By Carrie Sheffield
You might have heard the letters “ESG” in the financial news lately. Smart Women Smart Money uncovers what it means for you and your personal finances. The acronym “ESG” refers to taking environmental, social and corporate governance factors into consideration when making business decisions.
While the term “ESG” is fairly new, the concept of socially responsible investing has been around for many decades. Today, the concept of ESG encompasses many factors, with a recent heavy focus on environmental issues.
Environment: Some investors and firms envision a “whole of society” change to eliminate carbon emissions. Others take a more incremental approach to environmental sustainability.
Social: Initiatives that fall under this umbrella can range from working to advance social justice in terms of “anti-racism” training, requiring diversity quotas on a corporate board, or trying to provide better working conditions or benefits for employees.
Governance: Companies are already required to maintain checks and balances that ensure managers make decisions in the best interests of the company. But there are efforts to push for greater shareholder rights, including proxy voting.
In practice, there are many potential pitfalls and problems with ESG concepts Corporate diversity quotas, part of the social aspect of ESG, might be well-intentioned, but they ultimately undermine the hard work of women and minorities and can create “token” members, only there to fulfill the quota.
ESG efforts can have a selective focus on en-vogue political causes. For example, some companies work closely with Chinese entities and ignore the truly alarming human rights and environmental records of those companies.
Companies and investors should not use ESG concepts to simply score political points or virtue signal that they are part of a new “woke elite” in the U.S., but should carefully consider how their choices and business practices ultimately foster a prosperous, free and fair society.
ESG can, unfortunately, undermine the U.S. Constitution by imposing mandates on people that voters didn’t approve of at the ballot box.
ESG is impacting inflation. The environmental measures meant to bring about a transition to clean energy raise the cost of gasoline, natural gas, and heating oil for decades to come. These same measures also impact the food supply chain, adding burdensome costs to farmers and ranchers that will inevitably be passed to consumers.
ESG is a completely subjective tool used to help investors determine the long-term sustainability of your company. This “tool” may force companies like yours to take positions on political issues that have nothing to do with your business and could determine whether or not you get a business loan.
You more than likely have a 401K, pension, or retirement plan being managed by a third-party investment firm. This investment firm could be investing your money in companies that do not share your political beliefs or have ESG business models that contradict your livelihood. These third-party investors are also taking these 401k and retirement plans and investing in companies overseas, like China, that do not adhere to the same standards as companies in America.
Smart Women Smart Money’s parent organization, State Financial Officers Foundation (SFOF), recently launched an ESG education campaign called “Our Money, Our Values,” to help shine a light on the problems with ESG. This includes a list of 5 Questions To Ask Your Financial Advisor about ESG.
“We launched this campaign because we saw the use of ESG analytics by financial fund managers coercively investing and pushing others in the financial industry to invest in ways that most retirees or pension plan investors wouldn’t approve of,” SFOF President Derek Kreifels said. “We wanted to step into this information gap and educate people so they can move their money, if needed, into a firm that simply is investing for the best return possible.”
Kreifels said the response to SFOF’s education campaign has reached over 32 million Americans and has been overwhelmingly positive. Many folks have reached out to share their stories about how ESG is negatively impacting their small businesses, farms, and personal lives, but more importantly, how they are empowering themselves to change that.
SFOF’s “What is ESG? :60 Seconds” video has more than 3.5 million YouTube and Facebook views, and “Our Money, Our Values” coverage is seen in many local media outlets as well as national media like Forbes and Roll Call.
“Knowledge is power. We want to empower Americans to ensure that their financial investments, including their retirements, align with their beliefs and aren’t being used for political agendas opposed to those beliefs,” Kreifels said. “Women make the vast majority of consumer decisions, and we think it’s important for women to have all the facts about which companies they shop at because they might inadvertently be financing causes that they find questionable.”
SFOF member Idaho State Treasurer Julie Ellsworth spoke to Smart Women Smart Money and stressed the importance of fiduciary responsibility.
“When investing, have a plan, start early, and don’t feel compelled to invest in things you don’t believe in and don’t match your goals and needs for the future,” Ellsworth said.
“Environmental, Social, and Governance ratings may look like a good thing and a positive investment. The problem is that they are all subjective and don’t consider the best interests of the shareholder—the rate of return on the investment.”