By: Mark Glennon*
If you haven’t learned the latest fad term for progressives, you need to.
It’s an acronym, actually: ESG, and it stands for environmental, social and governance. It’s an investment philosophy that seeks to further social justice goals like fighting global warming, encouraging gender and racial diversity, improving labor standards and much, much more.
What it really amounts to is subordinating investment returns to political goals and virtue signalling. It’s an attempt to pretend there’s science and analytic rigor to how progressives think public money should be invested to further whatever social goals are in fashion.
Chicago’s Treasurer Kurt Summers, wants authority to invest the $7 billion of taxpayer money he manages that way. Articles this week in the Wall Street Journal and Chicago Tribune have described his proposal. The full ordinance he wants the City Council to pass is linked here.
Chicago’s move would be particularly significant, says the Journal, because it would apply ESG investing across the entire portfolio. Seven billion dollars is a lot of money, and other governments that do some ESG investing usually make only a small allocation to it.
You’ll find plenty of debate about whether ESG investing means lower expected return on investment, but you shouldn’t need any study or expertise to see that it does. The answer is self-evident. Are you investing to maximize returns or not? Does ESG mean you invest differently than that or not? ESG has to mean sacrificing returns as the money manager’ sole goal or it has no meaning at all.
What does it even mean to begin with? The proposed Chicago ordinance would let the Treasurer select investments based on which companies “promote a better life for all of us.”
Huh? What social goals are the right and virtuous ones and who decides? The standard list includes things you’d expect like global warming, diversity and inequality, but nobody knows where it ends, so it just gets goofy. Evil investments, in they eye’s of some, have included, for example, those in Caterpillar. Why? Because they make bulldozers, and Israel sometimes uses their bulldozers to raze homes of Palestinians they’ve identified as terrorists.
Illinois’ Treasurer has already shown us how ESG has been abused at the state level. We’ve written before about his use of taxpayer money to grandstand on issues like Russian election meddling through Facebook. (Our articles on that, reprinted in ZeroHedge linked here and here, got over 75,000 pageviews combined.)
Even if you correctly target the right evils to avoid, there’s the question whether it makes any difference to avoid investment in them. ESG is mostly about stocks in circulation. The companies already got their money in the initial offerings. Disfavoring stocks trading on the market just punishes existing shareholders when they sell because they find less demand for what they hold. Those current holders, who suffer the losses, include the same public funds like those Treasurer Summers manages, public pensions, retirement accounts and all the rest.
And as for the Chicago Treasurer’s portfolio, it’s not even invested in stocks. It’s almost entirely fixed income — bonds. As the Journal article points out, “Bond investors are unable to use tools such as proxy votes that are available to stockholders who wish to express frustration with company management.”
Professional public money managers who want their record based on how much money they earn for taxpayers despise ESG because it so grossly obscures their mission. However, that doesn’t mean you won’t find some support for it on Wall Street. That’s because ESG is a form of active investment, and that requires higher fees, which is in contrast to the more widely accepted, passive, index-based investment approach.
Treasurer Summers says, according to the Tribune, that his ESG investment decisions would be similar to how the Cubs and other Major League Baseball teams rely on advanced analytics to assess players, with a system that draws in disparate bits of information to score companies based on ESG factors.
Nonsense. It would be more like letting the girls in the grandstands select the players based on who looks nicest.
*Mark Glennon is founder and Executive Editor of Wirepoints. Opinions expressed are his own.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
I never meet a low income or even middle income “progressive”. what’s key, is appearing virtues, zooming around in your sjw tarazan suite. ESGs are all about optics, and attracting ever more upper income “progressives” types who are willing to pay for all the expensive PC lifestyle stuff and 6 figured retirees pensions. and keep us chumbalons moven out. and turn chicago into another sanfranscisco. ESG $ returns are irrelevant.
Are the ESG funds themselves diversified enough to accommodate an entire pension portfolio?
No! By definition they are not diversified. That’s a good way of looking at it. And he’s trying to do it with fixed income. To my knowledge there’s really no such thing as fixed income ESG.
It’s not their money. If they loose money they will just raise taxes.
UFOs have got to be dropping these stupid people. I wish they would come back and get them.
This ESG fiscal strategy sounds troublesome indeed.
Floating this idea will likely “Sink” the proposed option.
Hey, how ’bout that. We agree on this. Seriously, Advocate, we appreciate you coming back here often with contrary views. Wish there wore more on the other side with the courage to fight.
Thx Mark,
Nicely said. We probably agree on more than we do not;still, there is plenty we can disagree on. I will continue to try and provide some counterpoint even though most times I often draw out many sharp knives here.
For some reason I thought his job was to maximize ROI for taxpayers, not to play social justice warrior. Apparently I was wrong.
This makes his job more interesting, but much more importantly , he can appear virtuous to idiot voters and coworkers — two very large groups. We have the same idiocracy here in Baltimore, and capitol Annapolis. I can’t stomach the similar retardations here in MD, so I rarely follow local and state news. It’s entertaining to read about Chi and ILL, where I grew up, cuz it doesn’t affect me! 🙂
Mark understands. 🙂
Wow, more than just retarded. IF he’s serious about the ‘mission’, then he and his peers in govt would set an example by cycling to work, using no air-conditioning in the summer, and put temp at 60 in winter and wear sweaters — that’d reduce carbon emissions — AND they’d be doing terrific virtue-signaling — AND they’d avoid being complete hypocrites.