President Biden is wrong about ESG—here’s why
- BY Sarah Coffey
Last week, President Biden vetoed a bill that would protect Americans’ hard-earned savings from being used to fund radical political agendas.
The legislation would have prohibited money managers from considering environmental, social, and governance (ESG) criteria—politically driven investing—when making investment decisions.
The president’s reasoning for his veto is that prohibiting ESG criteria would “risk retirement savings” and “jeopardize the hard-earned life savings of cops, firefighters, teachers, and other workers.”
To the contrary, it’s clear that the real risk lies with ESG itself. Here’s why:
ESG funds consistently underperform.
Last year, more than half of the largest ESG exchange traded funds lagged in the S&P 500. They consistently underperform other non-ESG funds. In fact, Harvard Business Review reports that “no study has proven ESG causes higher returns.”
That’s because the investment strategy focuses on “green” motives and other agenda priorities of the Left instead of the potential for a high return on investment (ROI). Contrary to the president’s claim, it’s a major risk to the retirement savings of Americans to encourage investing in funds for the sake of any criteria other than its success in generating high returns.
ESG funds are more expensive than non-ESG funds.
ESG funds have much higher fees than other funds—these fees can be as high as 40 percent more than traditional, non-ESG funds.
Encouraging ESG in investing means encouraging Americans to spend more to get less. Nasdaq reports that a majority of the assets in ESG funds are invested in the same holdings as non-ESG funds, which leads to this shocking conclusion: “For every dollar you invest in an ESG fund, a little less than a third goes into stocks you could have gotten in a fund that isn’t ESG.”
Investing with ESG criteria hurts the economy in other ways.
Fossil fuels account for 80 percent of U.S. energy consumption and are a reliable investment option. But ESG intentionally diverts capital away from this crucial industry in the name of a “green agenda.”
It not only results in lackluster returns for investors, but it also ends up helping to suffocate the key energy industry that has a profound impact on every other aspect of the American economy. A struggling energy industry means higher gas and fuel prices, and higher consumer prices as a result. In this way, ESG investing is helping to drive inflation.
It exchanges high returns on investment for a leftist agenda.
Ultimately, ESG is “virtue signaling with other people’s money.” It replaces the priority that money managers should have—investing clients’ money with the goal of high returns—with one of political activism that ultimately has no clear benefit to investors or to the environment.
American retirement savings should not be political pawns.
The president’s actions do not match his words—he speaks of his concern for the hard-earned retirement savings of Americans while vetoing a bill that would provide even more security from politicized, poorly performing investments. To advocate for investment criteria that is blatantly political at best and outright harmful to the retirement planning of hardworking Americans at worst.
Thankfully, states like Missouri and Florida are taking action against ESG and are beginning to protect investors against having their retirement accounts used to fund leftist agenda items. More states should take up the anti-ESG mantle to protect investors from politically motivated investing strategies.