President Joe Biden’s Labor Department announced recently a new rule that allows money managers to play political with trillions upon trillions of people’s retirement savings.
The administration encourages environmental, governance, and social investing. Retirement fund managers can choose stocks based upon their social positions.
Simply put, retirement savings can be used to leverage companies to reduce carbon emissions and to establish racial or gender quotas.
Exxon and Chevron are two examples of money managers who have divested from traditional oil-and-gas companies to reduce greenhouse gasses. What has the outcome been? These were the two highest-performing stocks last year.
Since decades, socially conscious investing is a common practice. Individual shareholders may choose stocks that are in line with their values. For example, I know friends who won’t invest their money in Starbucks because the coffee company doesn’t support unionization of employees. Fine. It is a free country.
However, it is a different matter when trillion-dollar retirement funds and investment funds such as BlackRock insert their own biases in the way they invest people’s savings without their knowledge.
Even worse, these biases can deprive investors of a high rate return on their nest eggs.
Terrence Keeley, a former executive at BlackRock, blew the whistle on this scam in the Wall Street Journal by noting that since 2017, when the ESG fad took hold, these funds have had an annual rate of return of 6.3% — versus 8.9% for the stock market as a whole. On average, investors lost 2.6% annually on their retirement funds. That’s the down payment on the retirement home in Arizona and Florida.
The most disturbing thing about the ESG rules of the Biden administration is that they allow and encourage portfolio managers at BlackRock to breach their fiduciary duties to their clients. They also allow ESG factors to override sound investment decisions. Federal regulators should be protecting retirement funds’ soundness, not shrinking them.
Columbia University researchers and the London School of Economics discovered that ESG funds may not be reaching their goals. The study compared ESG records for American companies in 147 ESG funds portfolios to those of over 2,000 non ESG portfolios. The results showed that ESG companies had poorer labor and environmental compliance.
ESG is receiving backlash. Vanguard, one of the world’s largest money managers, announced late last year that it would be withdrawing from the Net Zero Asset Managers Initiative (a significant climate change alliance).
ESG investment strategies should not be legalized going forward If not Individual investors can check the box to have their money invested into such politically motivated investments.
By the way, victims of the law policies are often unionized workers — America’s truckers, factory workers and teachers — whose lifetime savings are put at risk.
Bravo Vanguard for pulling off the ESG scam. You might be curious to know why State Street or BlackRock haven’t made the same move if you have already invested with them.
Stephen Moore is an economist at FreedomWorks and a senior fellow with the Heritage Foundation. His most recent book, is “Govzilla: How the Relentless Growth of Government is Devouring our Economy.”
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