Wall Street asset fund managers and the federal government are aggressively pushing the use of non-financial factors to guide investment strategies. Environmental, Social and Governance (ESG) metrics promise to open a path for people to invest with value preferences and make more money doing it. The Biden Administration has even gone as far as to propose a rule that would require fund managers to consider “climate change related factors” when investing. However, there is growing criticism that values-based investing is contributing to the record inflation that has plunged the economy into a recession.
A primary focus of ESG is decarbonizing the economy by utilizing sustainable goods. BlackRock CEO Larry Fink’s Annual Letter notes the challenge of this endeavor by stressing the need for “honesty” because “green products often come at a higher cost today” or what he calls a “green premium”. CBS News said three years ago that green products are “too pricey” for the average consumer and appeal to affluent shoppers. One estimate even deems sustainable products to be 75-85 percent more costly than conventional ones. Translation: ESG is expensive.
Regardless, ESG policies that increase costs for businesses and consumers march on. For example, Southwest Airlines announced in June that it is investing in sustainable aviation fuel (SAF) as part of a Department of Energy backed program. SAF is twice the cost of conventional jet fuel which means that Southwest will pass costs to their passengers. Perhaps coincidentally, in March the airline announced the creation of a fourth fare category designed to boost revenue by attracting more business people. Southwest’s decision to invest in SAF appears counterintuitive until you consider the pressure that publicly traded companies are under from Wall Street and the federal government to boost their climate change credentials. Unfortunately, Main Street pays the price.
The infatuation with sustainability practices corresponds with 9.1% record inflation prompting the Fed to again hike interest rates .75% and another decline in GDP. Asset management firm Alliance Bernstein recently issued a white paper titled “The Intimate Linkage of ESG and Inflation.” David Henderson and Marc Joffe opined in the Wall Street Journal that ESG “depresses output and raises prices” because corporations divert attention from maximizing profits. The evidence that ESG practices contribute to inflation cannot be denied. The question is how long can middle-class Americans continue to foot the bill for a social experiment that’s making it harder for them to put food on the kitchen table and purchase baby formula?
The Department of Labor’s (DOL) proposed Employee Retirement Income Security Act (ERISA) rule making will exacerbate the issue by directing that fund managers “should” take into account “climate-related financial risk” factors. The rule would impact over 140 million workers and roughly $8 trillion in assets and has drawn sharp criticism from Capitol Hill. Several Republican Senators recently joined in sponsoring the Maximize Americans’ Retirement Security Act, which would void the DOL guidance. The administration should abandon the DOL’s proposed ERISA rule rather than doubling down on an ESG ideological crusade that is contributing to our economic nose-dive.
ESG policies driven by Wall Street fund managers and our federal government deserve a closer examination because of evidence that they have triggered record inflation that is at the root of our recession. Main Street Americans can’t afford the “green premium” that comes with sustainable products being shoved down their throats by companies like Southwest and the federal government. The Biden Administration’s ERISA rule will add to the chaos by exposing $8 trillion in assets to costlier investments based on unproven climate-related financial factors. As Larry Fink said, we need honesty.
Chuck Flint is an attorney and former U.S. Senate chief of staff.
The views expressed in this piece are those of the author and do not necessarily represent those of The Daily Wire.