For the vast majority of Americans, understanding the ever-changing stock market and personal or professional investments is exceedingly challenging. Therefore, millions of people hire professionals to manage their portfolios to get the most out of their investments.
However, successful businessman and multi-billionaire, Elon Musk, recently announced that he believes investment managers are not making the best decisions for their clients. Specifically, when it comes to environmental investments.
America’s Leading Investment Firms
In the United States, investment management firms are some of the most lucrative corporations in the country. Essentially, businesses like Fidelity, BlackRock, and Vanguard make their money by taking the money of American citizens, investing it, and then taking a percentage of the money earned from that venture.
With this system, Americans truly have to trust that their financial manager has their best interest in mind. In theory, the structure works because the more money the holding makes, the richer the manager gets.
Many Investment Firms Are Currently Focusing on ESG Ventures
As the country’s and even the global economy changes, investment managers often change their recommendations and focus more on certain industries than others. Right now, the biggest industry in the world is the Environmental, Social, and Governance sector, also known as ESG.
Because governments all over the world are spending billions of dollars on finding new ways to produce sustainable energy, it may seem as though investing in ESG is a fantastic plan of attack. However, Elon Musk argues that there are actually several flaws in this plan.
Elon Musk Called ESG Policies an “Outrageous Scam”
In 2022, Elon Musk called the government’s newest ESG policies an “outrageous scam.” Even though the billionaire makes a large amount of his fortune selling electric vehicles through his company, Tesla, Musk says the newest reforms are a form of “communism.”
In a 2023 interview with Vivek Ramaswamy, Musk said, “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.”
How Are Shareholders Being Misled?
Here’s where things get a little complicated. Musk argues that the problem with federal and state ESG policies is that corporations are being forced to adhere to extravagant ESG regulations sooner than is logistically possible.
Therefore, companies are either lying to investors as to how quickly they are transitioning to green energy sources or, more commonly, some corporations will lose millions, if not billions, of dollars over the coming years if they have not followed federal protocol. And both of these problems have led to investors misleading the American people.
Many Asset Managers Are on the Boards of These Corporations
Musk’s other issue with the system is that many of the asset managers in charge of investing America’s dollars actually sit on the boards of these corporations who are lying to the world.
According to Musk, this conflict of interest has led to investment bankers “not making the optimal decisions for shareholder value.” He argues that an immense focus on ESG investments will eventually lead to “the biggest class-action lawsuit [in] history.”
The Biggest Lawsuit in History
Musk believes that investment firms are “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.”
And as Musk made his argument, he wasn’t shy about calling out specific financial management firms that he believes are making these unethical and potentially illegal investments.
Which Investment Companies Could Be in Trouble in the Future?
The multibillionaire said, “The public is being lied to … And I’m naming names here: BlackRock, Fidelity… you know, Vanguard, all of them.”
Musk believes that each of these companies is lying and deceiving the American public, and their day in court is on the way.
The System Is Broken
However, some people, like former GOP candidate Vivek Ramaswamy, believe that even if a monumental class-action lawsuit is filed against the country’s largest investment firms, the plaintiffs will never win.
As Ramaswamy explains during his discussion with Musk on X Spaces, “They’re going to kick it upstream and say, ‘No, no, no, we disclosed it, and our clients still sent the money.’ That’s what happens when you have an industry that’s so intermediated that there’s so many layers to the waterfall that’s actually ripe for corruption.”
How Will the Investment Banking System Get Away With Lying to the Public?
Ramaswamy says that the complex movement of money from company to person to company essentially means that the direct clients of the investment firms are not the owners of the capital. Meaning they don’t legally have to disclose the details of the questionable investments.
He goes on to explain, “The problem is, the people who are giving them the money aren’t even giving them their own money. Those are either pension funds or they are intermediaries like investment advisers across the country.”
Is Elon Musk Right in His Belief That ESG Investments Are Deceptive?
Even though Elon Musk is unquestionably a successful businessman as one of the richest people on the planet, that doesn’t mean he is always right.
There are some who say the only reason why Musk and other billionaires like him are speaking out against ESG investments is because it hurts their own ventures, not because they’re actually bad for the average American investor.
What Can Americans Do to Ensure Their Money Is Being Invested Wisely?
Whether or not Musk is correct in his assessment of ESG investments, it’s absolutely essential that American investors learn as much as they can about the country’s ever-changing economy.
Although it’s challenging, to leave one’s money completely in the hands of someone else simply isn’t smart business. Ask questions, do the research, and find out if your investment firm is making the right choices for your future.
