By: Mark Glennon*
It’s called ESG — investing with environmental, social and governance goals in mind — and it’s the law now for how virtually all Illinois state money gets invested, including pensions.
DLA Piper, a leading law firm, just published a nice summary of the Illinois law: As of New Year’s Day, the Illinois Sustainable Investing Act (ISIA) requires every Illinois “public agency” and “governmental unit” to “develop, publish, and implement sustainable investment policies applicable to the management of all public funds under its control.”
As a practical matter, ESG means following whatever social justice goal is in fashion. It’s often political. No-no investments have included, for example, fossil fuel producers, gun makers and contractors working on the wall on the Mexican border. Illinois Treasurer Michael Frerichs tried to use his investment clout to to push Facebook around to solve the problems, as he saw them, of fake news, ads by Russian operatives and hate speech.
It’s a big deal now and is having an impact on where both public and private money is invested. “The ramifications are vast,” as DLA Piper wrote.
Does it undermine the goal of maximizing returns? Yes, of course it does — by definition.
But ESG supporters routinely claim that it does maximize returns, and parts of the Illinois law purport to preserve fiduciary standards for making money.
That’s illogical on its face. If ESG means maximizing returns then there is no such thing as ESG — it would just mean investing to make the most money possible as most investors do. You can’t have it both ways. Either you invest with the sole goal of making the most money possible or you invest to achieve other goals as well. Take your pick.
*Mark Glennon is founder of Wirepoints.