(The Center Square) – The call is growing for more scrutiny on environmental, social and governance, or ESG, investing.
A growing number of lawmakers from more than a dozen states have been denouncing the incorporation of ESG principles into investing and business, saying they put retirement savings plans at risk.
The S&P Global Clean Energy Index has plunged this year, as wind and solar stocks have suffered over various issues.
In a lawsuit before the New York Supreme Court, a group of employees said a decision to rid public pension funds of fossil fuel investments put their retirement at risk. If successful, the lawsuit could open the floodgates for new legal claims for critics of ESG investing.
During a recent U.S. House Ways and Means Committee hearing, Illinois U.S. Rep. Darin LaHood, R-Peoria, agreed with the sentiment.
“The fixation on ESG activism by the executive branch and many U.S. companies is really leaving seniors and people that save money in the middle class and their retirement at risk,” LaHood.
LaHood highlighted an article in the Harvard Business Review that said “corporate managers trying to maximize long term shareholder’s value should, of their own accord, pay attention to employee, customer, community and environmental interest on this basis. Setting ESG targets may actually distort decision making.”
Illinois Treasurer Michael Frerichs testified at a U.S. House hearing on ESG practices earlier this year that there is a campaign to blacklist financial firms that embrace ESG efforts.
“Now is not the time to stop investors from considering who’s data could lead to better returns over the long term,” Frerichs said. “The American economy depends on investors, please let us do our jobs.”
Frerichs was behind a law that required investment managers of Illinois public funds, including pension systems, to disclose how they integrate environmental, social and governance investment strategies.
ESG investing is experiencing pushback outside the U.S. as well. A global survey by Amundi revealed that only 8% of pension funds regard their asset managers as “excellent” when it comes to achieving ESG goals on their behalf, and 14% of pension funds are willing to sacrifice returns to meet ESG goals.
