In an op-ed published in RealClearMarkets last week, ATR Federal Affairs Manager Bryan Bashur highlighted the Biden administration’s misguided initiative to weaponize environmental, social, and governance (ESG) investing strategies.
Biden’s support for ESG will kill energy jobs and put Americans’ retirement savings at risk. As Bashur points out:
Within his first week in office, President Biden issued an executive order on “Tackling the Climate Crisis at Home and Abroad.” Among the provisions in the EO, one directive mandates the Export-Import Bank, the U.S. International Development and Finance Corporation, the State Department, Treasury Department, and Energy Department to develop a plan to “[promote] the flow of capital toward climate-aligned investments and away from high-carbon investments.”
In May, Biden issued another order on “Climate-Related Financial Risk.” The EO aims to redistribute capital away from oil and gas companies that employ hundreds of thousands of Americans to subsidize special interest groups backed by the top 1 percent.
Diversion of capital to ESG investment products is more expensive and produces lower returns than non-ESG counterparts. As Bashur explains:
Greater capital flow to ESG funds is beneficial for institutional investors because they offer high fees. As the Wall Street Journal aptly pointed out, exchange-traded funds that invest in ESG products have 43 percent higher fees than other ETFs.
At the same time, returns on ESG-driven investment strategies risk being lower than is the case with their more traditionally run counterparts. According to Pacific Research Institute research, $10,000 invested in an ESG fund would be around 44 percent lower than an investment in a fund that tracks the S&P 500 for ten years.
In fact, some industry experts such as Tariq Fancy, a former chief investment officer for sustainable investing at BlackRock, believe that “the ESG industry today consists of products that have higher fees but little or no impact and narratives that mislead the public.”
The Trump administration understood that political virtue signaling does not belong in investment decision-making and issued rulemakings to combat it. Unfortunately, the Biden administration is unravelling their good work. Bashur states that:
Biden’s Department of Labor decided to reverse course and prioritize woke investing strategies over maximizing returns for retirement accounts. Biden is effectively allowing pension plan managers to redefine their fiduciary duty to the plan beneficiaries, in the name of ESG and other forms of socially responsible investing, a move that may well mean that could hit the amount in a beneficiary’s pension pot when the time comes to retire.
Fortunately, some politicians understand the issues with politically charged investing strategies. The Texas legislature, for example, passed a bill to ensure retirement accounts continue to maximize returns. Bashur underscores that:
Under the new Texas law, retirement funds will not be subjected to using taxpayer dollars to pay high fees for ESG products more focused on political initiatives than creating real economic value for employees.
Bashur concludes by stating that Biden should be more focused on ensuring that Americans can maximize the amount of money in their retirement savings and not cater to special interest groups and Wall Street banks.
Click here to read the full op-ed.