inside sources print logo
Get up to date Delaware Valley news in your inbox

KERRIGAN: ESG Mandates Mean Fewer Choices, More Uncertainty

For many people, especially small-business owners and entrepreneurs, uncertainty is the only certainty about the economy. Unfortunately, policy ideas that aren’t well thought out only intensify the uncertainty and make it harder to plan.

Lawmakers and regulators should be striving to do the opposite. In the last few years, Americans have endured inflation, supply chain disruptions, a possible recession and more layoffs. Again, small-business owners have been on the front line of it all. They, like most Americans, are still planning for their futures and need as many options as possible.

Several major investment managers have leaned into Environmental, Social and Governance (ESG) goals to determine how they invest funds on behalf of their stakeholders, which include pension funds and individuals (such as small-business owners) planning for retirement. According to their ESG goals, investment managers have declined to invest in certain companies and industries, including fossil fuels.

These tactics have received understandable scrutiny from lawmakers who question whether these investments are designed to maximize returns.

The problem with ESG investing isn’t that it exists. The problem is that some asset managers make it the only option. Americans should have as many tools as possible to plan for their futures, whether saving for retirement or getting ready to take on a new entrepreneurial challenge. If investors don’t like the options presented to them, they should be able to take their business elsewhere.

Gallup survey in 2022 found that 78 percent of investors consider expected returns when deciding where to place their money, while 41 percent consider corporate governance, 38 percent consider social values and 35 percent consider environmental impact. ESG investing isn’t for everyone — and that’s a decision that every individual should be able to make themself.

There are valid questions about the wisdom of investment managers categorically refusing to invest in specific sectors. The answer to these questions shouldn’t be another mandate that could hurt individual investors, who are smart enough to make these decisions as long as they have every available option.

 The investment field should be as wide open as possible, ensuring low-cost products that provide freedom of choice to select the most effective investments from a broad range of options. Mandates — whether from ESG-fueled asset managers or lawmakers who question those strategies — only force investors into one position or another and rob them of their choices.

One asset manager understands this balance. Vanguard, one of the largest investment managers worldwide, gives its customers every option. Importantly, it is not incentivized into one position or another on issues like ESG. The company is uniquely structured by being client-owned and operated at cost. So as an investor in Vanguard funds, the customer’s interest and Vanguard’s are one and the same.

In December, Vanguard withdrew from the Net Zero Asset Managers initiative, an alliance that uses its investment portfolios to contend with climate change. In withdrawing, Vanguard cited a commitment to its “singular goal” of maximizing long-term returns. Climate-focused funds remain available to those who want them, and other funds are available to investors with different priorities. That’s the way it should be.

The only sensible ESG policy solution for lawmakers and regulators is to step out of the way and let firms do what they do best — help consumers, entrepreneurs and small-business owners invest in themselves, their employees and build sound financial futures. 

In times of uncertainty and an unpredictable economic climate, this is one of the most effective and empowering tools we have left. Mandates, bans and other heavy-handed regulations make it more difficult for investors to plan. These proposals should be roundly rejected in favor of a wide-open investment landscape allowing everyone to make the best decision.

Please follow DVJournal on social media: Twitter@DVJournal or