Environmental, Social, and Governance (ESG) investing has reshaped the relationship between shareholders and corporations. Previously, asset managers would put pressure on boards and CEOs when their share prices were underperforming, but under the new framework of “stakeholder capitalism,” boardroom fights are as often about carbon emissions as they are about capital efficiency.
Bloomberg reports that ESG funds received $347 billion in inflows last year, while governments flooded the market with hundreds of billions of “green bonds.” Meanwhile, some of the world’s largest asset managers have been increasingly active at annual shareholder meetings, pushing businesses to invest in line with their principles.
With the three largest asset managers holding roughly 80 percent of all indexed money, shareholder-voting power at the country’s largest corporations is now concentrated in the hands of a small number of financiers. For retail holders of exchange-traded funds (ETFs), that can mean involuntarily funding activism.
A former U.S. representative has teamed up with financial professionals to offer an alternative. 2ndVote Funds — founded by former Congresswoman Diane Black (R., Tenn.), along with David L. Black and Daniel Grant — will provide investment products, such as ETFs and actively managed funds, that use a conservative or libertarian framework to allocate capital.
The company, which launches today, is an offshoot of 2ndVote Inc., a research provider that scores companies on a socially conservative scale. 2ndVote Funds has started off with two products: the Life Neutral Plus ETF, which invests in pro-life businesses, and the Society Defended ETF, which invests in businesses that defend the Second Amendment.
“There are no asset managers, ETFs, or mutual funds countering the trend” of stakeholder capitalism, says CEO Daniel Grant. He sees the company as a much-needed alternative to the rise of progressive corporate governance.
Grant cites recent examples as evidence of corporations’ attempting to effect social change: “Amazon dumped Parler, Twitter dumped Trump, banks exclude the gun industry from corporate credit.” Americans investing in their retirement accounts may unwittingly be funding these activities.
2ndVote Funds has enlisted a roster of industry veterans from both Wall Street and Washington. Kevin A. Hassett, a senior adviser to National Review Capital Matters, is serving on 2ndVote’s advisory board, as is Andy Puzder, the former CEO of CKE Restaurants. 2ndVote will also work alongside Laffer Tengler, the investment firm headed by Art Laffer Jr.
While 2ndVote Funds describes itself as explicitly conservative, Grant argues that avoiding so-called socially responsible companies will also lead to better shareholder returns: “If you’re an investor in a company run by stakeholder capitalists, their definition of good must be adopted, and it comes with a price.”
By investing in businesses committed to shareholder primacy, 2ndVote Funds believes it can avoid those hidden costs.