Businesses Are Going Woke. Here’s What a Thoughtful Investor Needs to Consider.

More and more, it seems big corporations and even banks have become tools of the left.

Americans have been fired from their jobs, deplatformed from social media, and have even seen their bank accounts closed, simply for not bending a knee to the left. This has prompted many conservatives to rethink where they spend and invest their money.

John Coleman, a managing partner of Sovereign’s Capital, a values-driven private equity and venture capital firm, joins “The Daily Signal Podcast” to discuss a more thoughtful way of investing in the age of “woke corporatism.”

“You’ve got this dynamic where progressives are much more likely to actually act on their political or cultural beliefs against a company than conservatives are,” says Coleman. “And so, we’ve ended up in a situation where if you’re a public company, those who hold more progressive values have much greater sway on what you are going to do, because you suffer the consequences more [directly] if you don’t listen to that voice.”

Listen to the full interview or read a lightly edited transcript below.

Christian Mysliwiec: John, since you’re in the finance world, you probably have a very clear view of the cultural shift that we’re seeing in the business environment. Particularly the rise of woke corporatism, this idea that businesses need to take a stance on political or social issues that have nothing to do with what they do as a business. So, I wanted to talk to you today a little bit about that.

But before we get into that, I want to hear a little bit about you, where you grew up, your career, what you do now. Tell us about yourself.

John Coleman: Thanks so much for the opportunity. So, I grew up in the Southeast, mostly in Georgia and Florida, a pretty middle-class background, and was always interested in the topic of finance and economics. It was very central to me, to the way that the world worked, in that the financial system touched almost everything in the world—whether that was government spending, whether it was someone trying to borrow money to build a house, whether it was infrastructure spending overseas, and so I was infinitely fascinated with this idea that the financial system was so central to the way that things worked.

And in fact, for those of us who believe in the capitalist system, it’s one of the underpinnings of that, the effective allocation of capital to the right causes all over the world. And so, I grew up really fascinated by that. I went to a small liberal arts school in Georgia called Barry College, a wonderful place.

One of my internships, as you noted, was with The Heritage Foundation while I was an undergraduate there. And as I embarked on my career, I really spent time getting into both global business and financial institutions, particularly investment management over time. And that’s where I’ve spent the better part of the last 20 years in my career.

Mysliwiec: And you recently published an op-ed and a Daily Signal about how your Christian faith has a strong influence on your investing philosophy. Can you tell me a little bit more about that?

Coleman: Yeah. There was a personal side to that journey, and then what I articulated in the op-ed. The personal side to that journey was, around a couple of years ago, I started to think more in a disciplined way about what aligning my personal values, and even my personal faith, with my professional orientation would look like, and I came across this wonderful firm called Sovereign’s Capital, founded by two of my partners a long time ago that now I have the privilege of coming in to help lead.

And Sovereign’s is an explicitly faith-driven investment organization, meaning that we try and execute values-driven investments, aligned with the values of people of faith. And there’s just this long and storied history of that.

In the article I outline, if you go back far enough, there are biblical justifications in the Old Testament for aligning your investment dollars with your most fundamental beliefs. You saw that in the growth of all the monotheistic religions. So, in Islam, for example, you have Sharia-compliant finance, where they pay a great deal of attention to investments and the way the financial institutions are structured. In Jewish law, you see admonitions about different types of investments. And certainly in the history of the Christian Church, you see a lot of emphasis on making sure that your investments are aligned with your values—your values as a person of faith.

One of the more interesting examples of that was back in the 1970s, the early 1970s, when the Episcopal Church was actually a leader in fighting apartheid, in General Motors policies overseas, where they only held 0.004% of the shares of GM, but made it a voting issue at a board meeting, GM’s practices in apartheid South Africa—backed by the lone black board member of GM at the time, a person named Dr. Leon Sullivan, who was a Baptist pastor out of Philadelphia.

So, there’s this long and storied history of people of faith, really acting according to their values. What I think is interesting is, the last 20 or 30 years of investment management, however, have been dominated by more mainstream institutions, overseas and in the United States, trying to exercise their values in companies.

And this has manifested largely in what people call “environmental, social, and governance” investing, ESG today, or values investing. And we can get into where that came from, but it’s basically become the dominant part of values investing today.

