It’s bad enough that environmental, social and governance (ESG) activist-investing helps Democrats bypass the legislative process, but it also hurts Americans’ retirement accounts, because it charges higher fees and yields lower returns, former fiduciary and investment adviser Rep. Byron Donalds (R-Fla.) warns.
Democrats advance and defend ESG because “it helps them achieve a lot of the political and social ends that they want to see without actually having to come here and vote,” Rep. Donalds said Wednesday at a House Financial Services Committee hearing examining ESG policy in financial regulation:
“So this works a lot better [for them] when you have small pockets of activist shareholders bringing board proposals ad nauseam and they kind of overwhelm the C-suite, if you will, to accomplish these things through the corporate sector that you could not get through the legislative process. And so I see why they don't want to focus on it.”
“But at the end of the day, what we're discussing is the real implications, the real-world fiscal implications of ESG policy on our capital markets,” Donalds said.
“Now, the reason why it’s easy for me to talk about this is because I actually was a fiduciary,” Rep. Donalds said, recalling his years of experience as an investment adviser at Wells Fargo:
“I was an investment adviser. I did the job. I would never invest my clients in ESG funds - because they are more expensive and the returns are not there.
“The returns have not been there.”
Donalds cited the ESG activism of asset and investment management behemoth BlackRock as a case in point:
“If you look back to returns for 2022, BlackRock’s own ESG screened S&P 500 ETF (exchange-traded fund) was down twenty percent in 2022. It lost twenty percent of its money.
“And by the way, if you look at the fees for that fund, the fees are much higher than a baseline ETF, just taking the S&P 500 as a basket of securities and delivering it to somebody with an IRA or if it ever got batched into any matrix of a 401(k) that might be out there - even one that might be available to pensioners in the state of Minnesota. That broad-based S&P energy sector ETF was up fifty percent last year.”
ESG doesn’t just hurt financial returns by investing clients’ money in less-profitable firms, it also does so by refusing to provide capital to companies in industries with higher profit potential that don’t comply with, or conform, to ESG ideology, Rep. Donalds explained.
“That kind of chilling effect is not what the free market was ever created to do. That chilling effect is something completely different, which is an anathema to the free market,” Donalds said.
Rep. Donalds also voiced objection to the Biden Administration’s proposed Securities and Exchange Commission rule that would require companies to expend time and money collecting and providing environmental information that has nothing to do with their actual businesses:
“What is material is what matters to the financial operations of the company, because the investment is into the company itself, not into the environment writ large, not into the social system of the United States - or the world, for that matter.”