Is your retirement plan safe? No, I don’t mean from the uncertainty caused by the coronavirus. I mean from the political whims of self-serving investment managers and environmental activists.
There’s a growing trend in the financial community, driven by boisterous public shaming campaigns, towards environmental, social, and governance (ESG) investing — meaning giving more funds to companies who talk the right talk on issues like climate change, instead of to companies that offer the highest return on investment. The ESG movement wrongly bullies corporations into ignoring their duty to provide profitability for shareholders, in order to appease a vocal minority of progressive activists. And some major firms, like BlackRock, are capitulating.
A new Department of Labor proposal aims to shore up safeguards for some workers and retirees from politically motivated investing. But many others would remain unprotected, and the consequences of investing based on the hot topic du jour instead of on financial security could be devastating.
Efforts to divest from fossil fuels would yield no significant environmental benefits but come with an extreme economic cost.
Many of us take it for granted, but energy underpins everything we do. We owe our quality of life, vast economic opportunity, public health, and even environmental quality to the availability of affordable, reliable energy.
Denying financing to American energy producers based on political pressure kills good-paying jobs, increases our cost of living, and reduces the capital available to invest in the energy technologies of the future — while giving a leg up to less responsible energy producers. The less energy the United States is free to produce, the more we and our allies are forced to rely on hostile, unstable nations with lax environmental and labor standards.
And the climate change doomsday narrative, however popular it may be, ignores decades of vast improvements in both human flourishing and environmental quality — and it doesn’t align with climate science, either.
Eliminating all carbon dioxide emissions nationwide by 2030, as called for in the Green New Deal, would result in a less than two-tenths of a degree temperature change by 2100, according to data models used by the United Nations, the EPA, and most global climate-focused organizations. Meanwhile, severe weather patterns remain stable and humanity is becoming more and more resilient, with natural disaster deaths down dramatically. And in the United States, we’ve cut emissions of air pollutants by a remarkable 77% since 1970 — making us a world leader in clean air — while growing our economy, population, and energy use.
With its myopic focus on reducing carbon dioxide emissions at any cost, the ESG movement fails to consider the negative human and environmental impacts, especially the land and wildlife destruction, of “renewable” energy.
Ultimately, the best science suggests that our climate is likely to remain mild and manageable while technology and innovation continue to improve our resiliency, environmental protection, and overall well-being.
None of this means individual investors shouldn’t be free to allocate their money however they choose, or even that investment managers must choose fossil fuels. Private businesses and individuals should be allowed to exercise their best judgment.
The ESG movement wouldn’t just endanger retirees depending on their investments for survival, but it would force all of us into higher energy prices and fewer choices. This would hit distressed and vulnerable communities, who spend the largest share of their income on energy, particularly hard.
ESG is less an investing strategy than a movement towards mob rule. In the words of finance expert Rupert Darwall at the RealClear Foundation, it’s “the biggest threat to American capitalism since the 1930s.” When conformity and cancel culture take the place of logic, reason, and fiduciary responsibility, our entire financial system stands in jeopardy.
This commentary originally appeared in RealClearEnergy on July 26, 2020.