Investors Column –The President’s Money-Losers

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March 30, 2023 by Scott Crosby - Views: 111

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Investors Column –The President’s Money-Losers

“This isn’t the invisible hand of the ‘free market.’  It’s the invisible fist of government.” 

President Biden, through the Labor Department, wants your mutual funds to consider environmental, social and corporate governance (ESG) issues when making their investments.

Mutual funds are supposed to make investments that will provide the greatest return possible for their customers.

Any other criteria – ESG included – would be a money-loser for the fund – and for investors.

ESG was conceived about 20 years ago by the UN’s Secretary-General, the International Finance Corporation, and the Swiss government.  The goal was to force ESG investment methods on the world market.  They claimed that weaving environmental, social, and governance policies into businesses made for better “sustainability”.  

“Environmental issues”, according to Investopedia, includes corporate climate policies, energy use, waste, pollution, natural resource conservation, and treatment of animals. 

“Social” aspects include holding suppliers to ESG standards, donating a percentage of profits to the local community, encouraging employees to perform volunteer work, having workplace conditions that reflect a high regard for employees’ health and safety, and whether the company takes unethical advantage of its customers.

“Governance” includes ensuring a company uses accurate and transparent accounting methods, pursues integrity and diversity in selecting its leadership, and is accountable to shareholders.

ESG criteria typically preclude investing in “coal or hard rock mining, nuclear or coal power, private prisons, agricultural biotechnology, tobacco, tar sands, or weapons and firearms”.  

ESG also precludes investing in the defense industry so necessary for America’s safety.  It seems oddly lacking, however, that no mention is made against doing business with of China because of its aggression and human rights abuses.

A large percentage of South Carolina’s electric power is generated by nuclear power plants, and South Carolina is decidedly pro-Second Amendment.  That puts our state and other states like it squarely in the bullseye for targeting by those in favor of ESG.

However, as noted by the Allied Defense Fund, “The damaging effects of ESG policies are numerous, affecting every American.  Employees who disagree with a company’s politicized pursuits are often coerced into silence. Polarizing activist agendas like abortion and critical race theory are smuggled into our institutions. Customer needs are shelved for the sake of attaining better ESG rankings, causing businesses to suffer.”

But “people are waking up to the fact that in addition to being detrimental to civil society, adopting ESG isn’t beneficial for a company in the long run.”  Both employees and customers are de-motivated by ESG’s politicization, hurting a company’s productivity and business success.

That is not the sort of company you want to invest in.  Mutual funds that invest in ESG companies are not going to be as successful as those that do not.  It’s your money that is at stake.

As West Virginia’s Democrat Senator Joe Manchin put it, “President Biden is choosing to put his Administration’s progressive agenda above the well-being of the American people.”

As an investor, it is up to you to verify that any mutual funds you invest in do not make ESG a part of their investing criteria.  Two who strongly favor ESG and therefore should be avoided are Vanguard Group and BlackRock.

When your employer offers a set of mutual funds for your 401k investments, inquire which ones consider ESG; avoid them.  ESG-oriented funds will be losers.

If necessary, move the vested portion of your 401k into your personal IRA.  Moving money out of a 401k into an IRA is a good choice in any case.  It allows you to make better investment choices simply because you have more investment options.

If you prefer mutual funds, your range of choices will be greater than in a 401k.  If you buy stocks, you can select the best-performing stocks, giving you the greatest possible return on your investments, without regard for ESG.  

You can choose to open your IRA at a full-service broker, like Edward Jones, or at a discount broker, like Charles Schwab.  One is more expensive but has greater consulting services; one is much cheaper, with more limited consulting services.  

Your choice of broker and your choices of how to invest the money in your IRA are 100% is up to you – and you are free to ignore the President’s uncaring desire that you lose money supporting his ESG agenda.

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