Reuters
- Bill Ackman said the Fed is ignoring the pressure ESG initiatives are putting on inflation.
- "Stakeholder capitalism will drive much needed increases in wages, but also higher energy costs," he tweeted.
- Ackman recently presented his case on rising inflation to the New York Fed and has hedged his exposure to a potential rise in interest rates.
Bill Ackman believes initiatives related to ESG investing are contributing to a surge in inflation, and that the Federal Reserve is not paying attention.
The Pershing Square Capital CEO, who recently presented his case on inflation to the New York Fed, has hedged his portfolio to benefit from higher interest rates, which is the main tool the Fed can use to combat inflation.
"Central bankers have not considered how inflationary ESG initiatives are. ESG is not transitory, but rather persistent and growing. Stakeholder capitalism will drive much needed increases in wages, but also higher energy costs, among other inflationary factors," Ackman tweeted on Wednesday.
ESG's focus on companies that implement various environmental, social, and governance practices has shifted investment away from lower-cost fossil fuel energy and towards higher-cost renewable energy. Some on Wall Street have warned that energy prices are spiking now because years of underinvestment in oil, gas and coal resulted in lagging supplies.
A continued rise in costs would put more pressure on the Fed to end its pandemic-era stimulus programs, including record low interest rates. On Wednesday, the Fed said it would begin tapering its monthly bond purchase program by $15 billion per month, which would put the program on track to end in June of next year.
But for Ackman, that's not enough. In a tweet last month, the billionaire investor said the Fed should taper its bond buying program and raise interest rates as soon as possible. Fed Chairman Jerome Powell, however, has indicated that the central bank likely won't begin to raise interest rates until 2023.
Meanwhile, traders expect the Fed to begin raising interest rates sooner than expected, with Fed futures data showing the likelihood of an interest rate hike in the second half of 2022.
"We have put our money where our mouth is in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio," Ackman tweeted last month.
The growing trend of ESG investing has swelled to more than $30 trillion, representing a third of global assets under management.
One investor that has led the charge in ESG investing through her investments in green companies like Tesla is Cathie Wood of Ark Invest. Wood believes the opposite of Ackman, that inflation is indeed temporary as technological innovations lead to lower prices in the long-term.