Asset managers’ infatuation with the environmental, social, and governance (ESG) agenda is squandering the retirement savings of hardworking Americans, critics argue, but ESG defenders say that the government has no business second-guessing Wall Street fund managers.
The House Ways and Means Committee heard testimony on Nov. 7 from conservatives regarding the increasing toll that the ESG industry is taking on America’s economy and retirement savings, while Democrats condemned efforts to stop the ESG movement as totalitarian and racist.
Much of the debate focused on a recent directive from the Biden administration to permit corporate pension plans to invest employees’ retirement money to achieve climate or social justice-related goals under the Employee Retirement Income Security Act (ERISA).
Passed in 1974, ERISA was written by Congress to address fraud and other abuses of employee pension funds by those who controlled them, including, in some cases, organized crime.
ERISA mandated that pensioners’ money could only be invested to maximize their financial returns. Under the Biden administration, however, the Labor Department, which oversees ERISA, stated in 2022 that pension managers could also include ESG criteria.
In March, Congress voted to overturn this new rule, with several Democrats joining Republicans to pass the measure. President Biden vetoed the measure.
“Democrats are trying to enshrine co-called environmental, social, and governance ideology into America’s financial system by removing protections for savers in the tax code,” Committee Chairman Jason Smith (R-Mo.) stated. “This political crusade threatens the $33 trillion that Americans have saved for retirement.”
Mr. Smith noted that any reduction in investment returns from ESG investing comes on top of the loss of savings that Americans have already experienced from inflation under the Biden administration. A retirement portfolio of $250,000 today would buy the same amount of goods as a $137,000 portfolio in 2000, he stated.
“Make no mistake, the Democrats’ reckless spending agenda caused this problem, and now their radical ESG agenda threatens what’s left of seniors’ retirement,” Mr. Smith said.
Ranking Member Rep. Richard Neal (D-Mass.) stated that concerns about ESG were “a manufactured crisis meant to distract the base from the lack of legislating.”
“Politicizing retirement policy jeopardizes workers’ hard-earned savings,” Mr. Neal said. “That’s the last thing the American people need.”
For ESG advocates, restricting pension fund managers’ ability to invest employees’ money for environmental or social goals threatens economic freedom.
Brandon Rees, an investment officer for the AFL/CIO, testified that “proposals to restrict retirement plans’ freedom to invest have more in common with a totalitarian command economy than a free-market system.”
“The simple truth is that most Americans are not familiar with ESG investing,” Mr. Rees said. “They trust their retirement plans to make these decisions, not politicians, and they certainly don’t like the idea of the government restricting their ability to invest responsibly.”
For some, opposition to ESG isn’t only totalitarian but also racist.
Rep. Lloyd Doggett (D-Texas) stated that those who criticize the ESG movement “don’t know what it means to be ‘woke,’ but it sounds a little black, and it really appeals to the white nationalists ... and people that object to those who might be adopting policies to overcome historic injustices to people of color.”
The social component of ESG often favors dictates such as racial quotas for hiring, promotions, and corporate board seats.
Critics of ESG investing argue that when pension funds invest other peoples’ money for political or environmental goals, they hurt pensioners relying on returns from their savings to fund their retirement.
“Over the past 10 years, so-called clean energy stocks have significantly underperformed the market as a whole, with the S&P500 Clean Energy Index returning a mere 4.5 percent annually, compared to 11.5 percent annual return for the S&P500,” stated Jason Isaac, former Texas state representative and director of Life: Powered.
“The ESG bubble in 2020 was a result of low interest rates, government largesse, and investor enthusiasm that wind and solar and similar technologies would soon outpace fossil fuels in the energy marketplace. This past year has shown that enthusiasm to be misplaced.”
Last week, The New York Times lamented this trend in an article titled “In a Warming World, Clean Energy Stocks Fall While Oil Prospers.” Like many ESG investment advocates, the paper argued that renewable energy companies were undoubtedly the future, but investors were unable to see this and, as a result, clean energy stocks were getting “crushed.”
Mr. Isaac said that “in just the past year, not one of the largest individual ESG-labeled funds performed better than either the S&P500 or the NASDAQ.”
“These ESG-labeled funds have over $170 billion in total assets under management, tossing Americans’ hard-earned retirement savings to the wayside in the name of this insane agenda,” he said.
Information or Coercion?
Critics dispute this, however.“Proponents argue that ESG is designed to provide investors with more information to make better-informed decisions; this is misleading,” Utah State Treasurer Marlo Oaks testified. “In truth, ESG has created an uncontrollable impulse to pressure corporations to solve complex global and societal issues.”
“These issues, such as climate, income inequality, guns, and abortion, just to name a few, should be in the purview of a democratically elected government. ESG hijacks corporate governance to advance ideological objectives, often divorced from and even detrimental to long-term shareholder value.”
The ESG industry has its beginnings in a 2005 U.N. initiative to get private companies on board with its various Sustainable Development Goals, which range from reducing fossil fuels to racial and gender equity, gun control, and abortion rights. The movement was soon taken up by institutional asset managers such as BlackRock, Vanguard, and State Street, as well as left-leaning state pension managers in states such as California and New York.
Together, these asset managers control tens of trillions of dollars in assets, largely comprising investments and savings of American workers.
“They are the three largest owners of most DOW 30 companies. Overall, institutional investors own 80% of all stock in the S&P 500,” the report states.
This concentrated ownership of shares gives institutional asset managers the power to control companies through proxy voting, or the votes that fund managers possess on behalf of investors in their funds. Many asset managers have used this power to coerce corporate executives into implementing fossil fuel reduction strategies, racial audits, hiring quotas, and other ESG goals.
An example of this power includes a vote by Exxon’s shareholders in 2021, supported by BlackRock, Vanguard, and State Street, to put several renewable energy activists on its board and steer the oil and gas company away from producing oil and gas.
Mr. Isaac testified that three-quarters of corporate CEOs now have their compensation directly tied to ESG criteria.
“That’s why we’re seeing the prevalence [of corporate ESG activism],” Mr. Isaac said. “This is why this affects so many more than the people that have 401Ks; it affects the entire economic prosperity of this country.”
Since the rise of the ESG movement, many corporations, including Disney, Anheuser-Busch, Target, and Coca-Cola, have taken progressive positions on controversial social issues, often to the detriment of their sales and their share prices. The ultimate losers from this underperformance are the pensioners who rely on their savings and investments to sustain them in their retirement years.
