This piece originally appeared on RealClearPolitics on November 30, 2022.
The environmental, social, and governance (ESG) investing phenomenon is undercutting the core purpose of financial institutions, jeopardizing the economic security of investors, politicizing our capital markets and private enterprises, and threatening the stability of our energy supply.
Simply put, financial firms and institutional investors should be solely focused on delivering maximum financial returns to investors so they can achieve the American dream. ESG funds are antithetical to this goal. For starters, ESG funds carry 43% higher fees on average versus non-ESG funds. Second, a recent study found that over the past five years, global ESG funds have underperformed the broader market by 250 basis points per year, an average 6.3% return compared with an 8.9% return. This means that an investor who put $10,000 into an average global ESG fund in 2017 would have realized a $1,750 lower return than if they had invested in the broader market. This stands to reason since ESG funds are less diversified, light on energy stocks, and overweight on technology stocks, meaning that a year like 2022 is catastrophic for investors because tech stocks significantly underperformed, and energy stocks significantly overperformed the market overall.
Many ESG proponents on Wall Street and in government, such as Securities and Exchange Commission (SEC) Chair Gary Gensler, argue that ESG is investor driven. But a recent University of Chicago and FINRA study revealed that only 21% of investors even know what ESG stands for. That’s why financial advisors and brokers need to focus exclusively on advancing their clients’ pecuniary interests. This is especially true during a time when a historic number of seniors are struggling to retire, and American small businesses and families are being crushed by the highest levels of inflation in four decades.
Even if you don’t own an investment account, ESG is hitting your pocketbook. As we head into the winter, household energy prices are set to hit a ten-year high, costing the average American family $1,200, according to a report from the National Energy Assistance Directors Association. The weaponization of financial regulation coupled with Wall Street’s obsession with ESG has redirected capital away from American energy projects. As a result, investment in oil and gas exploration and production in 2021 was 25% lower than 2019 levels. In less than two years, we have moved from a position of energy dominance to energy depletion precisely because of the radical climate finance agenda.
That is why we are leading the charge against ESG in defense of investors and to restore American energy dominance.
In Kentucky, I (Treasurer Ball) obtained an opinion from Kentucky Attorney General Daniel Cameron confirming that using state pension plans to invest in ESG is not compatible with Kentucky state law. Additionally, I championed a new state law that enables the Kentucky Treasury to prohibit state entities from contracting with companies that are boycotting oil, gas, and coal. The attorney general opinion and this new law will protect the Commonwealth for years to come should one of my successors decide to go down the rabbit hole of ESG investing.
At the federal level, I (Congressman Barr) have introduced the Ensuring Sound Guidance (ESG) Act to supercharge the fiduciary responsibility of investment advisors and Employee Retirement Income Security Act (ERISA) retirement plan sponsors to prioritize financial returns over non-pecuniary factors when making investment decisions on behalf of their clients. In the recently released Commitment to America (CTA), the roadmap for the House Republican agenda in 2023, Republican House Minority Leader Kevin McCarthy (CA-23) included a nod to the ESG Act. Under the “A Future That’s Built on Freedom” pillar of CTA, House Republicans promise to “stop companies from putting politics ahead of people.”
In the coming years, we urge leaders at the national, state, and local level to join us to defeat the dangerous ESG movement and get America back to the basics of investing. American investors depend on their investment plans to save for retirement, send their kids to college, and fund other aspects of the American dream. To restore American energy dominance, protect retail investors, and depoliticize capital allocation, we urge all Americans to join us in defeating the ESG movement and restoring the promise of free enterprise.