Dear Friends,
Failed Republican Presidential candidate Vivek Ramaswamy first made a name for himself by loudly proclaiming that ESG (Environmental, Social, and Governance) investing was a betrayal of fiduciary duty, a woke scam that put social agendas ahead of shareholder returns.
He argued, in the Harvard Law School Forum on Corporate Governance, that ESG investors are breaching our fiduciary duty by pursuing "unrelated social or political agendas" and that our "primary motivations [are] nonpecuniary." He was as wrong about that as he was about his appeal to the American voter. In this letter, I’m going to explain why.
(But before I do, I should perhaps point out that although Ramaswamy first made his claims in 2022, this debate remains relevant because the world continues to get hotter, which is extremely dangerous — in 2024 alone, global warming killed thousands and displaced millions. And because Ramaswamy now runs a firm that invests in ways that ignores those rising temperature, while I run a firm that invests in ways that aims to mitigate and adapt to those temperatures.)
Terms
For a registered investment advisor like myself, a fiduciary duty is defined as the duty to act in the best interest of the client. It encompasses a duty of care (to be prudent and reasonable) and a duty of loyalty (to avoid any undisclosed conflicts of interest). Providing investment advice that takes climate change into account, and acting on that advice if the client consents, is prudent and reasonable and it avoids any undisclosed conflicts of interest. It is a good faith attempt to act in the client's best interests. Ramaswamy's assertions otherwise are wrong, for the following reasons.
Climate Risk Is Financial Risk
Climate change is not a distant threat; it is already imposing a significant economic cost. Conservative estimates place this current cost in the United States alone at hundreds of billions of dollars annually. When hurricanes chew up the Gulf and Atlantic coasts, when wildfires turn Western towns into something out of Mad Max, that all costs money. That’s lost crops, shuttered factories, leveled homes, higher insurance premiums
If you’re managing another person’s retirement nest egg and you pretend those costs don’t exist, seems to me you’re being reckless. A portfolio that helps cool the planet—by steering money toward renewables, efficiency, and electrification — seems far more prudent.
A Livable Planet
Numbers matter, but so does the simple fact that clients are people with lungs and brains and (sometimes) children. Climate change presents significant non-financial risks that directly impact our clients' lives. Extreme weather events are already causing tragic loss of life, severe injuries, and significant psychological and physical trauma. During last year’s Hurricane Helene (which was caused by climate change), one woman couldn’t eat for three days. Another guy thought he was going to drown; he survived, but lost all the clothes in his house and had to rely on the kindness of strangers just to have something to wear. Are we acting in our clients’ best interests if we invest their money in ways that contribute to them ending up hungry, naked and afraid, like contestants in some weird survivalist reality show?
Seems to me that a fundamental aspect of fiduciary duty, particularly for advisors with clients who have long-term investment horizons, must be to ensure a "livable planet" for their beneficiaries. What good are robust financial returns if the world our clients retire into is ravaged by unbearable heat, constant natural disasters, and pervasive environmental stress? What good is a heritage we help our clients grow and pass on to their children if those children have to live in a world that’s even worse than what we have now? It is inconsistent for fiduciaries to plan for decades of financial growth while simultaneously ignoring existential threats to the very environment in which that wealth can be enjoyed.
Conversely, by investing in solutions that cool the climate and reduce the frequency and intensity of extreme weather, we can contribute to the safety and well-being of our clients, improving the odds that our planet remains a place where they can live healthy, stable, and fulfilling lives. Reducing the likelihood of them facing devastating and life-altering climate-related events is an inherent part of looking out for their best interests.
Avoiding Stranded Asset Risk
Another crucial reason why climate-conscious investing aligns with fiduciary duty is the imperative to avoid stranded asset risk. As the global economy transitions away from fossil fuels, assets heavily reliant on them – such as coal mines, oil reserves, and certain infrastructure projects – face the very real threat of becoming economically unviable and losing significant value. This can happen due to shifting regulations, technological advancements, changing consumer preferences, and decreasing demand for fossil fuel-based energy. The International Energy Authority projects oil demand to peak in 2030 — five years from now — due to increased demand for electrification.
