Woke Inc.
Following the politicisation of ESG and RTO, does real estate need its own version of DOGE?
In the early hours of a cloudy Monday morning in 2014, a hijacked Ethiopian Airlines plane, seized by its co-pilot, was safely escorted to Geneva Airport. The incident occurred at 6:02 am, nearly two hours before the Swiss air force started its operations for the day. Switzerland’s airbases remained closed, as the air force does not operate outside office hours or on weekends. Instead, French and Italian fighter jets were scrambled to intercept the aircraft and ensure its safe arrival in Switzerland. The episode starkly underscored a peculiarity of Swiss defence policy: its fighter pilots adhere to office hours. (A note to would-be bad actors: they also stop for an hour and a half for lunch, and there’s no service at weekends). “Switzerland cannot intervene because its airbases are closed at night and on the weekend,” spokesman Laurent Savary explained to AFP. Corporate policies too have been shaped by ideological agendas. “Woke” priorities, whether tied to office attendance or environmental consciousness, can create scenarios that might be counterproductive.
There has been an explosion of opposition forces pushing back on this ideological creep. In February 2023, Vivek Ramaswamy, a prominent critic of "woke capitalism," announced his candidacy for the U.S. presidency. Consequently, he stepped down from his role at Strive Asset Management, the anti-ESG fund manager he co-founded. Despite his departure, Strive continues to position itself as an "anti-woke" alternative to major index fund managers like BlackRock and State Street, as well as proxy advisory firms Institutional Shareholder Services and Glass Lewis. Based in Ohio, Strive offers exchange-traded funds (ETFs) tailored for investors who believe that corporations have become overly involved in societal issues such as racial equity and climate change. This perspective has garnered support from notable Republican figures, including Florida Governor Ron DeSantis. Strive's financial backers feature prominent Republican donors like billionaire investor Peter Thiel and Cantor Fitzgerald CEO Howard Lutnick. Interestingly, hedge fund manager Bill Ackman, typically a supporter of Democratic causes, has also invested in Strive and publicly endorsed Ramaswamy's presidential campaign. Expanding on Strive Asset Management's bid to reshape the investment landscape, the firm's ability to attract prominent talent underscores its commitment to challenging "woke capitalism." A notable example is the recruitment of Matt Cole, a seasoned portfolio manager from CalPERS (California Public Employees’ Retirement System) who incidentally began at CalPERS in 2006 as a real estate investments intern.
Strive's growth reflects a broader trend among investors seeking to capitalise on the backlash against corporate engagement in social and environmental issues. This movement signifies a shift in the investment landscape, with a growing demand for funds that prioritise traditional financial performance over corporate activism.
A new fund targeting so-called “woke” companies has announced its first campaign against Starbucks, as politically motivated investors seek to capitalise on shifting sentiments in corporate America. The fund, spearheaded by Azoria Partners, aims to exclude S&P 500 companies that incorporate diversity, equity, and inclusion (DEI) considerations into their hiring practices. Azoria plans to launch its actively managed exchange-traded fund (ETF) early next year under the ticker SPXM—short for "S&P Meritocracy." Azoria co-founder James Fishback stated that companies like Starbucks harm shareholder value by engaging in what he described as "woke science experiments." He argued that hiring based on DEI considerations is a political act that undermines shareholder returns. “Cut that crap out. Hire the best and brightest. Don’t apologise for it, make money, give it to shareholders, and do the right thing,” Fishback said at the event. Unlike activist hedge funds that purchase stakes to push for change from within, Azoria’s strategy involves excluding companies from its index and highlighting their alleged underperformance.
ESG has fallen within the portmanteau of “wokeness”, rightly or wrongly. According to a recent report by the American Institute for Economic Research (AIER), the acronym “ESG” is not a coherent analytical framework but rather an umbrella label for various, often unrelated ideological causes. ESG ratings are inconsistent and frequently contradictory, undermining their reliability as indicators of financial risk or business performance. As we argued some years ago already, disaggregating the “E” (Environmental), “S” (Social), and “G” (Governance) components would provide greater clarity for both proponents and sceptics of the approach.
Advocates of ESG often claim that pursuing goals like net-zero emissions, greater diversity, equity, and inclusion (DEI), or enhanced social licensing leads to economic benefits and reduced risks. However, the AIER report highlights research suggesting these claims lack empirical support. For instance, a study by Raghunandan and Rajgopal found no correlation between ESG-labelled funds and improved stakeholder outcomes, such as fewer health and safety violations. Nor did these funds favour companies with smaller carbon footprints. Instead, high ESG scores were more closely tied to voluntary disclosures, with little connection to the substance or impact of those disclosures.
