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.
For some organisations (and investment strategies), the biggest priorities that require the most attention will differ, and ESG measures that benefit one area, e.g. society, could potentially have a negative impact on another.
Among other advantages, executing ESG effectively can help combat rising operating expenses (such as raw-material costs and the true cost of water or carbon), which McKinsey research has found can affect operating profits by as much as 60 percent.
Questionable Impact on Corporate Behaviour: ESG investing aims to pressure companies into sustainable practices by raising their cost of capital, but evidence shows this effect is often limited and can sometimes work counterproductive.
Critics of ESG — such as a group of Republican states that banned Blackrock and other “ESG friendly” asset managers from their state pension plans — argue that considering environmental and social factors violates the fiduciary duty that asset managers have towards their clients.
Environmental, social, and governance (ESG) investing has become a fiercely debated trend within the financial sector. While some view ESG factors as crucial considerations, others argue these criteria are politically motivated and detract from returns.
Environmental, social, and governance (ESG) risks are the potential negative impacts that a company's operations or supply chain can have on the environment, society, and its own governance practices. ESG risks can have a significant impact on a company's financial performance, reputation, and ability to operate.
Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty.
It is possible that the overly generic ESG brand will never recover its appeal, with the different parts of it eventually rebranded to suit their specific client bases. BlackRock, the world's largest asset manager, has already dropped it and is now emphasizing transition themes over ethical stewardship of companies.
Many issues come under the ESG umbrella, including complaints concerning the organisation's environmental impact, allegations of misreporting or conveying a false impression of environmental and sustainability credentials (greenwashing), tax evasion and corruption, human rights abuses in the supply chain and bullying, ...
In addition to decreasing stakeholders of profits, ESG practices easily devolve into ideological agendas that pursue a subjective social 'good'. Policies that very clearly cater to progressive dogma alienate conservative consumers who have their own notions of the social good.
We document the government push for ESG in the United States, Europe, and other Organisation for Economic Co-operation and Development (OECD) nations, and by international financial institutions. We do not deny that many investors across the globe are interested in ESG as opposed to only private returns.
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.
BlackRock has been criticized for investing in companies that are involved in fossil fuels, the arms industry, the People's Liberation Army and human rights violations in China. The company has also faced criticism for its close ties with the Federal Reserve during the COVID-19 pandemic.
Limited (or absent) data governance: Robust data governance is crucial for maintaining data integrity. ...
No single source of truth: The absence of a centralized system of record (SOR) hinders efficient data collection, management, and auditing within organizations.
The researchers' findings indicate that when companies focus on nonmaterial ESG factors in their quarterly financial updates, investors interpret it as a negative sign, signaling potential issues like higher costs, inefficient resource use, and distracted management.
The huge variation in data sources, methodologies, and criteria utilised by ESG rating agencies contributes increased scepticism around the usefulness of such ratings attributed to companies. This, in turn, poses challenges for investors seeking to compare ESG ratings reliably.
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