&P 500 and Russell 1000) and ESG-registered funds.
Overall market and ESG indices declined:
S&P 500 fell 1.8%, while Russell 1000 fell 3.2%.
The majority of ESG-focused investments lost between 2.5% and 6.3%.
In comparison, a basic index of neutral businesses earned 2.9%, “substantially exceeding both broad-market and ESG indices in up and down markets,” according to Edleson and Puzder. “Notably, the benchmarks include neutral corporations that outperformed politically active companies, showing that politically engaged companies did even worse,” they write.