Venture Capitalist Blasts ESG Investing, Calls It A ‘Complete Fraud’

Venture Capitalist Blasts ESG Investing, Calls It A ‘Complete Fraud’

  • ESG investing is one of the more notable trends for 2020.
  • But according to one venture capitalist it is a "complete fraud."
  • Companies who identify themselves as ESG can borrow money from the ECB at negative rates.

One of the biggest trends playing out in the asset management and alternative investment universe is a focus on ESG, an acronym for environmental, societal, and corporate governance. But according to venture capitalist Chamath Palihapitiya, ESG is a “complete fraud.”

What Is ESG?

According to BlackRock, investors are demanding asset managers integrate sustainability into their investment processes and approach. Some of the considerations that need to be explored before making an investment include climate risks, pollution and waste, labour issues and product liability, board quality and effectiveness, among many more.

‘A Stamp’

Palihapitiya was a guest on CNBC’s “Squawk Box” segment Wednesday morning and offered few good words on the ESG community. At the most basic level, an ESG investment amounts to “jargon.”

“This idea that you are going to get this stamp that says, oh listen, my supplier — I’ve offset their carbon [emissions] and now I understand mine… It’s a joke.” he said.

What’s even more of a joke to the industry is companies who “paint themselves” as being ESG compliant will have access to borrow money from the European Central Bank at negative rates, he said. The companies who can and are taking advantage of negative rates include Wall Street behemoth J.P. Morgan.

The megabank said just week the bank will no longer finance fossil fuel companies. The venture capitalist responded:

“J.P. Morgan, by saying what they said, will be able to borrow billions of dollars from the ECB at negative rates. It’s obviously [what this is about]. They are now getting free money from Europe for basically being able to say this.”

Other companies who recently made headlines include Microsoft who not only pledged to be carbon neutral but will remove from the environment all carbon it emitted since its founding.

Useful Statements

ESG has little to do with actual issues, such as climate change which Palihapitiya said he believes in and supports. But when companies are coming out and saying they are successfully offsetting carbon emissions it amounts to only “useful statements” and “great marketing.”

There are few companies in existence that can “legitimize” a carbon footprint so the companies can take better action in understanding the work involved in offsetting. After that there needs to be a legitimate exchange where companies can trade offsets.

Meanwhile, the governance portion of the ESG acronym is useful but it can and has been addressed in other venues, he said.

By Jayson Derrick
Jayson Derrick has been writing professionally about stocks since 2011. He is particularly interested in alternative investments, hedge funds, and activist investing. He is a big fan of NHL hockey and lives in Montreal, Canada with his wife and four year old daughter.

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