When you invest your hard-earned dollars, you want—and should be able to—trust that the individuals managing your accounts will act in your best interests to achieve as high a return as possible.
But with ESG—or environmental, social, and governance—criteria, investing is driven by a political agenda, not the best interests of investors. And that’s a huge problem.
Here’s how ESG works
It’s an investment strategy that’s catching on fast—roughlyone-thirdof professionally managed assets in the United States now adhere to ESG criteria. ESG is, essentially, politically motivated investing, directing investor dollars not toward success for the individual’s portfolio, but inpursuit of “politically motivated” policygoals like climate change.
First, big corporations and investors set their sights on a given political agenda.Instead of investing to make money or save for retirement—and investing in options that will produce the highest returns—investments that adhere to ESG criteria are made with a political agenda as top priority.
And then they invest with that agenda in mind.Most often, the focus is on climate change. For example, ESG criteria would invest in green energy industries over fossil fuels—even though investments in oil and gas may perform better.
The consequences are that investors accounts suffer, and resources and capital are directed away from the oil and gas industry.The average American’s retirement account, when invested with ESG criteria in mind, is being used to further a political agenda, not bring about the best return and savings for the client. ESG funds areconsistently laggingin the S&P 500—they are not selected for their performance, but for their political interest.
And further, the oil and gas industries are deprived of crucial resources and capital, slowing down fossil fuel production and causing fuel prices to skyrocket. Gas and groceries become even more expensive, oil and gas companies must cut jobs, and the threat of an energy crisis looms large.
It’s leftist activism parading as “socially responsible investing”—meanwhile, it’s distorting the free market, and causing major problems for average Americans, their retirement accounts, the oil and gas industries, and the American economy.But ESG is bad news for the economy and the average American for other reasons, too.
It sets a dangerous precedent.It’s not just oil and gas—in theory, ESG could be applied to any agenda bullet point that the Left considers to be a top priority. The risk of politically motivated investing becoming a way to enactunpopular policiesis very real. The Left couldn’t get the “Green New Deal” passed in Congress and aren’t seeing green energy keep up with fossil fuels, so ESG investing is an attempt to artificially prop up the green industry at the expense of fossil fuels.
It’s an attack on the free market.With ESG, big government and big business are teaming up to choose winners and losers in the economy. Investments aren’t made with financial health or investor prosperity in mind—rather, American investment dollars are used to promote a very specific political agenda, with that agenda taking precedence over the health of the portfolio. Most distressingly, the average American has no choice in the matter, either.
States can combat ESG with commonsense reforms
The great news is that there are ways states can push back against ESG, and many states likeFlorida, Texas, and West Virginiaare already doing so. The top reforms involve bringing accountability to state contracts with ESG institutions, allowing attorneys general to investigate these institutions, and banning ESG investing in state and local pensions and state contracts.
Additionally, policymakers can take strides to ensure financial advisors are truly acting in the best interests of their clients, not their political alignments, by strengthening ethics codes and prioritizing transparency in the industry.
Climate activists and other leftist corporate leaders have united under the banner of ESG to use the marketplace to pursue their political agenda—but it’s not too late to protect American investors and retirement accounts, as well as free enterprise that built our economy.
Most often, the focus is on climate change. For example, ESG criteria would invest in green energy industries over fossil fuels—even though investments in oil and gas may perform better. The consequences are that investors accounts suffer, and resources and capital are directed away from the oil and gas industry.
Political backlash against ESG in the US, the relabeling of ESG products, and the underperformance of sustainable funds (inextricably tied to the underperformance of growth funds) since early 2022 have contributed to these outflows.
An ESG controversy case is defined as either an event or an ongoing situation in which company operations and/or products allegedly have a negative environmental, social and/or governance impact.
The 5 biggest ESG challenges for businesses and manufacturers globally are: climate change, supply chain sustainability, social impact, data privacy and cybersecurity, and governance and ethics.
The core argument against ESG is that something that's good for the environment and for people can't be good for business. Opponents have moved beyond rhetoric to action. More than two-thirds of states proposed anti-ESG legislation in 2023, half of which passed.
Firms including Vanguard, J.P. Morgan, State Street, Pimco, and Invesco have left organizations such as the Net Zero Asset Managers Initiative or Climate Action 100+.
The UN makes it official. A 2004 report from the United Nations – titled Who Cares Wins – carried what is widely considered the first mainstream mention of ESG in the modern context. This report leaned in heavily, encouraging all business stakeholders to embrace ESG long-term.
BlackRock's decision to shift from ESG investing to transition investing marks a significant evolution in the sustainable investing landscape. This strategic move underscores the importance of actively supporting transitioning companies to drive accelerated change.
The Enron scandal highlighted the critical need for corporate governance transparency, integrity, and accountability. It stressed the importance of ethical corporate behavior, rigorous financial oversight, and the role of regulatory frameworks in maintaining corporate responsibility and protecting stakeholders.
Rather, this could simply reflect a changing climate and a desire by companies to avoid any controversy associated with ESG investing. The money flowing out of E.S.G. funds has gone from a trickle to a torrent as investors sour on a sector hit by greenwashing concerns, red-state boycotts and boardroom debates.
Many ESG-focused efforts are financially material as they have important implications for long-term value creation, but political narrative often undermines this reality. This highlights the need for companies to speak specifically to investors about their ESG initiatives and link them to financial benefits.
What are ESG Risks? ESG Risks are those arising from Environmental, Social and Governance factors that a company must address and manage. These risks are a combination of threats and opportunities that can have a significant impact on an organisation's reputation and financial performance.
Though ESG ratings have faced scrutiny for their perceived lack of precision, inconsistency, and potential role in promoting greenwashing, experts are encouraging the refinement and correction of these drawbacks instead of abandoning the entire ESG rating system.
It includes the rules for decision-making, accountability, performance evaluation, operational strategies, and more. These are important considerations when assessing an organization's ESG performance. Good governance leads to good outcomes.
As a result, investors may have fewer investing possibilities. There is no commonly agreed standard for establishing which companies are “ESG-compliant,” making it difficult for investors to compare and evaluate different investment possibilities.
Introduction: My name is Terrell Hackett, I am a gleaming, brainy, courageous, helpful, healthy, cooperative, graceful person who loves writing and wants to share my knowledge and understanding with you.
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