Around $ 35 trillion in assets right now are ESG compliant, out of the $ 120 or [$ 130] trillion in managed assets around the world. That’s growing incredibly quickly, and one of the things I point out in the article is how important it is for people of faith to participate in that, to exercise their own values through their investing, knowing that very rarely are their investments neutral, and that others are trying to express their values.

And so, it’s only right that people of faith reclaim that historical mandate they’ve had to make sure that their investment dollars align with their faith.

Mysliwiec: Right. Right. A great line from your article was how, if the more biblical view of investing is, if you’re blessed with resources, you have an opportunity, or even a duty, to grow and to steward that correctly, those resources. And so, I think that speaks to what your faith-based investing is all about. But tell me a little bit how that’s different from ESG. How is ESG different from, first of all, neutral investing, and also from your philosophy of investing?

Coleman: Yeah. Such a great question to unpack. So, I think that … let’s see. To first address how’s that different from ESG? I think it would be different in the types of things that it emphasizes. And so, ESG—environmental, social, governance—investing, there’s nothing per se wrong with it on its face.

I think we would all agree that good governance, the “G” part of ESG, is an incredibly important thing to making sure that we’re investing in companies that are sustainable. And in fact, good governance historically has proven to be a signal about performance.

So, companies with good governance outperform companies with bad governance, underperform. To some extent, environmental, I think most Christians or conservatives or others would agree that at some level we want to preserve the environment for the future. Now, we may disagree on the emphasis of that, on tactics, et cetera.

And then on social, I think most of us would agree. For example, just as the Episcopal Church lobbied General Motors about their support of apartheid South Africa, there are a number of more Christian or conservative groups right now, which are putting an emphasis on public corporations about their involvement in China.

Particularly given all the human rights violations that are happening within China right now, and how unacceptable those are to people of faith. And so, to some extent, I think that values-based investing for Christians or other people of faith is similar to ESG, but just with a different set of focuses. And it’s us encouraging people to try and express their values in how they invest.

Now, how is that different than neutral investing? So, the title of the article is “All Investing is Impact Investing,” meaning everything we do has an impact. I would say one thing that I would emphasize is, you don’t have to fight every battle. So, I think one of the more challenging things in culture right now is this idea that corporations or business have to be a battlefield for every single political or social dispute. And I would say that that is unnecessarily divisive.

We can adopt pluralism in the way that corporations operate and understand that corporations are publicly traded. Corporations are staffed by people with very different values, that they are there to make money for shareholders, that they’re there to make products. And so them having to take stances on a bunch of unrelated stuff, I don’t know that that’s helpful.

At the same time, we probably should hold our publicly traded corporations accountable for certain things, and values-based investing is a way to do that. So, if you are invested, for example, in a technology company where you feel that technology company has enabled monitoring of people in China or suppression of people in China, then I think every investor of good conscience certainly has the opportunity to speak up about that and use their investments as a way to have a voice in that.

And so, I’d say it’s more a difference of degree and focus, Christian, rather than a disagreement about the idea that our investments inherently support or don’t support certain values in companies.

Mysliwiec: Right. OK. So, I know that at The Heritage Foundation, we’re strong supporters of free market principles. And so, I think a free market expectation of a financial service organization would be to maximize the investments of the shareholders. So, if you are not boxed in, but if you are investing thoughtfully and in a values-driven way, do have to expect less returns, like the standing for your principles requires you to forgo maximum profits?

Coleman: I think in some cases that might be the case. We think that that faith-aligned investing actually can help enhance returns. The way that we think about it at Sovereign’s is culture is the greatest competitive advantage in business. Great cultures will outperform poor cultures every time. And it’s a sustainable competitive advantage in a world in which building a culture is quite difficult. And so, we think cultures built on great values are on their face going to outperform.

And so, from our point of view, there really is no trade-off between the ability to exercise your basic values through that and support good cultures and performance. And certainly in some of the other areas of ESG, the data is pretty clear.

So, for example, governance, if a company has really clear accounting standards, they have good boards of directors, they have leadership teams which are held accountable and not corrupt, those are great. Those are great for outperformance.

I think where you get into more challenging territory is when companies have to make stands that actually do involve some financial trade-offs in the short to medium term, and those stands are values-based. And I think a lot of companies are being put in that position now, whether it be environmental regulations that they need to support, whether it be certain types of social justice causes, which may cost more.

The question I think we’d have to ask is … . There are lines. I think everyone would agree there are actually lines where you wouldn’t want people to cross in terms of making a profit. So, we do want corporations to maximize profits for shareholders, for sure. That’s our fiduciary obligation.

