An Arkansas senator introduced a bill Wednesday aimed at preventing hedge fund managers from considering a progressive-backed set of criteria referred to as ESG when managing client funds.
Republican Sen. Tom Cotton’s Ensuring Sound Guidance Act would require investment managers and retirement plan sponsors to consider the maximum return and minimum risk without considering non-financial factors such as a company’s use of fossil fuel.
The ESG criteria Cotton’s measure seems to push back against fall into the areas of environmental, social, and corporate governance, a method of investing that considers investments environmental and social impacts, as well as issues with how the company is governed, including areas of executive pay and employee relations.
Cotton is the Senate bill’s primary sponsor and is joined by six cosponsors. The junior Senator from the Natural State believes his bill will prioritize returns for Americans savings over what he called “ESG scams.”
“Investment funds like Blackrock that millions of Americans’ trust with their hard-earned savings should prioritize investments that result in the highest returns—not fund ESG scams,” Cotton said. “My bill will make sure investment fund managers are making the best financial decisions on behalf of their clients.”
Rep. Andy Barr (R-Kentucky) echoed Cotton’s comments in introducing companion legislation in the House.
“We must take significant action to protect retail investors and retirees from the cancer within our capital markets that is ESG, which prioritizes higher-fee, less diversified and lower return investments,” Barr said.
The bill would update national investment law to require the Comptroller General of the United States to investigate state and local pension plans to determine if they are impacted by ESG policies.
The Arkansas legislature passed in its most recent session an ESG-focused bill to make sure Arkansas does not invest funds, such as its retirement funds, with financial service providers that discriminate against the energy, fossil fuel, ammunition and firearms industries.
Act 411 will go into effect Aug. 1 and creates an ESG Oversight Committee that will create a list of financial services providers that if finds discriminate against energy, fossil fuel, firearms or ammunition companies and present the list of companies to the governor.
The Arkansas treasurer would also be required to maintain a list of financial service providers as determined by the ESG Oversight Committee on the state treasurer’s website under the bill.
"Republican Sen. Tom Cotton’s Ensuring Sound Guidance Act would require investment managers and retirement plan sponsors to consider the maximum return and minimum risk without considering non-financial factors such as a company’s use of fossil fuel... My bill will make sure investment fund managers are making the best financial decisions on behalf of their clients."
That seems like a no-brainer from an investment standpoint... Sad that they're having to consider resorting to laws to force investment managers and advisors to do what they should be doing all along: Shut up with the virtue signaling and just make money for your clients.This message has been edited. Last edited by: RogueJSK,
July 13, 2023, 08:48 AM
Rightwire
Please tell me this involves Arkansas State Police vehicles crashing into the office to PIT any hedge fund manager that tries this
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July 13, 2023, 08:56 AM
architect
Only hedge funds (shorts)? These are a small fraction of the various types of investment funds available to individual investors and this bill does not go nearly far enough (maybe it is intended as a toe in the door).
OTOH, I am not too fond of Govt. (of any party affiliation) attempting to coerce the decision making of financial managers. My feeling is that this could only be bad for returns. Financial managers should be focusing on their primary responsibility, that is making money, not futzing around with "social" objectives (either on the left or on the right).
July 13, 2023, 10:09 AM
Aglifter
A) I agree the market “should” take care of this.
B) Kinda surprised there’s not some way an investor can sue the fund manager for a breech of fiduciary duties.
C) Thecsimplest thing may be some kind of change in securities law which does not permit conflating investment funds and political funds.
I think Blackrock got hijacked into this. I don’t think it started as a political fund.
July 13, 2023, 10:43 AM
HRK
quote:
I think Blackrock got hijacked into this. I don’t think it started as a political fund.
There was no hijacking, Blackrocks CEO championed ESG investing, along with the other top investment firms using their billions of investment funds to force companies to walk this ESG tightrope.
Now he's changing his tune on ESG but not in a way where you'd think he says it was wrong, but that all the people politicizing it just don't get it....
BlackRock CEO Larry Fink, who faced intense backlash for championing ESG, says he’s ‘ashamed’ the topic has become politicized
Blackrocks CEO is the creator, cause, catalyst, hijacker all in one...
