ESG Investing in “Democratic” Companies

Environmental, social, and governance (ESG) has been rightly criticized for driving the politicization of American business, and it is hard to think of a more politicized method of evaluating corporations than by their political contributions. This is exactly what the Democratic Large-Cap Core Fund (DEMZ) does. It is worth examining both for the specific companies in its investment portfolio, as well as for how it illustrates an important distinction with respect to ESG investing, even among those who are skeptical of the practice.

The Democratic Large-Cap Core Fund is an exchange-traded fund that invests only in companies that support the Democratic Party.

According to the fund, as of December 2020 approximately 200 of the 500 companies from the index met these criteria-itself an interesting data point-and the fund's portfolio was constructed from that group.

Billing itself as a way for "Democrats to invest" and to "Invest in Democrats," DEMZ promotes its holdings as being "Fossil-fuel free." It also claims that the companies in its portfolio support ESG priorities such as diversity, equity, and inclusion programs; pay their employees a "Living wage"; and pursue "Thoughtful policies on climate change and environmental impact." The fund singles out companies such as AT&T, ExxonMobil, and Lockheed Martin for supposedly being "Republican-supporting" and asserts that corporations run by executives who support Democratic politicians are inherently more profitable.

Several companies on the list are associated with prominent liberal megadonors who give in ways that would not have factored in to the DEMZ fund analysis.

The former CEO and chairman of Progressive-the late Peter B. Lewis-was one of the original funders behind the Democracy Alliance, which subsequently expanded to become one of the largest and most influential left-wing funding networks in the country.

The decision of three New York City pension funds to divest from oil and gas companies in 2021 is the subject of an ongoing lawsuit from plan beneficiaries.

So the bottom line is that while DEMZ might be a product of the ESG-driven rush to politicize American business-itself a significant societal problem-it does not automatically follow that the fund itself is contributing to that problem, provided that it is restricted to private self-directed investors who for whatever reason prefer their investments to be based upon political criteria. 

https://capitalresearch.org/article/esg-investing-in-democratic-companies/