Vivek Ramaswamy, of the anti-ESG, Peter Thiel-backed Strive fund, is still trying to hide slanted sales material as legitimate commentary, this time at the Harvard Law School Forum on Corporate Governance. Note below, per our comments, that he beings with points no one is arguing with — institutional investors are fiduciaries who must make all investment decisions for the exclusive benefit of the clients — with unsubstantiated claims that ESG is not related to purely financial analysis. What he refuses to acknowledge is that his fund is also ESG-based; he just assigns different weights to the indicators, which is fine; that’s what competitive products do. As we’ve pointed out before, he criticizes funds for pursuing engagement strategies and yet has been touting his fund’s letters to Apple, Disney, and Chevron doing exactly the same thing by criticizing their strategies.

We think his antitrust claim is a big stretch. Indeed, two of the executives at this firm got a letter specifically agreeing that certain shareholder actions were not subject to the antitrust laws (of course they are subject to the very strict SEC rules about coordination). We also think that Ramaswamy will try to coordinate with other investors to see if he can get them to support his strategies and consider it not a violation of antitrust law.

What he is not touting is his fund’s returns and the names of his other investors.

The largest fiduciary breach and the most significant antitrust violation of our time may be hiding in plain sight: a small group of large asset managers are using a vast base of client funds to advocate for social agendas unrelated to those clients’ long-run financial interests.

The largest three U.S. passive asset managers—BlackRock, State Street, and Vanguard, sometimes called “the Big Three”—manage approximately $20 trillion of capital on behalf of clients and exert staggering social influence on American companies. They collectively own more than 20% of the S&P 500, and, as of 2017, constitute the largest shareholder in almost 90% of those companies. [Correct]

These asset managers are, first and foremost, fiduciaries for their clients. As fiduciaries, they owe their clients the duty of care and the duty of loyalty. These duties are taken from trust law, and center around a fundamental principle called the “sole interest rule.” As explained in the Restatement (Third) of Trusts, the “sole interest rule” requires fiduciaries to act “solely” and “exclusively” in the interest of the persons to whom their fiduciary duties are owed.Under the sole interest rule, asset managers cannot be influenced by their own interests, by the interests of third-party “stakeholders,” by “social” objectives, or by any motives other than what’s best for their clients. [Correct]

Accordingly, the Uniform Prudent Investor Act makes clear that “[n]o form of so-called ‘social investing’” is lawful “if the investment activity entails sacrificing the interests of trust beneficiaries . . . in favor of . . . the particular social cause.” [Correct–now comes the argument-destroying failure to connect this to the next sentence with any evidence whatsoever that ESG is contrary to exclusively financial assessments of risk and return.]

Despite this bedrock principle, the Big Three are all promoting the ESG agenda rather than focusing on clients’ interests alone.

The ESG Fiduciary Gap