Cathy Wood, the founder of ARK investment, backs an investment approach that sounds just like ESG but warned that there has been a lot of lipstick on a pig.
ESG and roses have at least one thing in common. As the bard might have said if he was alive today and writing about ESG: “That which we call ESG by any other name smells so sweet.”
Cathy Wood, perhaps the world’s most celebrated tech investor and huge Tesla fan, has come out to favour an investment approach probably best described as ESG.
Of course, she wasn’t saying she thought this investment approach is all; merely a part of the approach at ARK Invest, which she founded.
ARK Invest does disruption; it specialises in investing in companies that have the potential to be disruptive. It is most famous for its backing of Tesla and Bitcoin but has also invested heavily in Zoom, Square, Shopify, robotics process automation company UiPath, gene editing company CRISPR Therapeutics, and many other techs.
For many years ARK Invest funds enjoyed stellar performance, but this has taken a knock of late as tech stocks and cryptocurrencies have fallen. The poor performance of ARK has led some commentators to start thinking about writing its obituary, but such critique misses the point. Right now, at this stage of the economic cycle, traditional companies such as oil firms are doing well, and techs are struggling. But the cycle turns (by definition), and things will reverse.
Curiously, ESG has got caught up in the cycle. During Covid, when the oil price was low, and we yearned for a different way of life, ESG was in. Now that oil is riding high and survival has become a key priority, ESG comes under criticism.
But ESG will be back, just as the NASDAQ will be; indeed, the current energy crisis highlights the need for more sustainable practices.
Those who write off ARK Invest are victims of the tranny of today when the unique circumstances of a particular moment are assumed to be permanent.
ESG is similarly a victim.
And yet we see two contradictions.
There is ESG when it is like a wolf in sheep’s clothing when it uses the moniker ESG but is not true to what ESG stands for. As Shakespeare might have put it, “that which we call a sheep is a sheep by any other name unless it is a wolf in disguise.”
There is another contradiction because famous Tesla fan Cathy Wood is also a fan of what you and I might call ESG investing, despite Musk’s infamous criticism of ESG.
Wood on ESG
In a recent interview on Bloomberg, Cathy Wood was asked about her view on Elon Musk calling ESG an “outrageous scam.”
She replied: “I have always said when people have asked us about our portfolios, I have always said they are intrinsically good for the environment, socially good, and we have a scoring system around governance.”
So that’s ESG, right?
Here we see a sort of divergence but only sort of.
Most ESG advocates would agree with what Cathy Wood said next.
“We are certainly focused on doing the right thing, which is what I think ESG is all about. I think it got way out of hand, and there was a lot of slapping lipstick on a pig, and basically, any portfolio being sort-of promoted as ESG.”
She is right. ESG is good and, as the economic cycle turns, will once again be associated with good investing.
But ESG is abused; it is misused, and companies and funds that are no more ESG than a weed is a rose; announce their ESG credentials to all who can’t see green when it is washed over something ugly.
But there is a divergence here between Musk and ARK.
Tesla has perhaps done more in the fight against climate change by advancing EVs than any other company on earth. But that ain’t enough to gain a good ESG score because you also need good social policies and governance.