How ESG hurts pension plans

Just 6 months ago, few people outside the financial world knew what ESG was. That's changing now that 25 state attorneys general have filed a federal lawsuit against the Biden administration. Utah Attorney General Sean Reyes filed the lawsuit, then was quickly joined by 24 other state AGs, including those from Louisiana, Texas and Virginia.

In their lawsuit, these AGs challenge "a Department of Labor (DOL) rule unveiled in November and which is set to go into effect on Jan. 30. The rule would open the door for fiduciaries to factor so-called environment, social and governance (ESG) considerations into Americans' retirement accounts, an action the states argued could significantly harm the financial interests of customers." In a statement, Reyes told FOX Business "The Biden administration is promoting its climate change agenda by putting everyday people’s retirement money at risk. Americans are already suffering from the current economic downturn." Then Reyes continued:

Permitting asset managers to direct hard-working Americans’ money to ESG investments puts trillions of dollars of retirement savings at risk in exchange for someone else’s political agenda. We are acting with urgency on this case because this illegal rule is set to take effect next week. It must be stopped."

This is a dereliction of duty on the Biden administration's part. Their sole responsibility should be to strengthen these pension plans regardless of what investment tool they use. Utilizing woke platforms because it fits their political ideology is foolishness. These pension recipients want a great return on investment, regardless of how it's accumulated. Marc Schort lays things out beautifully in less than a minute in this interview:

The two dozen states filed the challenge in a federal district court in Texas and asked the court for a preliminary injunction to prevent the DOL from implementing the rule until a ruling had been issued in the case.

In the lawsuit, the states allege that the DOL violated the Employee Retirement Income Security Act (ERISA) of 1974. The law safeguards the retirement income of 152 million U.S. workers, equivalent to more than two-thirds of the nation's adult population, and covers roughly $12 trillion in assets.

These paragraphs don't fit together:

The states noted that ERISA requires retirement plan assets to be held for the exclusive purpose of providing benefits to participants in the plan and that the fiduciaries must act solely in the interest of said participants. The Supreme Court has previously ruled that such "benefits" are defined as "financial benefits."

After announcing the rule on Nov. 22, Labor Secretary Marty Walsh said the move would "help plan participants make the most of their retirement benefits." DOL Assistant Secretary for Employee Benefits Security Lisa Gomez added that climate change and ESG factors were important for investors.

SCOTUS was quite clear. Benefits are defined as "financial benefits", aka Return-on-Investment. Ms. Gomez can't possibly know what's important to a large group of investors that she's never talked with one-on-one. Some of the state AGs speak out:

"This is about protecting retirees in Louisiana and the rest of the country," Louisiana Attorney General Jeff Landry told FOX Business. "Investments should be made using sound economic principles, not woke policies. These firms have a responsibility to invest with their client's best financial interests in mind rather than Biden’s disastrous agenda."

Liberty Energy CEO Chris Wright, a private plaintiff in the case, added that his company was suing because the regulation "makes it harder to protect our workers’ retirement security and impedes investing in our industry and its ability to provide reliable and affordable energy to our communities."

Ken Paxton, Texas' AG, perhaps said it best:

"This rule is an affront to every American concerned about their retirement account," Texas Attorney General Ken Paxton said in a statement to FOX Business. "The fact that the Biden Administration is now opting to risk the financial security of working-class Americans to advance a woke political agenda is insulting and illegal."

"For generations, federal law has required that fiduciaries place their clients’ financial interests at the forefront, and I intend to fight the Biden Administration in court to ensure that they cannot put hard-working Americans’ retirement savings at risk," he added.

Finally, there's this:

Over the past few years, massive asset managers and financial institutions have increasingly focused on prioritizing ESG factors when making key investment decisions. They have particularly set their sights on investing in companies based on those companies' efforts to combat climate change and curb their carbon footprints.

Investing based on political agendas shouldn't be allowed. ERISA seems to have been created to protect against individuals' political agendas. Further, ERISA was created because pension funds had been mismanaged. Investing in political causes rather than investment tools that produce the best ROI might be considered mismanagement.