But there are also certain lines in values we wouldn’t want them to cross. So, in retrospect, looking back, Henry Ford’s involvement with Nazi Germany was a real black stain on the Ford Motor Company. One that I think almost everyone could agree, even if it resulted in greater profitability in the short term, was actually damaging to the company long term and unethical in the short term.

And so, the question today is where do issues cross the line to having that level of importance and where do we want to allow corporations to kind of stick to their knitting? To do the thing they’re primarily responsible for doing, rather than trying to get involved in every modern political issue of the day.

Mysliwiec: Now, going back to this idea of the rise of woke corporatism: First of all, would you say it’s fair to say that more businesses, especially big businesses, have gone left culturally?

Coleman: Yes. For sure. And a quick explanation for that to some extent, at least from my perspective, the history of modern ESG movement … I highlighted religious institutions actually shaped this early on, but if you look at the modern ESG movement, a lot of it actually started abroad and with large public plans in the United States. So, it was big foreign, sovereign wealth funds or superannuation schemes.

For example, in Australia and New Zealand, they have these big, what are called superannuation schemes, which are almost like publicly run, defined contribution plans in the U.S., where they were very adamant about exercising their values and values investing. The Nordic sovereign wealth funds, based on oil money in places like the Netherlands, became very progressive in terms of their values and started to require that the firms managing their money, firms like Black Rock or Vanguard or State Street or others, really adhere to those values or enact those values, whether those be U.N. standards or standards enforced by these sovereign wealth funds.

And so, there was this general movement towards a more progressive set of values in ESG, driven by these large institutional investors, including some U.S. investors. State teacher pension plans or firefighter pension plans on the whole tended to have a more progressive set of values, and that drove asset managers to begin to enact values more aggressively in their companies. The other thing that I think is interesting, and I’m going to forget the exact numbers, but I saw a survey recently of political divisions in the United States.

And it turns out that progressives by and large will actually vote with their dollars. And that if you’re a progressive, if you think a company has violated your values, like Chick-fil-A, for example, you’re more likely to then actually go spend money somewhere else and not spend money at that company than a conservative, by something like a 4 to 1 margin.

And so, you’ve got this dynamic where progressives are much more likely to actually act on their political or cultural beliefs against a company than conservatives are, and much of the modern ESG movement was driven by more progressive organizations. And so, we’ve ended up in a situation where if you’re a public company, those who hold more progressive values have much greater sway on what you are going to do, because you suffer the consequences more [directly] if you don’t listen to that voice.

Mysliwiec: Interesting. So, in Europe, we saw that these centralized regulators were encouraging asset managers to adopt more ESG policies. So, was that imported to the United States and now are U.S. regulations encouraging asset managers to be more ESG-friendly?

Coleman: Yeah, 100%. I mean, you can see this. And remember, not every regulation is a federal one. So, the federal government has done certain things, but a lot of this even happens at the state level. So, for example, there are a number of big state pension plans. These are again great organizations. They perform a really meaningful task in that they typically manage the pension assets of teachers or firefighters or police officers, something we want to do, right? We want to ensure a great retirement for our firefighters and police officers.

But often those states or the entities within those states have begun to be much more aggressive about the types of ESG standards that they act upon. They may require, for example, that the companies who manage assets for them provide a series of statistics about diversity within their companies—even about how people are paid, according to those diverse categories, about their environmental stewardship; so, how ESG compliant, meaning environmentally friendly, are the buildings that they invest in, or even the buildings that they occupy as companies, for example.

They may rely on ratings of external parties about how friendly these firms are to various groups, whether that be diverse communities or LGBT communities, et cetera.

And so, what you see are a general emphasis amongst both foreign governments and foreign entities. Whether those be corporate plans or sovereign wealth funds, as well as domestic entities, to push asset managers and underlying public companies to share more information about how they’re complying with various ESG standards and to be much more aggressive about adhering to those standards and continually ratcheting up that adherence.

So, once you meet a certain standard, new standards come along to push you further along, if that makes sense, Christian.

And so, there are these variety of sources that are coming together, the drift which all point towards a more progressive set of values in public companies and in the standards that state and local governments, as well as federal governments, hold those companies accountable to.

Mysliwiec: Right. And we see what happens when those companies embrace all of this. I mean, let’s take personal banking. Chase Bank, Wells Fargo, PayPal, some other financial service firms, they’ve reasonably been accused of canceling services to customers for apparently expressing conservative views.

