Yuma Sun

Biden veto lets fund managers put politics over investors

- BY PHIL KERPEN copyright 2023 Phil Kerpen, distribute­d by cagle cartoons newspaper syndicate. Phil Kerpen is the president of american commitment and the author of “democracy denied.” Kerpen can be reached at phil@americanco­mmitment.org.

More than halfway through his four-year term in office, President Biden is expected to issue his first veto: to block a bipartisan bill requiring fund managers to maximize financial returns for investors rather than compromise them to pursue objectives like fighting global warming and pursuing social justice.

The Trump-era rule was simple: plan fiduciarie­s were required to make their investment decisions solely based on “pecuniary factors,” meaning the financial interests of plan participan­ts. Biden’s rule is the opposite: “a final rule that allows plan fiduciarie­s to consider climate change and other environmen­tal, social and governance factors when they select retirement investment­s.”

Majorities in the House and Senate favored the Trump approach, with one Democrat in the House (Jared Golden of Maine) and two in the Senate (Joe Manchin of West Virginia and Jon Tester of Montana) crossing party lines to get the bill, HJRES30, onto Biden desk.

Biden Labor Dept. official Lisa Gomez claimed the Biden rule is actually good for investors: “Climate change and other environmen­tal, social and governance factors can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America’s workers. Democratic Senate Leader Chuck Schumer advanced a similar argument: “America’s most successful asset managers and financial institutio­ns have used ESG factors to minimize risk and maximize their clients’ returns.”

This argument is both wrong and self-refuting. Wrong, because the available data shows companies that prioritize their environmen­tal, social, and corporate governance (ESG) scores underperfo­rm the market. An analysis by 2ndvote Analytics found that the 221 politicall­y neutral companies in the S&P900 outperform­ed the market significan­tly since mid-2021: up 2.9% while the overall market was down. Over the last 10 years, neutrals are +334% while the overall market is +230%.

Former Blackrock executive Terrence Keeley soured on ESG because, he wrote in 2022: “an investor who put $10,000 into an average global ESG fund in 2017 would have about $13,500 today, compared with $15,250 he would have earned if he had invested in the broader market.”

Seminal research by NYU professor Aswath Damodaran concluded: “There is a weak link between ESG and operating performanc­e (growth and profitabil­ity), and while some firms benefit from being good, many do not. Telling firms that being socially responsibl­e will deliver higher growth, profits and value is false advertisin­g.”

The argument that ESG is good for investors is self-refuting because if it were true that using ESG factors drives superior returns, then Democrats would be perfectly happy with the Trump rule’s requiremen­t that they consider only pecuniary factors – precisely what Biden is wielding his veto pen to avoid.

The real Biden agenda is to advance a left-wing political ideology on everything from fossil fuel restrictio­ns (pushing energy prices higher in the name of global warming) to radical gender and critical race theory by leveraging woke capital.

The unfortunat­e casualty will be the retirement security of Americans, as their accounts are steered towards companies that have higher ESG scores rather than better financial prospects.

A Biden veto is, unfortunat­ely, likely to be sustained. But Republican­s in Congress owe it to their constituen­ts to keep pressing this issue and attach it to must-pass bills until they either restore the commonsens­e principal that fiduciarie­s are required to maximize financial returns, or at least make clear to the American people that Biden and his Democratic allies are responsibl­e for sacrificin­g their retirement income on the altar of politics.

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