Why Vivek Ramaswamy Is Wrong About Investing

Sep 18, 2023 | Climate Change, ESG

Climate Change Is Not A Hoax

In a world where perceptions vary, let me be clear: the so-called “climate change agenda” is not a hoax, contrary to what the Republican Party in general, and Republican Presidential candidate Vivek Ramaswamy in particular, may contend. It is an undeniable reality. Believe your own senses here, people. You’ve seen the wildfires that destroyed Maui. You’ve smelled the smoke that drifted south from Canada. You’ve kept your children inside because of the bad air quality those fires caused. And you’ve also felt the hard rain falling in Pennsylvania and New York and Vermont. You’ve seen the pictures from the flash floods that happen when months of rain fall in hours, washing away cars and damaging homes. And believe the experts. 97% of scientists verify that climate change is real – and they attribute it to human activity, specifically to heat-trapping gases that have been released by our burning of fossil fuels for transportation and electricity, by industrial processes, and by agriculture.

And the economic toll wrought by climate change has already been grievous. As reported by The American Prospect, since 1980, the United States has borne witness to over 360 extreme weather events that have led to damages surpassing the billion-dollar mark. Regrettably, this is only the beginning of what is bound to be a protracted climate change saga. The situation is deteriorating fast.

As revealed by economists at the federal Office of Management and Budget, the estimated costs stemming from the aftermath of extreme weather events, fueled by climate change, have surged to an alarming $120 billion annually over the last five years. What is of even graver concern is the prospect that future damages could dwarf the current numbers if we persist with unchecked greenhouse gas emissions.

But here is where hope resides: climate change will, eventually, I believe, take a turn for the better. We are a species known for our intellect, creativity, and adaptability. Our scientists, engineers, and entrepreneurs are at the forefront of the battle against the problems inflicted by climate change. Through their ingenuity, they will pave the way for innovative solutions that address these challenges head-on. On this journey, new companies will arise – the trailblazers of tomorrow, who will replace dinosaurs like Exxon Mobil and Chevron in the S&P 500.

It’s these very companies that Green aims to invest in, and rightfully so. As we advance towards a more sustainable future, it is these entities that will not only find the greatest success over the next 50 years but also contribute profoundly to the well-being of our planet. These are the firms that possess the potential to thrive over the long term, serving as beacons of hope and progress in the face of climate adversity.

But how do we find these companies? We find them in part in the same way we have always found good investments, by using the traditional tools of financial analysis to find value and quality, enabling us to buy, in the words of Warren Buffet, great businesses at a fair price. But we also find them by integrating intelligent new methods into our investment process.

One of these new methods, hated by Republicans like Vivek almost as much as they hate telling the truth about climate change, is ESG—Environmental, Social, Governance—investing. They
may not fully grasp the depth of its importance. Let me take a moment to shed light on why Vivek’s view falls short of capturing the advantages ESG analysis confers upon the investor who integrates it into his process.

Vivek’s contention that a focus solely on superior products suffices for business prosperity fails to acknowledge the intricate tapestry of factors that underpin a company’s enduring success. Just as a business cannot flourish without attending to fundamental tasks like bookkeeping and marketing, it cannot disregard the ‘E’ in ESG—Environmental considerations. A vivid illustration is Microsoft.

Microsoft is a company with a high E rating that is also profitable. Microsoft has a AAA ESG rating from Sustainalytics, which is the highest rating possible. And Microsoft is one of the most profitable companies in the world, with a gross profit margin of 68%. Its high E rating has helped it to attract and retain top talent, as well as to build a strong reputation with consumers.

For example, in 2020, Microsoft was ranked as the third most valuable brand in the world by Forbes. And this year Microsoft was ranked as the best company in the world overall, and number one in employee satisfaction, by Time magazine.

Overall, Microsoft is a good example of how a high E rating can be a significant competitive advantage for businesses.

Furthermore, the paradigm is shifting towards valuing businesses that not only mitigate environmental hazards but also seize environmental opportunities. Tackling climate change isn’t merely a moral responsibility; it’s a strategic opportunity that holds profound potential. Allow me to reference Tesla—an embodiment of this concept. By recognizing the emissions quandary posed by conventional internal combustion engines and offering an environmentally conscious solution in the form of electric cars, Tesla’s evolution from an audacious idea to a cornerstone of the S&P 500 underscores how environmental opportunities can spur remarkable growth and profitability. This effectively dispels Vivek’s notion that the ‘E’ in ESG can be relegated to the periphery of our considerations.

Almost as pivotal is the ‘S’ in ESG, which emphasizes the vitality of Social considerations, particularly the cultivation of superior employee quality. In this era of heightened competition, the success of a business hinges on its capacity to attract and retain the brightest talents. Vivek’s dismissal of this facet overlooks the undeniable correlation between employee excellence and sustained business performance. Remarkable employees bring with them innovation, passion, and dedication, all of which contribute directly to a company’s competitive edge. To outshine competitors, a business must be powered by a team of exceptional, well-trained, and motivated individuals propelling its operations. Ignoring the ‘S’ in ESG risks impeding a company’s growth.

Furthermore, Vivek’s apparent disregard for the ‘G’ in ESG—Governance—neglects its pivotal role in mitigating legal costs and preserving a company’s reputation. Effective governance serves as a bulwark against regulatory breaches and ethical lapses, thus lowering the chances of punitive fines and lawsuits that can severely impact a business’s bottom line. Enterprises fortified with robust governance structures are better equipped to navigate the complexities of legality and maintain their ethical bearings even in the face of adversity. This facet of ESG isn’t a mere afterthought, but rather a cornerstone of responsible and sustainable business conduct.

To distill it, ESG isn’t a checklist of corporate obligations; it’s a tool for improving investment returns by recognizing the synergy between environmental, social, and governance factors in shaping a company’s prosperity. The ‘E’ in ESG mandates vigilance towards environmental risks and openings, fostering a proactive approach to safeguarding market standing while capitalizing on evolving trends such as climate change solutions. The ‘S’ underscores the imperative of cultivating a workforce of exceptional quality, a vital asset in our knowledge-driven world. The ‘G’ establishes the bedrock of effective management, ensuring adherence to regulations and the upholding of a company’s reputation.

In closing, Vivek’s perspective on ESG fails to encapsulate its profound relevance in contemporary business practices. A business cannot flourish on the merits of its products alone; it must also be attuned to environmental dynamics, optimize employee quality, and uphold strong governance. The recent recognition of Microsoft as the world’s best company and Tesla’s evolution into an industry titan serve as tangible testimonials to the tangible impacts of ESG considerations. As our world continues to evolve, embracing ESG isn’t just an option; it’s a strategic imperative for nurturing enduring success.

And so today, I extend an invitation to each one of you. If you share this vision, if you believe in the power of innovative solutions to conquer the defining challenge of our era — climate change — then I urge you to join me. Become a part of the sustainable investing movement and invest in these pioneering companies that are shaping a better tomorrow. By choosing to be a client of Green, you’re not just making an investment – you’re going long on the future of humanity and playing a role in the creation of a better world.