AMAC Exclusive – By Luke Allen
In recent years, many of America’s top investment banks have begun implementing investment strategies designed not to maximize customer profits but rather to advance certain political priorities – invariably liberal ones. Known as “Environmental, Social, and Governance” investing, or ESG for short, this new financial model has accelerated the left’s stranglehold on American corporations and institutions. But recently, Kentucky Attorney General Daniel Cameron outlined one-way conservatives can perhaps begin to push back on the ESG power grab by holding money management firms accountable for not acting in their clients’ financial best interests.
In essence, ESG investing argues that investors should make decisions about which companies to invest in based on those companies’ commitment to certain political causes – namely, progressive initiatives like “equity,” climate change extremism, and combatting “systemic racism.”
Notably, ESG investing differs from the values-based investing strategies that have long helped individuals and corporations choose which companies to invest in. Instead of simply avoiding investing in certain companies that don’t align with an investor’s values (like a religious organization not investing in alcohol or tobacco companies), ESG investing seeks to actively force companies to advance a progressive political agenda – even at the cost of making any profit at all.
One can trace the roots of the ESG concept to the United Nations and the early 2000s when former Secretary General Kofi Annan helped form the United Nations Global Compact with the International Finance Corporation and the Swiss government. From that flowed a UN policy paper titled “Principles for Responsible Investing,” which outlined the basics of ESG. The implication, of course, was that caring and responsible financial managers would incorporate policies favored by the UN – in other words, advance left-wing interests.
Despite the fact that most investors want companies to focus on profits instead of their commitment to progressive causes, ESG now dominates the investing world. In the 4th quarter of 2021 alone, $143 billion flowed into ESG funds. Many of the biggest money management firms in the world, such as BlackRock and Vanguard, are now entirely committed to ESG, and the World Economic Forum has been openly pushing the initiative for years. Because companies like BlackRock and Vanguard manage hundreds of billions of dollars in assets for organizations large and small, this means that the hard-earned dollars of millions of Americans are being used to advance left-wing political causes without their knowledge or consent.
For Kentucky Attorney General Daniel Cameron, ESG investing represents a breach of fiduciary responsibility and Kentucky law. As he recognized at the beginning of a legal opinion he issued late last month, “There is an increasing trend among some investment management firms to use money in public and state employees’ pension plans – that is, other people’s money – to push their own political agendas and force social change.”
Cameron concludes his opinion by finding that when it comes to public pension plans, it is illegal for companies to invest with anything in mind other than the financial best interests of those who pay into the pension:
While asset owners may pursue a social purpose or “sacrifice some performance on their investments to achieve an ESG goal,” investment managers entrusted to make financial investments for Kentucky’s public pension systems must be single-minded in their motivation and actions, and their decisions must be “[s]olely in the interest of the members and beneficiaries [and for] the exclusive purpose of providing benefits to members and beneficiaries.” To do otherwise risks breaching clearly established statutory and contractual fiduciary duties and threatens the stability of already fragile pension systems. In sum, politics has no place in Kentucky’s public pensions. Therefore, it is the opinion of this Office that “stakeholder capitalism” and “environmental, social, and governance” investment practices that introduce mixed motivations to investment decisions are inconsistent with Kentucky law governing fiduciary duties owed by investment management firms to Kentucky’s public pension plans.
In a recent interview with Washington Watch, Cameron explained the stakes for municipal workers in Kentucky: “Teachers, police officers, firefighters, and other public employees who have obviously invested their money in these pensions are hoping for the biggest return they can get. But many of these investment fund managers have mixed motives, which is wanting to push their value systInvestingems on the rest of us. This is not the investment manager’s money; it’s your money.”
In calling out woke investing practices, Cameron joins a growing list of public officials and economics experts raising the alarm about ESG. Writing for the Harvard Business Review in March of this year, renowned finance professor Sanjai Bhagat argued that “the conclusion to be drawn from [the results of ESG investing] seems pretty clear: funds investing in companies that publicly embrace ESG sacrifice financial returns without gaining much, if anything, in terms of actually furthering ESG interests.” In other words, ESG investing not only loses money, but it also doesn’t even achieve its woke goals.
Because of the size and power of the players involved, ESG investing is unlikely to go away anytime soon. But if other conservative leaders follow Cameron’s example and continue to chip away at the influence of wokeism in the world of finance, it may well trigger a ripple effect that could break the left’s stranglehold on American culture generally and usher in a return of free market principles that made the United States the most successful and prosperous nation in the world.
Luke Allen is the pen name of a freelance writer and former Senior Energy Advisor in the Trump Administration