The ethics of VC — Anti-ESG (#12)

Dr Johannes Lenhard
5 min readNov 2, 2022

A couple of weeks ago I read ‘Woke.Inc’, as an exercise to understand the kind of backlash I am expecting to also come our way in the land of venture capital. Obviously, the anti-ESG rhetoric has accelerated with individual US states — Florida and Texas among others — taking action to ‘ban ESG’ and prominent investors touting the same horn. Woke.Inc author Vivek Ramaswamy has appeared again and again as one of the ‘anti-woke’ gurus leading the charge. I picked up his book because it promised to give me an insight into the ‘enemy’s’ psyche.

As I read the book, I got more and more nervous; the hedge fund investor who, amongst others, is supported by Peter Thiel and Elon Musk, isn’t an incompetent idiot. Some of his arguments make sense and in fact I share his critique of ESG and DEI to an extent. He is right that we shouldn’t just focus on what he calls ‘skin-deep’ diversity factors (gender, ethnicity) but include, for instance, class (despite it being hard to measure). We also shouldn’t let business people have too much influence on (party) politics and (unrelated) policy issues — a systematic error in how the US political system runs. [Alison Taylor, for instance, points to a recent debate about the death penalty which doesn’t warrant business interference]

Ramaswamy’s recent appearance on Fox News (22 June 2022, Source)

For my own taste, it took me too long to start seeing the cracks in the web of arguments that Ramaswamy is weaving at the forefront of the anti-ESG carnival. He leads me through his critique of misleading DEI-marketing and I find myself nodding too much.

Eventually, the ‘aha’ moments appear and are reminiscent of the conversations I continue to have in the venture capital world. There are two major flaws in Ramaswamy’s account that I want to point to before moving to related observations on what I deal with every day, the VC world.

What anti-ESG gets wrong

First, with his critique of ‘woke capitalism’ and his claim that business is being taken over by left-wing politics, he is completely ignoring that, to the contrary, capitalism has very much always been a ‘right-wing undertaking’. Conservative values — ‘merit’ as an ordering principle, individual responsibility, individual property rights (over others) — have defined what (US) Capitalism looks like for the longest time. Solidarity (e.g. social security for workers), justice (e.g. living wages) — typically liberal values — are literally banned.

Obviously, this relationship goes in the other direction, too — with conservative business people exerting an enormous influence on politics. The idea that left-leaning business leaders such as Bill Gates or Salesforce’s Marc Benioff are starting to have too much power politically is absurd. You only need to look at Ramaswamy’s own supporters and their recent political meddling.

Peter Thiel for instance has been backing libertarian US Senate and House candidates since the Trump election. Elon Musk — still in what is ultimately a battle over (not regulating) free speech at Twitter — has a long history of supporting republicans. Similarly, most of the Conservative Super-PACs (American election finance and campaign organisations) are financed by right-wing billionaires.

I fundamentally believe that excessive political donations from either side should be regulated, like in most functioning democracies, but that doesn’t make Ramaswamy’s critique of leftist business/politics as exceptional less absurd. When your own glass house is built on what you’re critiquing…

Second, Ramaswamy, like many other anti-ESG warriors, doesn’t want to understand what ESG actually is. And that is what is going to haunt this group going forward. He equates ESG with ‘woke capitalism’ because of its inclusion of certain ‘woke culture’ goals, especially around diversity and social justice. And that is simply wrong.

ESG is a (reasonably) structured set of principles, practices and non-financial metrics that define how businesses operate. ESG is not an add-on — like (badly done) corporate social responsibility and corporate philanthropy — but rather a way of changing your core business processes to incorporate stakeholder considerations.

ESG touches on some issues close to Musk’s and Thiel’s heart, for instance — cyber-security, data protection and privacy among them — and includes principles of good governance and environmental consideration.

The biggest counter to the anti-ESG capitalists, such as Ramaswamy, Thiel, Musk and Co: ESG is increasingly proven to be good for business. The more research is done, the more sure we are becoming that it is at least not bad at all and in most cases positive [as long as you consider material ESG principles].

We also know that a company’s focus on ESG is good for employee attraction and retention as well as access to growing sustainability markets. In other words: good ESG leads to financial outperformance (something we hope to further demonstrate in the years to come).

…and for VCs and tech, the ESG backlash is basically non-existent

The more conversations I have at VentureESG, with investors and asset managers in different parts of the world, the clearer it becomes: ESG is just getting started for early stage companies and their venture capital investors. Driven by European regulation (SFDR, green taxonomy) and further pressure coming from European (state) funds, the ecosystem is starting to — down to the level of portfolio companies — disclose ESG principles and practices this year; the disclosure is only the first step and will (have to) be followed by ESG integration across fund processes. The result of this top-down push and the general movement in the ecosystem: many funds are actually ‘opting up’ when it comes to their ESG integration — partly, again, driven by (perceived) LP demands.

If we can believe one of Europe’s star VCs — Niklas Zennstrom, Skype co-founder and now at the helm of VC-heavyweight Atomico — this ecosystem shift is a big opportunity for Europe. His suggestion in a recent Wired article: Europe will finally beat Silicon Valley, with a disruptive tactic — “Where Europe is leading compared to the US is in ESG (Environmental, Social and Governance) and climate strategy”.

I am as — if not more — confident as Zennstrom and see Europe as being far ahead with the integration of ESG in the tech and VC space; on the other hand, I have little interest in ‘us’ ‘beating anyone’ — I want the VC world as a whole to move forward and it is looking good, judging from our recent interactions with market-making US and European VCs (including during our the recent first ESG training for VCs). The bottom line is clear: in ‘my world’, the ESG backlash doesn’t exist and I will do my very best to prevent it from happening.

The starting point: we need to always have in mind what ESG is — and prevent confusion from enabling ESG-washing. I see again and again, including by ‘expert journalists’ like the ones at Impact Alpha (for instance in this article here) that confusion abounds. Everyone in the ecosystem, most importantly investors and LPs teaching and enforcing others, need to start clean and clear. We can take the definition laid out in our VentureESG white paper as a starting point.



Dr Johannes Lenhard

Writing and working on venture capital ethics, ESG, DEI @Cambridge_Uni and @VentureESG; former: PhD on homelessness at Cambridge, MSc at LSE, BA at ZU