Legislation in the Georgia House of Representatives would combat environmental, social and governance (ESG) scoring systems and ensure state pension funds are invested solely to achieve the maximum return on investment for pensioners, rather than advancing social or political causes that may likely lead to lower returns and financial underperformance.
ESG scores are essentially a risk assessment mechanism increasingly being used by investment firms and financial institutions that forces large and small companies to focus upon politically motivated, subjective goals which often run counter to their financial interests and the interests of their customers. Companies are graded on these mandated commitments to promote, for example, climate or social justice objectives. Those that score poorly are punished by divestment and reduced access to credit and capital.
To prevent this, the bill declares that each state fiduciary shall discharge their duties regarding the investments and assets of the state’s retirement systems “solely in the interests of plan participants and their beneficiaries” and for “the exclusive purpose of providing benefits to plan participants and their beneficiaries.” Further, the bill states, fiduciaries “shall not subordinate the interests of the participants and their beneficiaries or sacrifice investment returns or accept increased investment risks in the promotion of any nonpecuniary interests. Such nonpecuniary interests shall include, but shall not be limited to, the furtherance of any social, political, or ideological interests.”
As Heritage Action for America notes, “using asset managers that engage and vote shares based on ESG can reduce the value of pension fund assets over the long-term. For example, [the world’s largest investment firm] Blackrock has voted against directors for failing to set emissions reduction targets or for increasing exposure to fossil fuel assets such as coal. In 2020, Blackrock voted against the directors of a utility for increasing its exposure to coal related assets, even though such exposure would no doubt have been financially beneficial. Such actions prevent companies from making money during periods when being anti-ESG is profitable. Over time, this will reduce the value of pension fund assets.”
Legislators should also take note of the implications ESG investing could mean for Georgia’s agriculture sector. A recently released report from Ohio’s Buckeye Institute has found that operating expenses for farmers under an ESG reporting system would increase by 34 percent, leading to more expensive groceries. Items like American cheese (79 percent), beef (70 percent), strawberries (47 percent), and chicken (39 percent), just to name a few examples, would increase significantly. Overall, the report estimates a 15 percent total increase in household grocery bills if ESG scoring is allowed to be implemented.
Critics of anti-ESG legislation have charged that bills such as this distort the free market and could possibly lower a state’s credit rating. However, the true distortion is being perpetrated by those seeking to use the financial agencies as de facto governmental regulators. By allowing ESG to gain a foothold in Georgia, Peach State legislators would be perpetuating this distorted marketplace, and nothing in the bill forces Georgia fiduciaries to use uneconomical investment options.
By clarifying the fiduciary duties of Georgia’s pension fund managers, and by insisting that maximizing the return on investment for clients be their only guiding principle, Peach State legislators can help ensure the long-term fiscal health of the state’s pension systems and make sure that promises proffered to state pensioners will be kept.
The following documents provide more information about ESG.
Environmental, Social, and Governance (ESG) Scores: A Threat to Individual Liberty, Free Markets, and the U.S. Economy
https://heartland.org/wp-content/uploads/2023/04/2023-ESG-ReportvWeb-2.pdf
This policy paper by Heartland Institute research fellow Jack McPherrin provides a comprehensive overview of ESG and proposes specific policy recommendations to counteract ESG’s insidious influence.
ESG: A Simple Breakdown of its Components
https://heartland.org/wp-content/uploads/2022/12/PolicyTipSheetESG1.pdf
This Heartland Institute Policy Tip Sheet provides a brief description of each of the three categories comprising a company’s risk assessment based upon ESG metrics, using one of the most commonly used ESG frameworks developed by the International Business Council.
ESG: Financial Discrimination
https://heartland.org/wp-content/uploads/documents/PolicyTipSheetESG8src.pdf
This Heartland Institute Policy Tip Sheet discusses financial institutions’ discriminatory practices against consumers, and explains proposed solutions to the problem.
ESG: The Banking Industry
https://heartland.org/wp-content/uploads/documents/PolicyTipSheetESG7src.pdf
This Heartland Institute Policy Tip Sheet briefly summarizes how the banking industry has used its coercive market power to weaponize ESG compliance.
ESG: Central Bank Digital Currencies
https://heartland.org/wp-content/uploads/documents/PolicyTipSheetESG6.pdf
This Heartland Institute Policy Tip Sheet provides a brief summary of central bank digital currencies (CBDCs) and how they can be wielded against society to enforce ESG compliance.
ESG: Negative Effects on Food Supply and Agriculture
https://heartland.org/wp-content/uploads/documents/PolicyTipSheetESG5.pdf
This Heartland Institute Policy Tip Sheet provides a brief summary of how ESG is being weaponized against farmers, food production, and the agricultural industry as a whole.
ESG: The Effects Upon Free Markets
https://heartland.org/wp-content/uploads/documents/PolicyTipSheetESG3.pdf
This Heartland Institute Policy Tip Sheet offers a brief description of how ESG systems fundamentally alter free markets and the natural equilibrium of supply and demand.
ESG: The Role of the U.S. Securities and Exchange Commission
https://heartland.org/wp-content/uploads/documents/PolicyTipSheetESG2.pdf
This Heartland Institute Policy Tip Sheet offers a brief description of the role of the U.S. Securities and Exchange Commission (SEC) in coercing companies into ESG compliance.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Heartland’s Government Relations department, at [email protected] or 312/377-4000
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
Jack McPherrin is The Heartland Institute’s research editor, as well as a research fellow within Heartland’s Socialism Research Center.
