What is ESG and Should Retirement Funds Be Allowed to Use It?

President Biden will reportedly use the first veto of his presidency to block congress from overturning a Labor Department rule allowing retirement fund managers to use the ESG framework in investment decisions. What is ESG, and is it smart for investors?

What is ESG: ESG stands for “Environmental, Social, and Governance” investing. An Associated Press (Lean Left) analysis broke down the three pillars of the ESG framework, which proponents claim can “highlight companies that may be riskier than traditional investing guidelines alone might suggest,” but critics fear leads to investing “based on political agendas… rather than on earning the best returns for savers.”

Voices Opposed: Republican lawmakers in Texas and Florida have proposed legislation to limit ESG investing. Two senate Democrats joined Republicans in voting to overturn the Labor Departments’ rule allowing ESG. The Washington Times Editorial Board argued an ESG-based approach leads investors to “make investment decisions based on what makes them feel good rather than what will earn the most money in the long run.”

Voices In Favor: BlackRock, the world’s largest investment company with over $8 trillion in assets, has defended its use of ESG. An opinion piece in Bloomberg questioned Republican actions against ESG investing, determining that “if socialism means state control of production, distribution and exchange of goods and services, then Florida and Texas fit the description.” The writer contrasts this with California’s pro-ESG stances, stating it has “allowed it to borrow more cheaply than Florida and Texas even though it has lower credit ratings.”