Recently, in a weird and cognitively-dissonant move, the Republican governors of 19 states “announced an alliance” — in the name of “freedom”, these states were banding together to prevent public pension funds and other investment plans somehow related to state and local government from considering investment options that take environmental, social, and governance (ESG) issues into account while making investment decisions. They say that they’re hoping thereby “to protect individuals from the ESG movement” and the insidious influence of “woke ideology” … though it’s not clear how limiting the freedom to choose our investment strategies is a way to protect our “free economy”.
This is nonsense, of course, and is probably best explained as a part of the current “culture war” approach being taken by the leadership of the current Republican party. Experts have long held that every investment manager may, and many must, take ESG issues into consideration. Legal experts working for the United Nations recently announced that, in their view, “fiduciary duties of loyalty and prudence require the incorporation of ESG issues” into investment decision-making. I’ve actually published a couple of articles on the matter in academic journals, too, arguing that very point.
Last week, our friends at the sustainability-oriented non-profit Ceres announced a new initiative — “Freedom to Invest”, a group of “investors, companies, and other capital market leaders” who have organized to take their message to federal, state, and local legislators and policy makers:
We should be free to consider material factors relevant to the sustainability of business, including the economic impact of environmental changes and the corresponding need to reduce emissions. We support policy and regulatory action consistent with the Paris Agreement. Doing so will allow us to better preserve the performance of our companies and our investment portfolios, to help ensure our ability to deliver strong returns for our shareholders and beneficiaries long into the future, and to build a prosperous, resilient, and competitive U.S. economy.
Yesterday Ceres reached out to the broader ESG investment community, asking for more co-signers to this statement. On behalf of Horizons, and all of our clients, I gladly signed on.
