ESG is jeopardizing an increasing amount of American investment assets
The ESG movement creates unnecessary financial risk for millions of American investors. It is based subjective political priorities
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In America we’ve always enjoyed the freedom to use our own money to support political causes we choose. But, today, many corporate boards and fund managers are investing other people’s money (including mine and likely yours) for their own partisan environmental, social and governance ("ESG") priorities.
They claim such strategies are smart bets but the poor performance of many ESG investments tells a different story. ESG is jeopardizing an increasing amount of American investment assets. This includes the $20+ trillion dollars (more than the entire U.S. GDP) managed by BlackRock and other Big 3 funds and the nearly $6 trillion managed in state pension funds belonging to working class Americans.
These investments are not only risky but often made without the full understanding or approval of their own beneficiaries or shareholders – many of whom would object to the progressive orthodoxy of net-zero environmentalism.
WHAT IS ESG? INVESTING WITH ENVIRONMENTAL, SOCIAL AND GOVERNANCE IN MIND
ESG as a movement is an ill-defined, elusive construct; a subjective standard masquerading as objective criteria. Not primarily merit-based, it thrives on coercion and cancelling. Even the brilliant tech titan, Elon Musk, who built an empire on green innovation is not free from ESG shaming tactics and demagoguery attempts.
Most of us share a desire for a cleaner and healthier environment. Robust debate balancing ecological concerns with economic priorities and lifestyle choices is positive and yields policies reflective of that tension. But these policies should be pursued transparently through legislative bodies, not backroom corporate pressure campaigns.
ESG undermines Congressional and state prerogatives by forcing on companies policies that cannot be won at the ballot box. At once, it hyper-politicizes and weaponizes the asset manager’s historical and legal role of maximizing returns for investors.
This creates major incentives for fiduciaries and others in the investment ecosystem to abandon their largely anodyne responsibilities as financial stewards to become mercenaries for partisan political causes.
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No doubt these actions align with the political views of some asset managers; unfortunately, overly burdensome green mandates have dangerous and often counterproductive consequences.
For example, ESG’s mission to neuter fossil fuel usage actually empowers our rivals and weakens American security by making us more dependent on foreign petroleum reserves and China’s rare earth elements.
ESG also de-prioritizes and diverts much-needed resources from laudable corporate social responsibility ("CSR") efforts like eliminating supply chain human trafficking and supporting employee mental health.
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Rather than promoting vetted and functioning technologies like those of U.S.-based Omnis Energy that lower costs, eliminate emissions while increasing carbon energy production, ESG backed carbon "solutions" too often increase costs and negative impact to the environment. ROI for ESG investments is often as disappointing ecologically as it is economically.
Massive fund managers are not alone in their obeisance to ESG priorities. The federal government makes its own offerings to the net-zero gods. Upon being sworn in, President Biden issued an executive order to halt new oil and gas leases on federal land. We sued as state attorneys general and won.
My office led a multi-state letter challenging the U.S. Department of Labor’s suggested policy that investment advisors elevate climate-related financial risk above all others, including foreign conflicts or economic downturns. We also recently led opposition to the Comptroller of the Currency’s appointment of a climate risk officer. Why? Pressuring banks to cut off access to capital to further an environmental agenda is a gross abuse of the OCC’s supervisory authority.
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Such misguided rules will be challenged by me and other Republican AG’s all the way to the U.S. Supreme Court because they are unlawful end-runs around Congress.
And for those entities and individuals irresponsibly pushing ESG, we will continue to scrutinize any potential violations of anti-trust, consumer protection, securities, or other laws within our powers.
Americans are undoubtedly open to balanced solutions that strengthen domestic energy independence, reduce costs, reduce emissions, and empower the consumer. But compulsion by ESG dogma is not balanced, not viable, and in many instances, not legal.
ESG’s activist asset managers and net-zero government mandates have something in common. They rest on the anti-democratic assumption that Wall Street and Washington can impose their will on the American people.
In this country, the laws demand the opposite. Fiduciary rules require asset managers to work for their clients. The Constitution and our statutes require the government to work for us. My colleagues and I will hold them to these duties.
Sean Reyes is the Attorney General of Utah.