The judge recently said blocked Oklahoma’s anti-ESG law marks the latest volley in years of political ping-pong. At least 33 states Now that we have anti-ESG legislation, the corporate world is saying, “Greenwashing” has been changed to “.Green HushingThere have been mentions in earnings reports from US listed companies that ESG has declined by nearly two-thirds.
District Judge Sheila Stinson ruled in a preliminary injunction that the anti-ESG law violates the state’s constitutional obligation to manage pension funds for the exclusive benefit of beneficiaries. In other words, leaving investment decisions to the whims of the culture wars will not be good for pensioners who rely on the returns for retirement, college funding, and health care.
This makes sense. After all, the data shows that ESG and market returns are two sides of the same coin. This runs counter to the anti-ESG movement’s belief that ESG necessarily lowers returns and that investors are failing in their fiduciary duty to maximize returns by focusing on the environmental, social, or governance implications of investments.
These beliefs are so common and deeply entrenched in investors’ minds that anti-ESG activism has formed around them. The American Legislative Exchange Council’s “model” anti-ESG bill states that state pension funds Sacrificing “investment returns”… to promote goals unrelated to financial gain.” According to ALEC’s chief economist, “politically motivated investments, by definition, reduce returns.”
On the surface, this argument makes some sense. Doesn’t considering non-economic factors come at the expense of economic gains?
But the data tells a very different story. hour ~ after hourAccording to our analysis, ESG-oriented funds consistently achieve excellent results Traditional investment. Since 2011, we have been Gap Closing Investment is in the ranking upper quartile Of all the venture funds, we are not alone. As of December 2023, KKR’s Impact Portfolio It was one of the best performing funds, outperforming healthcare and next-generation technology funds.
Ironically, non-economic considerations of political leaders are hampering investors’ ability to achieve above-average returns.
When investors turn their backs on ESG in response to political pressure, ordinary Americans who rely on their income suffer. Moreover, these anti-ESG measures actually Cost calculation Taxpayers’ money.
After Texas passed a law banning public contracts with investors, investors excluded fossil fuels and firearms from their investments, and municipalities had limited options for underwriters and higher costs. This increased costs. In the eight months after the new law went into effect, additional interest was between $300 million and $500 million. According to research, At the University of Pennsylvania, Oklahoma experienced a similar financial downturn, with an additional cost of about $185 million, or about $11 million a month, according to the report. Oklahoma Rural Association.
Of course, the ESG movement has done itself no favors by too often promoting weak performance metrics and immature leadership. In recent years, the consumer appeal of ESG has fueled corporate and investor rhetoric that often outweighs the reality of vague definitions that are neither measurable nor clear. Influential. But passing a blanket ban on ESG-oriented investing despite the actions of some bad — or simply unsophisticated — actors would be throwing the baby out with the bathwater.
So what should investors do? Within our firm, we start by recognizing that every investment has a broader social impact. And that impact can be positive, neutral, or negative. Instead of focusing myopically on a few metrics that may ostensibly reflect ESG alignment but may not be strongly correlated with value driving, we ask a simple question: If this investment is successful, who will be better off and who will be left behind?
This gap-closing strategy ensures that gaps in access and opportunity are reduced rather than exacerbated. It involves a variety of stakeholders, including employees, consumers, and the general public, when considering who is better off and who is worse off. Investors seeking better returns should act similarly by identifying funds and companies that create opportunities for more Americans or provide healthier places for Americans to live, work, and learn. These are the types of companies that have made a profit. Top Quartile Return For our company.
When politicians pick winners and losers, the real losers are often American taxpayers. Managing the inevitable market fluctuations is the job of capital allocators, not governments. When politicians take responsibility for investors, both sides should be careful.
As is often the case when politics are involved, sunlight is the best disinfectant. Increasing transparency about the outrageous claims made by anti-ESG advocates and raising awareness of the market-beating returns of gap-closing investments can help prevent pensions from becoming a political football. Americans should demand intellectual honesty from their elected officials and advocate for the freedom to invest in ways that generate both positive social impact and strong returns.
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