We applaud President Biden’s veto – the first of his Administration – of a bill that would have banned pension funds under Labor Department jurisdiction from considering the environmental, social, and governance (ESG) impacts of the companies they invest in. Read the President's tweet.
Morningstar’s Global Head of Sustainability Research, Jon Hale, wrote a useful backgrounder on the Labor Department ESG rule, which emphasized that retirees deserve to have their savings managed in a way that is both fiscally responsible and sustainably sound. A prudent consideration of ESG factors – along with crunching the numbers – is how serious investors accomplish that. Read Jon's comments.
ESG is not part of some radical ‘woke’ agenda, as oil industry lobbyists and right-wing politicians misleadingly assert. ‘Woke capitalism’ is leveled as a criticism, but upon reflection, who doesn’t want to be awake? . . . and to whom should investment capital be entrusted? Certainly not to the ESG opponents and fossil fuel executives who clearly espouse remaining asleep at the switch.
Consideration of ESG factors makes good common sense because it involves a fiduciary consideration of real-world data about a company’s impacts on people and the planet. These are sound and prudent financial considerations that inform real-world decisions on which companies to invest in, and which to avoid.
The vetoed prohibition – on pension managers use of ESG factors for analysis – would have put artificial, non-market constraints on investors, and prevented us from considering whether a company is engaging in a host of unsustainable, financially risky behaviors.
Developed over decades, ESG is not a market constraint, but a market-bred response to the financial materiality of environmental, social, and governance data.
In contrast, the opponents who proposed these curbs on ESG (to push hidden and self-serving agendas) are, in fact, the ones who seek to stifle the marketplace with anti-competitive restrictions.
Woke capitalism? If this means being awake to both the possibilities and responsibilities of operating here in the 21st century – you bet, let's wake up!