Biden ESG veto puts retirement accounts at risk

 Helen Raleigh:

President Joe Biden issued his first veto against a bipartisan bill that sought to protect millions of Americans’ retirement plans from woke investments. His action shows he prioritizes politics over Americans’ financial security.

Early this month, the U.S. House and Senate passed a bipartisan resolution to prevent fiduciaries of retirement plans from subordinating financial returns to woke causes. Biden chose to ignore all the concerns and warnings, including those from his own party. Instead, he used his first veto to preserve a so-called environmental, social, and governance, or ESG, rule that his administration adopted last year. His action confirms that despite his rhetoric of bipartisanship, he is an inflexible politician.

The Labor Department issued a new ESG rule last November, which “allows plan fiduciaries to consider climate change and other environmental, social, and governance factors when they select retirement investments and exercise shareholder rights, such as proxy voting.”

The ESG rule also reversed the Trump administration’s restriction on retirement plan investments in ESG companies or funds due to fear of subordinating “the interests of plans and their participants and beneficiaries to unrelated objectives.”

Supporters of ESG have claimed that ESG-focused investment funds have generated better returns than traditional funds. Yet growing evidence shows that ESG investments have not lived up to their hype.

For instance, a University of Chicago study found no evidence that high-sustainability (another name for ESG) funds outperform low-sustainability funds. Additionally, when the stock market was in turmoil last year, ESG funds did not fare better than traditional funds, thus offering investors no haven. In fact, according to Bloomberg, the 10 largest ESG funds posted double-digit losses in 2022, and eight of them lost more than the S&P 500, a stock-market index.

ESG funds charge higher fees than non-ESG funds, despite failing to generate better returns. In 2020, the average annual fee of ESG U.S. stock exchange-traded funds (ETF) was 0.2 percent, about 0.06 percentage points more than conventional funds, which averaged about 0.14 percent. It might seem insignificant, but every percentage point makes a big difference for asset managers who oversee billions of dollars.

“A firm managing $1 billion in a typical ESG fund, for example, would garner $2 million in annual fees versus managing the standard ETF’s $1.4 million,” according to The Wall Street Journal. Asset managers find ESG funds more lucrative than non-ESG funds due to higher fee income. No wonder BlackRock, the world’s largest asset manager, and its CEO, Larry Fink, have advocated so loudly for ESG investments.

But a good deal for BlackRock is not a good deal for investors. By investing in ESGs, investors have been paying more for mediocre returns.
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ESG funds tend to invest more in Big Green than in traditional energy projects.  This has the effect of reducing the production of oil and gas and thereby driving up the cost of filling up your vehicle.  They are trying to push people into expensive and less reliable EVs. 

See, also:

Biden vows to tank GOP effort to boost energy production

Republican efforts to boost energy production 'would take us backward,' White House says