The House Ways and Means Committee is holding a hearing tomorrow entitled Ensuring that “Woke” Doesn’t Leave Americans Broke: Protecting Seniors and Savers from ESG Activism. The hearing – as its name not too subtly suggests – will address the impact of environmental, social, and governance (ESG) considerations in investment decisions.
The true issue arising from ESG’s increased melding with finance is the government’s desire to do the same. Left-wing politicians and bureaucrats want to mandate that investors consider such factors and aim to implement burdensome regulations on those who do not. On the other side, right-wing lawmakers want to ban investors from considering ESG in investments because of ESG’s natural association with more left-wing causes.
Unfortunately, investors and savers are left out of both equations. Both approaches seek to prioritize political rather than financial concerns. Investors should be free to consider whatever factors they prefer when investing their money. Those responsible for investing on behalf of third parties already have a legal and fiduciary duty to their clients to provide efficient services and maximize value. Government involvement in this area is duplicative.
What will hurt these investors are government regulations like those proposed at the Securities and Exchange Commission, which implement overly strict reporting requirements to ensure compliance with ESG standards. This will hurt companies across the nation and will stunt economic growth. Estimates show over time that such regulations would carry a $10.2 billion direct cost and would, in the long-run, hinder stock values overall to the tune of $5 trillion.
If lawmakers want to protect investors from ESG, they ought to leave it be. Let the market work. Government involvement – from either side of the political aisle – will ultimately be what hurts investor savings more than any non-financial agenda.