PALO ALTO, Calif. — In a fiery discussion, Elon Musk, the outspoken chief executive of Tesla, lambasted major asset managers like BlackRock and Fidelity over their environmental, social, and governance (ESG) investment policies. Musk alleged that these firms are misleading the public and not acting in the best interests of individual investors.
The billionaire entrepreneur, known for his brash style and unconventional views, made his remarks during a recent conversation on X Spaces (formerly Twitter Spaces) with Vivek Ramaswamy, a Republican presidential candidate.
“We don’t basically do some sort of like bizarre, like communism rebranded thing, which is like a lot of what ESG is and to be inflicted upon corporate America without the knowledge of the actual shareholders, which is what’s going on,” Musk told Ramaswamy.
Despite Tesla being one of the most prominent ESG investments due to its focus on electric vehicles and sustainable energy, Musk expressed concerns about large asset managers wielding outsized influence on corporate decision-making through their ESG policies.
“The public is being lied to,” Musk said. “And I’m naming names here: BlackRock, Fidelity … I know you guys and you need to tell your customers that you’re not making the optimal decisions for shareholder value because that’s what’s going on.
ESG investing, which considers a company’s environmental, social, and governance practices alongside traditional financial metrics, has gained significant traction in recent years. Major asset managers like BlackRock, Vanguard, and Fidelity have embraced ESG principles and offer a range of ESG-focused funds to cater to investors’ growing interest in sustainable and ethical investing.
However, Musk’s criticism raises questions about whether these firms are truly acting in the best interests of their clients and maximizing shareholder value, as they are legally required to do.
The big firms that you hear, BlackRock, you know, Vanguard, all them, they’re like, they’re setting themselves up for the biggest class-action lawsuit in the history of class-action lawsuits by an order of magnitude, because they’re breaking the deal with their customers and they’re not maximizing shareholder value,” Musk warned.
Vivek Ramaswamy, Musk’s conversation partner and a critic of ESG policies himself, pointed out an additional complexity in the relationship between asset managers and capital owners.
“The problem is, the people who are giving them the money aren’t even giving them their own money,” Ramaswamy explained. “Those are either pension funds or they are intermediaries like investment advisers across the country.”
Ramaswamy highlighted that many of the clients of asset managers are not the actual owners of the capital but rather intermediaries like pension funds or investment advisers. This layered structure, he argued, could make potential class-action lawsuits more complicated if Musk’s allegations about asset managers not prioritizing shareholder value prove true.
“The wave of lawsuits is first going to probably come to the BlackRocks and Vanguards and State Streets of the world. They’re going to kick it upstream and say, ‘No, no, no, we disclosed it and our clients still sent the money,’ but their clients were themselves money managers for other people,” Ramaswamy said.
Both Musk and Ramaswamy expressed concern about the inherent complexities and potential conflicts of interest within the financial sector, with Ramaswamy describing the industry as “so intermediated that there’s so many layers to the waterfall that’s actually ripe for corruption.
Musk agreed with Ramaswamy’s assessment, stating, “The average investor is being misled.”
The debate over ESG investing and its influence on corporate decision-making has been a contentious issue, particularly in the United States. Some critics argue that ESG policies can lead to politicization of investment decisions and undermine shareholder value, while proponents believe that considering environmental, social, and governance factors is essential for long-term sustainability and risk management.
Musk’s comments add fuel to this ongoing debate and raise questions about the transparency and accountability of asset managers in their ESG practices. As the ESG investment landscape continues to evolve, it remains to be seen whether the concerns raised by Musk and others will lead to legal challenges or regulatory changes.
In the meantime, individual investors are left to navigate this complex terrain, weighing the potential benefits and risks of ESG investing while trying to make informed decisions about their portfolios.
