(JustPatriots.com)- You’ve probably heard of ESG, environmental, social, and governance. But do you understand why it’s contentious?
If you haven’t looked into asset management, the likelihood is that the answer is no.
Asset managers are responsible for investing other people’s money—their assets—in mutual funds, securities, or exchange-traded funds that produce high returns. Why would you trust an investor with your cash without the hope that their investment on your behalf would increase in value or produce income?
The asset manager is not the beneficiary of the holdings it managet. You do. Because it manages your money, the asset manager has a fiduciary duty to you and must operate with honesty, good faith, and increased caution. Using someone else’s money in a way they don’t approve of or disagree with is unethical. When investingy, people are free to pursue ESG goals.
Despite these fundamental ideas, many asset managers and mutual funds appear to have forgotten, shunned or neglected them.
Investment firms have widely utilized ESG standards to evaluate whether to include or exclude corporations. These investment firms invest in funds from companies that meet specific ESG criteria rather than investing them where they will generate the highest returns or based on financial performance. Under the pretense of stewardship, they are extending the scope of their fiduciary duties to cover climate change and are using their proxy power to exert pressure on firms’ boards.
Two issues: First, businesses can easily manipulate the system by finding ways to satisfy the ESG requirements and enhance their public perception and reputation without actually committing to any of the three ESG prongs. Secondly, investment firms are mismanaging investors’ money and using their clout as shareholders to intimidate company boards.
Asset managers have done a disservice to investors by prioritizing environmental, social, and governance (ESG) goals over fiduciary obligations.
She says that large investment firms have amassed riches by investing state pension funds’ money in underperforming ESG funds. Public pension fund administrators are to blame for this state of affairs, and they significantly increase the risks to taxpayers.
What is needed are more asset managers that won’t lecture corporate America about addressing climate change.