President Joe Biden’s Department of Labor has introduced measures to reverse a ban on environmental, social and governance investments, also known as ESG, among fiduciaries who manage pension funds, a rule that former President Donald Trump enforced during his last days in office.
The agency released a final rule on Tuesday that reflected the Biden administration’s guidance to protect the economy from “climate-related financial risks that could threaten the savings and pensions of American workers and families.” Under the new rule, fiduciaries may “weigh the economic impacts of climate change and other ESG considerations” as long as such concerns are relevant to a risk-return analysis.
Acting Assistant Secretary of the Employee Benefits Administration Ali Khawar said last year that the measure, which had been subject to a public comment period, would “strengthen the resilience of employees’ retirement savings and pensions by removing the artificial constraints… caused by the rules of the previous government. She added that “climate change and other ESG factors can be financially material and if they are, it will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of American workers.”
Critics of the ESG movement argue that the investment philosophy mixes political and social goals in a way that fails to maximize shareholder returns. The former rule created by the Trump administration prevented “fiduciaries from selecting investments based on non-monetary considerations” and required them to “base investment decisions solely on financial factors.”
West Virginia treasurer Riley Moore noted during an interview with The Daily Wire that allowing access to pension funds to advocates of the ESG movement exposes Americans to significant downside risks. “This is certainly reckless, because they are playing with other people’s pension money,” he said. “As you apply these ESG investment strategies, you become less diverse in your investments.”
Moore noted that ESG investing has suffered over the past year as technology stocks languish and the energy sector witnesses excessive profitability. Harvard Management Company, which manages the elite university’s endowment, admitted last month that a recent $2.3 billion loss was due to efforts to divest fossil fuels, even as the organization remains “proud to be deeply involved are on the issue of sustainability”.
“It’s almost along the lines of religious zeal, where they’re willing to take a loss to advance their political ideology,” Moore noted. “They need to maximize returns for their beneficiaries so they can feel secure when they retire.”
As of 2019, West Virginia ranks among the top six states for energy production, according to data from the Energy Information Administration. Moore characterized attempts by rating agencies to downgrade energy-producing states as “coercive capitalism”, noting that his state’s finances “have never been better” despite the presence of a robust fossil fuel sector. Meanwhile, the broader US economy will suffer if investment dollars fail to reach critical oil and natural gas ventures in energy-rich states.
Moore, who recently announced his candidacy for Congress, said lawmakers could ban rating agencies from “marketing their worldview” and investigate asset managers’ use of voting to advance the ESG movement. “A huge amount can be done at the federal level to fill the gaps where states are limited in their capacity, while at the same time respecting federalism,” he added.
Americans would prefer their investment dollars to remain politically neutral, a recent survey found. An exclusive poll by The Daily Wire found that 64% of respondents believe that “individual investors whose savings are invested” should ultimately decide whether pension and retirement funds are allocated according to ESG standards, while only 20% believe that “asset managers of Wall Street” should make such decisions.