So, what’s on my mind these days is, if banks can fall to this kind of ESG mentality or “woke corporatism,” what are some ways that conservatives can cancel-proof their financial assets?

Coleman: Yeah, it’s a great question. So, one of the ways in which I encourage people in the article is, look, everyone should have some investment or purchasing according to their values, right? All investing is impact investing, it’s just that some people don’t understand the impact of their assets.

Most of us hold [exchange-traded funds], right, that are managed by companies that have a particular set of values, usually quite progressive. But we don’t understand that they’re voting on our behalf and that they’re actually using our shares in order to express a set of values with corporations.

I’d say the first thing is to just actually begin to take a more active role in defining what your values are and how you want those expressed in the marketplace. The second, I think, is to really try and align yourself with institutions that you feel are reflective of your values.

Now, Christian, to your point, maybe you only feel comfortable if an institution is truly neutral, right, that they don’t have a set of values they’re expressing. And that’s certainly someone’s prerogative. You might feel more comfortable with the institution that you’re dealing with is explicitly faith-based, for example, because those values are most important to you.

But I would encourage everyone to think about—from their ETF providers to their financial advisers and even to the banks with whom they do business—just what types of values those institutions have and making sure that they’re doing business with people that they’re comfortable with, right, share their values.

The third is, I think, for on a macro scale for institutions and individuals to really try and express those values more publicly in the marketplace. So, a great example of this, Christian, recently, and again, I’ll forget some of the specific details, but there was this movement about divesting in fossil fuels from a series of investment plans around the country, driven by a series of states and the federal government wanting to push banks to not do as much business with fossil fuel companies and to divest fossil fuels from their portfolios. In a series of states attorneys general, representing those states which had fossil fuels, whether that be coal or oil or natural gas, to begin to communicate to those banks that they would no longer do business with them if they promoted this agenda, that would be harmful to the residents of those states.

And so it was an example where institutions responded in kind saying, “We have to represent the individuals for whom we are responsible. And we want to make sure that the institutions with whom we do business are not damaging them.” And so, that’s an example where both individuals and institutions can begin to speak up and begin to really exert their own values within companies to make sure that they’re not being left behind, overlooked, or denigrated.

Mysliwiec: So, what advice do you have for some of our listeners, or if you could even share your process at Sovereign’s Capital about vetting a business that you think is more values-based?

Coleman: Certainly. My general advice, most investors, most of the listeners out there are going to have most of their money in money markets or ETFs, relatively straightforward tools that are low-cost. And my encouragement to you is to really think about your values and how much you want them expressed. Have a plan for what you really want to see in your portfolio.

So, from my perspective, my faith is probably the biggest thing I want to see reflected in my portfolio and the values that stem from that. At Sovereign’s, we think of that as love of neighbor and human flourishing, are the two things that we’re trying to encourage. And so, that’s my first screen for the types of institutions I want to deal with.

Secondly, once you’ve allied with the right institutions, you’ve got a financial adviser or company that you feel reflects your values, be very thoughtful about the investments that you’re choosing, right? Think about the managers of the ETFs that you’re buying, for example, even if it’s just an S&P 500 index.

If you’re investing with say, BlackRock, you need to understand that BlackRock is then going to vote your shares. Now you may agree 100% with BlackRock, but it’s worth understanding their politics and how they vote before you give them your voting rights, effectively, by holding their ETFs. And if you have a different set of values, find other institutions. There are such a wide array of ETF and mutual fund companies out there, many of whom have a more conservative set of values that you could choose, if you so choose.

On our side, Sovereign’s primarily does venture and private equity investing, and so, we have this benefit of being able to work with entrepreneurs and founders that we feel are aligned. We explicitly see if their values align. We try and make sure that their companies are companies that are promoting the types of values that we adhere to.

So, we don’t invest in businesses based on addiction, for example, gambling or alcohol. We try and emphasize companies that really take care of employees, that show human flourishing and love of neighbor to others.

And because we’re private markets investors, we take board seats. We have an ability to influence those and really partner with the CEOs. It’s just a much more meaningful, positive impact than we could have over most public companies.

Mysliwiec: Now, how does cryptocurrency play into all this? Does somebody who has a faith-based view of investing, should they be looking into that?

Coleman: Yeah, this is such a great debate. Crypto is a very interesting space, I think. In full transparency, I personally have dabbled in it. My firm does not invest in crypto right now. I have an account where I trade cryptocurrency, and I have a little bit.