July 13, 2023, 11:12 AM
jhe888
This crap legislation pushed by legislators trying to capitalize on conservative voters.
Investors should be able to invest on any criteria they like. If they want to invest only in businesses with cute logos, it is not any of the state's business.
If ESG investing proves, as we suspect, to be bad business, it will die out.This message has been edited. Last edited by: jhe888,
The fish is mute, expressionless. The fish doesn't think because the fish knows everything.
July 13, 2023, 12:22 PM
Dakor
An unintelligent journalist (who doesn't know what a hedge fund mgr is versus other investor types) reporting on an unintelligent politician (who shouldn't be regulating investment philosophies) focused on an unintelligent topic (as the free market will ultimately take care of ESG and other poor financial motives).
Lovely, but what I have come to expect from the Godawful Press, stupid politicians and the slow American response to the reengineering of the American cultural psyche.
Once again, everyone is focused on the wrong thing. All investment mgrs are paid based on the funds they manage and they want continuity... so the teachers unions and their public pension funds are the ones pushing this bullshit via their commanding Blackrock and others what to do as they represent the largest of the limited partners and hold the purse strings.
July 13, 2023, 12:39 PM
joel9507
Want to know what ESG rating actually means? Would you like to know how a company with a leader rating (AAA) differs from Laggard (CCC) Good luck.
The MSCI group that issues one ESG rating gives no detailed public criteria on what data they use, how they assess it, how they weight one aspect vs another.
To summarize. We don't ask companies for data, we don't tell them what we look for or how the various aspects of "E", "S" or "G" rank, we just pass the data through our kidneys and then out pops out a rating.
Anything that hidden just reeks of the possibility of buying ratings and/or playing favorites.
It could well be (and probably is) that even after knowing how they do the ratings, it's complete horse puckey. In any event, anyone who uses "ESG" ratings as a criteria, not knowing exactly what it's comprised of, is not doing their due diligence and is investing blindly.
July 13, 2023, 12:56 PM
RogueJSK
quote:
Originally posted by jhe888: Investors should be able to invest on any criteria they like. If they want to invest only in businesses with cute logos, it is not any of the state's business.
Individual investors, sure. Do whatever you want with your own money. This isn't trying to ban ESG ratings altogether, or ban people from considering ESG ratings or investing in stuff like ESG mutual funds with their own money.
Instead, it's targeted at stuff like retirement/pension fund managers, who are given other people's money and the power to choose how it's going to be invested. Their focus should solely be on doing what's best to maximize their clients' investment returns, not on things like cutest logo, or lowest carbon impact, or anything else. That's basic fiduciary responsibility.
And while the article references an (already passed) Arkansas state bill in the second half, the proposed legislation discussed in the bulk of the article isn't a state-level initiative... The two bills proposed by the Arkansas Senator and Kentucky Representative are at the federal level, in the US Senate and the US House.This message has been edited. Last edited by: RogueJSK,
July 13, 2023, 04:02 PM
jhe888
quote:
Originally posted by RogueJSK:
quote:
Originally posted by jhe888: Investors should be able to invest on any criteria they like. If they want to invest only in businesses with cute logos, it is not any of the state's business.
Individual investors, sure. Do whatever you want with your own money. This isn't trying to ban ESG ratings altogether, or ban people from considering ESG ratings or investing in stuff like ESG mutual funds with their own money.
Instead, it's targeted at stuff like retirement/pension fund managers, who are given other people's money and the power to choose how it's going to be invested. Their focus should solely be on doing what's best to maximize their clients' investment returns, not on things like cutest logo, or lowest carbon impact, or anything else. That's basic fiduciary responsibility.
And while the article references an (already passed) Arkansas state bill in the second half, the proposed legislation discussed in the bulk of the article isn't a state-level initiative... The two bills proposed by the Arkansas Senator and Kentucky Representative are at the federal level, in the US Senate and the US House.
The feds have even less business regulating, in general. Making investment/pension fund managers liable for breaches of fiduciary duties doesn't bother me in the slightest, however. Making rules about the specific sorts of investments they can make would bother me.
The fish is mute, expressionless. The fish doesn't think because the fish knows everything.
