How does Charlie Munger view the tension between ESG principles and investment practice?

How Does Charlie Munger View the Conflict Between ESG and Investment Practices?

Hey there! As a devoted fan of Munger, I love studying his investment philosophy and have dabbled in stocks myself. Your question about the tension between ESG (Environmental, Social, Governance) and investment practice is fascinating—Munger’s take is particularly intriguing. He’s never one to follow the crowd and always speaks his mind. Let me break down his views in plain language.

First, What Is ESG?

ESG is an investment approach emphasizing a company’s performance in environmental (e.g., sustainability), social (e.g., labor rights), and governance (e.g., transparency) areas. Many believe incorporating ESG makes the world better and reduces risks. But Munger isn’t fully convinced. He thinks it often "clashes" with genuine investment practice.

Munger’s Core View: Rational Investing Trumps Moral Labels

A staunch advocate of value investing—like Buffett—Munger believes investing means buying great companies at fair prices for the long term. He argues ESG, while well-intentioned, often disrupts rational decision-making. For example:

Source of Tension: ESG demands avoiding "sin" sectors like tobacco, oil, or defense—even if these companies are profitable and undervalued. Munger calls this dogma, claiming it forces investors to miss real opportunities. He once remarked, "ESG investing is in some ways like the work of the devil" because it politicizes or emotionalizes investing rather than grounding it in facts and numbers.
His Critique: At a shareholder meeting, Munger slammed ESG proponents as "hypocrites or charlatans." He suspects many ESG funds exploit the label to charge fees while delivering mediocre returns. For him, intrinsic value—like a company’s economic moat (competitive edge) or management quality—matters far more than an ESG badge.

Why Does Munger Think This Way? His Investment Philosophy

Munger’s multidisciplinary approach draws from psychology, economics, and biology. To him, investing is a science requiring resistance to human biases like herd mentality. When ESG surged in popularity, he grew wary—was this another bubble?

Real-World Example: Take Tesla. Despite its high ESG score, Munger and Buffett avoided heavy investment, deeming its valuation irrational for value investing. Conversely, they’ve backed "traditional" firms like Coca-Cola—even if selling sugary drinks isn’t "eco-friendly."
Balancing Act: Munger doesn’t reject ESG outright. He acknowledges environmental/social issues and supports sustainable businesses. But he insists these factors should inform rational analysis, not become rigid rules. Simply put: Don’t let ESG become investing’s "straitjacket."

Advice for Everyday Investors

If you’re a retail investor like me, Munger’s view is a reminder: Don’t get swept away by trends. Always ask, "Is this company worth the price?" ESG can be a reference, but never the driver. As Munger often says, "Invert, always invert"—when everyone chases ESG, look where others aren’t. You might find hidden gems.

In short, Munger sees the ESG-investing tension as "idealism vs. practicality." Ideals are noble, but execution must be pragmatic. For deeper insights, check out his book Poor Charlie’s Almanack—it’s packed with his wisdom. Feel free to ask more!