I don’t think there’s anything misaligned about cryptocurrency in a conservative set of values or a liberal set of values or Christian set of values. I do think you’ve got to be very cautious. It’s kind of caveat toward “buyer beware.”

There are thousands of cryptocurrencies out there right now. Not all of them have the same standards of governance as others. Certainly, they are all risky. It’s a much riskier asset class.

What I think is fascinating about cryptocurrency and potentially useful to people is, it does begin to restructure our financial system in interesting ways. The first time I ever heard someone talk about this, it was a person from a country in Latin America, and he stood up, five or six years ago, and made the point that Americans couldn’t fully understand the power of cryptocurrency because they lived in a world with such a stable currency. The U.S. dollar, even in times of inflation, maybe moves 6[%] or 7%.

If you’re in certain countries in Latin America or Asia or Eastern Europe or Africa, you experience hyperinflation. You experience governments abusing their currencies. For him, he said, “Yes, it’s volatile, but it’s finally a chance to hold your capital in a place that the government can’t control.”

And so, I think there’s something fundamentally liberating, at least for certain types of people, about cryptocurrency. I think the caution I would offer is, it is certainly a very volatile place. It’s certainly a place where not every cryptocurrency company is the same as another. Not every token is run as ethically as another.

I always tell people, err on the side of caution if you’re going to get involved. Try and get in touch with people who really understand the space and the different coins. But on its face, I actually think there’s really interesting potential of the cryptocurrency market to do good in the world, assuming that it’s managed appropriately.

Mysliwiec: Got it. Lastly, we have a few minutes left. I just want to ask you about your time at The Heritage Foundation. What do you remember about your internship and how did it go?

Coleman: Oh, gosh! It was fantastic. So, I was there for a few months, when I was a junior in college, I believe. It was really my first time living outside of Georgia and Florida. First time in D.C. I mean, D.C. is an amazing city. It was beautiful. I think I went to museums every weekend and got to see all the monuments, and it was just overwhelming, living there, how much patriotism I felt, for lack of a better term.

I mean, just this idea that this country, founded on a fundamentally different set of values, was still alive and thriving. And that normal people like me could be at the heart of that. We didn’t have to be born into it. Normal people like me could participate in influencing the direction of our country, which was amazing. And Heritage certainly reinforced that.

I mean, the intern program was extraordinarily well-run. If you’ve got kids or grandkids or cousins who are thinking about it, it was an extraordinary program. I got exposed to leading thinkers on a variety of topics. I got to really feel close to the issues driving America, and got the sense, for the first time, that an average guy like me could influence them. I got to hear from these remarkable people.

I worked with just incredibly caring colleagues there. I remember everyone I encountered was remarkably kind to me. They were supportive of me. Some of them have remained mentors to this day. And so, it was really an experience that was formative in keeping me interested in politics. And also giving me the confidence that I could learn to participate in them in a constructive way.

Mysliwiec: Let’s say there’s a young person who’s listening, or somebody who might be considering the internship program, and like you, they’re interested in how wealth is moved around on the world, around the impact of investing. What resources can you suggest to them to look into this topic some more?

Coleman: Yeah. Gosh, that’s such a good question. For all young people, I think reading up on the different companies in which you’re investing. Most companies now have ESG statements that they publish, as part of their annual reports or somewhere separate on their website.

And so, if you’re managing funds with an ETF company, the likes of Vanguard or State Street or whomever, often they will have an explicit ESG statement that allows you to see how they’re investing or what values they hold. Even how they do what’s called proxy voting, which is voting your shares for public companies. Most public companies have something similar now.

And then a lot of the great consulting firms, whether that be Deloitte or PwC or McKinsey will put out reports on ESG periodically that you can read and what that looks like within companies.

If you’re interested in Faith Driven Investor, I’ll put [in] a pitch. Two of my partners founded an organization called Faith Driven Investor, Faith Driven Entrepreneur, which are two different websites that talk about the ways in which people incorporate their faith into entrepreneurship and investing, which I think can be a remarkable resource, if that’s something interesting to you.

And there are a lot of other great firms out there that are doing good work as well. And so, digging into the places that you do business with, and some of the reports on the topic can be remarkably helpful.

Mysliwiec: Very good. John Coleman, thank you so much for speaking with me today.

Coleman: Yeah. Christian, thank you so much for having me on. I appreciate it.

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