Moreover, the report emphasises that ESG-related initiatives often increase operational costs, particularly environmental policies mandating carbon offsets, stricter emission limits, or renewable energy use. For example, California’s energy policies have driven the retail price of electricity to around 29 cents per kilowatt-hour, nearly double the average in over half of U.S. states. Similarly, its gasoline prices are approximately $5 per gallon, compared to the U.S. average of $3.50. These elevated costs disproportionately impact poorer communities, contradicting the equity goals championed under ESG’s social criteria.
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Hartzmark and Sussman’s research into Morningstar’s sustainability ratings revealed that while higher ratings attracted greater capital inflows, they did not translate into superior financial returns. This suggests that ESG ratings are driven more by marketing appeal than by tangible performance metrics, raising questions about the practical value of ESG for investors and companies alike.
The AIER report argues that disaggregating ESG would allow investors and executives to evaluate environmental, social, and governance issues on their distinct merits rather than under a confusing, catch-all label. This approach would enhance accountability, align with financial objectives, and encourage a more focused engagement with societal and environmental challenges.
The term “ESG” has become so politically charged that even Larry Fink, CEO of BlackRock, no longer uses it publicly. The politicisation of ESG has created challenges across industries, with firms like BlackRock and Blackstone now listing anti-ESG efforts as risks in their annual reports. This reflects the growing regulatory and legal complexities surrounding ESG practices.
In real estate, the backlash has been less disruptive than expected according to Maureen Waters, Chief Growth Officer at Measurabl, a firm that provides software to track, manage, and report on ESG data. Waters said the controversies over the past few years haven’t materially impacted her company. “There was a pause at the end of last year that caused some people to take a step back, but that’s in the rear-view mirror now,” Waters said. “The decarbonization of real estate is not something we can ignore.”
As Waters alluded, the E (environmental) is the factor most focused on in the ESG formula in real estate. Building performance standards that mandate decarbonization are sweeping across the globe. Tenants seeking environmentally friendly properties to meet sustainability goals are also pressuring landlords. Sustainable properties have a ‘green premium,’ but increasingly, they are becoming the norm. Some occupiers may not be willing to pay market price for non-sustainable buildings.
The backlash against "woke" practices in real estate is however evident in the tightening of return-to-office (RTO) mandates. Companies like BT Group and Starling Bank have introduced stricter hybrid rules to boost productivity and collaboration. According to the Centre for Cities, office attendance is rising globally, with Paris leading at 3.5 days per week, while London lags at 2.7 days. Employers are recognising the benefits of in-office collaboration, particularly for knowledge sharing and career development. This shift is also impacting tenant priorities. While "woke" initiatives previously prioritised flexible layouts, demand is now shifting toward traditional office spaces optimised for productivity.
The politicisation of ESG and Woke ideology is slowly being documented and the backlash still nascent. Alison Taylor, in her book ‘Higher Ground: How Business Can Do The Right Thing in a Turbulent World’ states that Milton Friedman already suggested many years ago that companies should altogether ignore environmental and social issues. Counter-factualising the authors of a 2022 report from EY called ‘Enough’, “Sustainability needs to revert to being a noun and not a verb.”
When it comes to ESG, Alison writes that judgement and interpretation are as important as raw data. She quotes Ken Pucker, the COO of Timberland from 2000 to 2007, who describes how difficult it is to collate accurate information, let alone drive change. He writes that Timberland committed to reducing carbon emissions by double digits each year, but noted that emission reductions were limited to scope 1 and scope 2 only, scope 3 was not included simply because the data was just unattainable. Yet scope 3 emissions represent the bulk of their greenhouse gas impact. Timberland, for example, estimated in 2009 that more than 95% of its carbon emissions fell into scope 3. According to Auden Schendler, author of the book Getting Green Done, “Measurement and reporting have become ends to themselves, instead of a means to improve environmental or social outcomes. It’s as if a person committed to a diet and fanatically started counting calories, but continued to eat the same number of Twinkies and cheeseburgers.
As we noted, the E in ESG is a particularly real estate problem and requires a real estate solution. But data collection is still inaccessible, misapplication rampant and fraudulent reporting prevalent. The solution should be a commercial one, not left for supra-national bodies to dictate but for companies to implement. Unlike the financial system where it was shown above that higher ratings attracted greater capital inflows but did not translate into superior financial returns, that’s untrue for real estate. The “green premium” exists. Real estate businesses themselves need to be left to solve the environmental problem because that, ultimately, is what attracted tenants and office workers. This is a societal issue, solved economically. The philosopher Byung-Chul Han in his illuminating book ‘The Transparency Society‘ wrote “Where transparency prevails, no room for trust exists. Instead of affirming that ‘transparency creates trust’ one should instead say ‘transparency dismantles trust.’ The demand for transparency grows loud precisely when trust no longer prevails.” Trust developers and investors by building or owning ESG compliant buildings, and for businesses to dictate back to work policies, not society; because that is the best incentive of all, money.