Seems to me that for a fiduciary, holding onto these increasingly risky assets wouldn’t be prudent. We are tasked with protecting and growing our clients' capital, and knowingly exposing it to assets that we have reason to think might depreciate significantly, or even become worthless, directly contradicts this responsibility. By divesting from these vulnerable assets and reallocating capital towards sustainable alternatives, we proactively shield our clients from potential significant losses, thereby maximizing their long-term returns.
Avoiding Legal Risks
What about liability risks from climate-related lawsuits? It would be neither prudent nor reasonable to disregard the burgeoning financial risks posed by climate litigation when considering investments in fossil fuel companies. Over 86 lawsuits have already been filed. The increasing frequency of lawsuits against these entities, coupled with evolving legal precedents and public sentiment, creates a volatile financial landscape. Ignoring the potential for substantial penalties, damages, and legal fees—which could reach billions of dollars in aggregate—would be a profound oversight for any investor. Such liabilities could directly impact profitability, shareholder value, stock prices, and long-term viability.
Conflicts of Interest?
I charge a percentage of assets under management. Period. That’s the only way I get paid. When my clients’ investments do well, I make more money. When those investments decline, I make less money. So where’s the conflict of interest Ramaswamy alleges?
Show Me The Returns
Ramaswamy’s own Strive 500 ETF (ticker STRV) launched in September 2022 promising unshackled capitalism. It is very much not fossil fuel free, earning a D grade from fossilfreefunds.org for its 7.86% exposure to fossil fuel investments. From the first full month(October 2022) through May 2025, a hypothetical $10,000 grew to about $17,264—a respectable ride at roughly 22.7 % CAGR.
Nice, until you stack it against the fossil-fuel-free iShares U.S.Technology ETF (IYW), which I invest in. IYW gets an A grade from fossilfreefunds.org because it has 0% exposure to fossil fuel investments. And it has more exposure to clean energy companies (43% versus 25% for STRV). And here’s the kicker: the same $10,000 invested in October 2022 would have turned into roughly $21,755, a 33.8 % CAGR.
Both funds hold American corporations, mostly large-cap, and are highly correlated with the S&P 500, so they fill similar roles in an investor’s asset allocation, but there is one critical difference: IYW isn’t lugging around the carbon baggage. This fund is notably fossil fuel-free and invested in the clean energy economy. In other words, you don’t have to torch the planet to turn a profit; sometimes you make more by not lighting the match.
The data clearly illustrates that a fossil fuel-free fund can outperform a fossil fuel fund aligned with Ramaswamy's philosophy. Prioritizing profits need not mean ignoring climate risks or opportunities.
Fiduciary responsibility means acting in our clients’ best interests. And in this time period, that means, in my opinion:
- Count the climate costs. They’re already here.
- Protect human well-being. A scorched Earth feeds no one.
- Dodge stranded assets. Don’t buy yesterday’s technology for tomorrow’s world.
- Mind the lawsuits. Carbon can carry courtrooms on its back.
- Follow the money. Recognize that you don’t have to sacrifice returns to have a positive impact.
Fundamentally, then, Ramaswamy’s argument mischaracterizes what I do here at Green. The truth is, our agenda of avoiding the escalating financial and human costs of extreme weather for those clients who agree to invest their money in a climate conscious way is not an unrelated social or political agenda; it is inextricably linked to maximizing shareholder value. My primary motivation is, indeed, very pecuniary: I want my clients to make as much money as possible over the long haul. I just believe that climate-conscious investing is a prudent and profitable method to achieve that. And the clients who choose to have me invest their money that way agree.
Thank you for your continued trust in our services.
Warm regards,
Joe
Green Investment Strategies, Inc. may discuss and display, charts, graphs, formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. Green Investment Strategies, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. This is just, like, my opinion, man.