Governments Should Stay Out Of Market Investment Decisions

Culture warriors on the left and right are a restless lot. There's always something, somewhere, that offends them. When they get offended, they tend to demand that the government not only take their concerns seriously but also enact their vision of what's right.

Such has been the case over the last few years on the subject of so-called “ESG” investing. ESG – short for environmental, social, and governance – is an investment/social policy that puts investors capital to work in companies that uphold enlightened views on these three topics.

ESG is widely seen as a progressive idea, largely because few look past the “environmental” leg of the stool. And because of that myopia, the culture warriors on left and right have come to verbal and legislative blows over ESG – either seeking to mandate its use in public pension funds, for example, or ban its use in those same funds. Typically, the partisan dive breaks about as one would think: Democratic pols like ESG< Republican pols don't.

As the R Street Institute's Josiah Neeley writes, culture warriors in both camps should butt out of investment decisions:

Even if state legislatures were full of Nobel Prize winners, it would be arrogant for them to assume they know better how to invest people's money than they do themselves.

Blue states like California should recognize that companies have been working to reduce their environmental impact, even in the absence of government mandates. Accounting for environmental risks and their associated hit to community relations and the company's brand is something a company should do even if all they care about is the bottom line. Heavy-handed attempts by states to push this process along can create headaches for companies and risks a backlash from more conservative parts of the country.

And red states shouldn't be second-guessing companies' investment decisions either. If an investor thinks that renewable energy is the way of the future and doesn't want to invest in fossil fuel companies, they ought to be able to put their money where their mouth is. If it turns out they are wrong, the unhampered market will do a better job of punishing them than any state bureaucrat.

All of which is absolutely true. The regrettable thing is that, not so long ago, Republicans might have been counted on to keep government's dead hand out of investment decisions, owing to their vestigial allegiance to free markets.  Alas, the GOP's embrace of populism has made them almost indistinguishable from the blue-nosed busybodies on the left, who never met a market they didn't fear, and market participants they didn't loathe.

To be fair, though, it's far easier, and undoubtedly more fun, for the culture clashers to focus on sidelights like ESG than it is to fix the massive problem many state have with underfunded pensions.

Closing those gaps, which require hard work, tough choices, and such, is hardly as rewarding as a mirthless crusade against a particular method of investment.

Let the market decide whether ESG is worthwhile. Gains and losses are the only reliable and neutral way to determine whether the approach has merit.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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