November/December 2023

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Investing in Issues ESG investing calls into question just how important the bottom line is. By Ari Kaufman


nvironmental, Social, and Governance (ESG) investing standards have been making headlines for more than a decade. These standards encourage corporations to operate under the mantra of “making the world a better place.” That said, is ESG investing good for your retirement account? What do investors know about this trend, which has become controversial not only in the financial investment world but the halls of Congress? A 2022 study from the non-partisan FINRA Foundation found that less than a quarter of investors could correctly define ESG investing. ESG effectively began in 2004, when the United Nations asked major financial institutions to identify ways to integrate environmental, social,


and governance concerns into capital markets. A year later, the “Who Cares Wins” initiative marked the first use of the term. Suddenly, criteria such as a focus on developing sustainable investments was required to be incorporated into a company’s financial evaluation. Major institutional investors like BlackRock, the world’s largest asset manager, have made it clear they expect the companies they hold to commit to the ESG movement. CEO Larry Fink long ago promised to put sustainability at the core of how his company invests. Therefore, many investment directors and CEOs must think about ESG as part of their overall strategy. ESG detractors believe the initiative supersedes fiduciary duties. They don’t believe most people want their savings to

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fund partisan priorities, such as climate or energy policies, racial hiring quotas and more. Last year, Congress introduced the Ensuring Sound Guidance (also ESG) Act to protect people

political agendas. The act requires plan sponsors to obtain written permission from customers if they take non-financial interests — like shunning fossil fuel investments — into account when investing. While some Republican governors have divested state pension funds from BlackRock over its ESG investment principles, others note that ESG investing accounts for more than $20 trillion in assets under management in the U.S. Exxon Mobil, for example, recently appeased ESG investors by electing three directors in a campaign sponsored by the sustainable investment firm Engine No.1 Exxon has taken actions since to reduce its emissions footprint to support a low-

ESG is undeniably becoming a factor in a company’s success in attracting and retaining employees within the current workforce demographics.

from seeing their returns diminished by asset managers steering investors unwittingly towards ESG initiatives. By requiring consent and transparency, the legislation hopes to ensure investment strategies are based around sound financial practices, like maximizing returns and minimizing risk, instead of

carbon business strategy. Six years ago, nearly two-thirds of Exxon Mobil shareholders went against management’s recommendations by voting to require the world’s largest oil and gas corporation to report on the impacts of climate change to its business. ESG is undeniably becoming a factor in a company’s success

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