A conservative backlash against bizarre “wokism” in the corporate world has made the term ESG politically toxic. “Environmental, Social & Governance” political correctness policies are reducing their grip on corporate behavior. In fact, the concept of “ESG skeptical” is now sweeping over corporate markets. Investors are coming around to thinking more clearly than some “woke” corporate boards. That’s because shareholders and investors want their interests paramount, not the interests of other so-called “stakeholders” who kneel at the altar of political leftism.
And these shareholders are right, as laws and rules require that those responsible for investment decisions “must act solely in the financial interests” of beneficiaries, especially those in retirement funds. Profit-reducing ESG investing is inconsistent with that duty.
Over the last few years, corporate officers and directors thought it was fashionable to prod their companies toward climate-friendly policies and to push their companies to disclose the “social effects” of their businesses. “Social-justice warriors” became a part of the C-Suites of far too many companies, as they pushed diversity, equity and inclusion (DEI) into corporate decision-making. Usually, the result was internal dissension, divisiveness, and lowered corporate performance, because ESG and DEI create conflicts among people.
The other result is that ESG morphed into a disease and a fraud, especially in our investment markets, as shareholders footed the bill and polarization became rampant. ESG expenditures reduced company profits, cutting into the shareholder’s dime without their approval.
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It is improper to embrace forms of corporate governance that get into politically correct ideas which have no place in managing a company’s business. It’s not the role of corporate officers to satisfy some progressive social goal or to impose “social justice” restrictions. Leave that to the non-profits. What may or may not be best for society becomes a matter of personal opinion.
Several states have resisted ESG investing and have provided stiff opposition. Ten states, including Florida, have required that asset managers handling their money “focus exclusively on maximizing returns”. Combined, these states hold more than $500 billion in pension fund assets. Florida specifically prohibits investing to advance “social, political, or ideological interests”.
These points extend to investing in “socially responsible” mutual funds, which often perform poorly because politically correct ideas are designed to exclude certain investments and industries. This exclusion restricts the universe of securities which can be owned, and eliminates potentially profitable purchases. Companies are punished if they conduct business that the political left does not like.
ESG adds additional analysis and screens to investment selections. It’s tough enough to make money in the securities markets than to add other elements that must be evaluated. Often, what is not permitted to be invested in will have their “days in the sun” and will outperform. This produces mediocre and uncompetitive results.
Sure, someone can always dig up a study which shows good performance by some socially responsible fund. But most of Wall Street has not taken social investing seriously, and most investors stay away.
What once looked like a juggernaut is currently facing stiff opposition, and halting the rise of ESG is a good thing. Negative results occur when asset managers and business executives are told they must make decisions based on radical political agendas.
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