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.
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