By State Treasurer David McRae
NOTE: The following is a column provided by Mississippi State Treasurer David McRae
Over the last few years, “Environmental, Social, and Governance” (ESG) investment strategies have lured the attention of Wall Street powerhouses, but not because ESG funds are making anyone more money. Instead, ESG’s sole promise is to apply “Cancel Culture” to corporate actions.
Here’s why I’ve gotten involved in this debate. As Treasurer, I manage the state’s assets and financial programs, which includes helping decide where your taxpayer dollars are held. These are huge accounts and even a small tweak to investments can have significant ripple effects on the state’s pension system, college savings programs, and overall finances. So when bankers in New York City start forcing Mississippi taxpayer dollars into ‘woke’ funds with poor returns, I have some issues with that.
First and foremost, ESG’s standards are being applied subjectively, often according to perceived political ideology rather than hard facts. Consider this: One might think that Tesla, the world’s largest electric vehicle manufacturer, would earn a high ESG rating for its environmental stewardship. But no, it was kicked off the S&P ESG Index earlier this year, presumably because of Elon Musk’s personal politics.
Who remains? Left-leaning Apple and Nike (both of which have been accused of human rights violations that directly contradict the stated mission of ESG). Oil juggernaut Exxon also holds a spot on the ESG list, and investments into the globe’s largest polluter and human rights abuser, China, are still allowed.
Second, with no hard standards, ESG investors are cherry-picking industry winners and losers, and consumers are paying a hefty price for that. Today, the primary ESG target is American energy, specifically oil and coal. There should be no expectation that gas prices or heating costs will sink if big banks continue withdrawing investments from these industries.
And will they stop at oil and gas? No. The agriculture industry has already become a target for methane production. What will happen to our beef, pork, and chicken producers? And when Mississippi’s timber industry gets blacklisted by the ESG crowd, what will that mean for the thousands of Mississippi jobs it supports? Could even the State of Mississippi’s credit rating be put in jeopardy? Some are already warning that Mississippi’s conservative laws make us a target, costing taxpayers millions.
Third, and perhaps most importantly, when investment firms force public assets into ESG funds, I believe they are failing to uphold their fundamental fiduciary responsibilities. While almost no sector of the economy has shown brightly in 2022, ESG funds have been dimmer overall.
According to analysis by wealth manager Detlif Glow, “Overall, ESG has underperformed by 250 basis points for the past five years. Another long-term study noted that ‘ESG funds appear to underperform financially relative to other funds within the same asset manager and year, and to charge higher fees.’ Furthermore, adopting ESG policies does not cause improved company financial performance. This means asset managers have no financial basis for pressuring companies to adopt ESG.”
Regardless of your view on climate change or inclusion or human rights, Mississippi’s pension system, taxpayer dollars, and college savings programs are the wrong place to experiment with investment strategies that push balance sheets to the side. Moreover, many of the policies ESG promotes tie directly to higher costs for consumers, a weaker Mississippi job market, increased inflation, and smaller investment returns – all while undermining the free market and our economic liberty. With all this in mind, I remain strongly opposed to the ESG movement and will do all I can to protect Mississippi from its impact.
Mississippi Treasurer David McRae is the 55th Treasurer for the State of Mississippi. In this role, he helps manage the state’s cash flow, oversees College Savings Mississippi, and has returned more than $60 million in unclaimed money to Mississippians. For more information, visit Treasury.MS.gov.