In the 20th Century, many important investing principles developed including asset allocation for diversity and the efficient market hypothesis. More recently, politics has risen to cause a shift in the desired measurement of economic welfare. The trendy newcomer is ESG. What is that?

ESG is the acronym of Environmental, Social and Governmental factors regarding investments. The concept is not new this century. The UN’s Environmental Programme Finance Initiative formally began in 1992. The Switzerland based organization now boasts 450 members representing $100 Trillion.

The movement’s foundation is based upon a popular proposition—corporate shareholders are incredibly short sighted, perhaps ignorant, but more likely motivated solely by greed. They would never consider long-term ills or benefits from corporate goods or services correctly.

Problem number one. Is there agreement about our ills and benefits?

I thought until recently perhaps smoking is a harm. Turns out that is only if applied to cigarettes, cigars and other tobacco, not to pot. Gambling is a major source of ruin and poverty for addicts unless its tax fruits fund education and other government growth.

Carbon-based energy is the worst! So let’s help people buy electrics with tax credits. Except needing fossil fuels for electricity to charge EV batteries is not a short-term issue. Making missiles could be a harm, but not if Uncle Sam buys and gives them to Ukraine.

Problem number two. Since we cannot democratically pass legislation enforcing what government knows best (for now), how do we penalize people who insist on living incorrectly? Remember ERISA, (1974), The Employee Retirement Income Security Act, an old trusted solution?

Back in the pension days, before you had to save all retirement funds yourself with IRA’s and 401k’s, some pension monies were being stolen or wasted by insiders, both employers and union trustees. Instead of punishing crooks harshly enough and trusting others, rules and costs for everyone spiked to help lawyers and CPA’s, but that is another story.

The DOL oversees ERISA fiduciary duties of prudence and loyalty. This worthy goal would ensure that plans operate solely in the interests of the participants and their beneficiaries. So far, so good. But what about ESG? It snuck in the back door.

In 2020, DOL issued a rule reemphasizing beneficiaries’ benefit. Growing the most money safely and inexpensively for workers was still paramount, even if managers would love to save us beyond the next 10 years. (It has been two years since experts predicted our demise in 12 years.) Last November, DOL changed the rule to provide cover (read excuse) for money managers to blame lesser rates of returns on ESG’s positive blessings.

In fact, this week President Biden issued the first presidential veto of his term striking down a bi-partisan bill that attempted to overturn these rules and require fiduciaries to only act in the best financial interest of the client.

Problem number 3. It is impossible to track well the costs or benefits of ESG investing. However, financial big dogs are touting their allegiance to the flag.

Capital Group, sponsor of American Funds, outlines its commitment. Much of its website is dedicated to statistics about ESG’s Growth. No stats show how you will be better off financially in retirement years.

Rather reminds me of Silicon Valley Bank having a Chief of Diversity Equity and Inclusion, but no Chief of Risk. Class action suits, anyone? More on ESG investing in a column soon to come.


(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)