November 14, 2022

Dear Senators and Members of Congress: 

Environmental, social, and governance (ESG) investing is a dangerous trend infecting the  financial sector. While the ever-shifting definitions, applications and scoring metrics are  constantly being rewritten to incorporate the cause-du-jour, the financial harm to vulnerable  groups–including retirees and pensioners–is very real.

Recent reports have underscored the financial consequences of the ESG scam. University of  Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual  funds representing over $8 trillion of investor savings. The report found that “although the  highest rated funds in terms of sustainability certainly attracted more capital than the lowest  rated funds, none of the high sustainability funds outperformed any of the lowest rated funds.” Another analysis comparing one of the leading ESG funds to the S&P 500 found that, as of mid 2022, the ESG fund was down 23.7% vs. 20% for the S&P 500 index. These reports demonstrate  ESG funds are little more than Wall Street marketing gimmicks rebranding low-performing  virtue-signaling corporations as a “sound investment.”  

The truth is these losses are adding up and hitting the pocketbooks of Americans who have  spent years working hard, building up savings and planning for a reliable amount of returns  in the future. Asset managers gambling with their hard-earned money is not only financially  damaging, but likely an illegal betrayal of financial trust.  

The Employee Retirement Income Security Act (ERISA) has made it unlawful to sacrifice the  financial interests of beneficiaries for other interests aimed at advancing a “particular social cause.”  Over 44 states have adopted legislation modeled after ERISA, including Kentucky, where the Attorney  General issued a memo finding that ESG investing practices that “introduce mixed motivations to  investment decisions” are inconsistent with the state’s law governing fiduciary duties.

Legal analysts have also suggested that the practice of boycotting certain types of companies  and industries could constitute an illegal collusion against politically-targeted businesses in  violation of federal antitrust laws. Perhaps the most concerning are the attacks on domestic  energy producers, which ironically are some of the best performing companies of 2022.  Divestment from oil and gas companies is undercutting our grid stability and broader energy  security. Domestically this has led to higher energy prices fueling inflation while also leaving  our international allies to rely on nefarious actors like Russia for access to energy. Adding insult  to injury, ESG metrics have rated certain foreign-owned energy companies tied to egregious  human rights and environmental violations higher than U.S. oil and gas companies.

One analysis revealed that the social scores have been good for the diversity business, but  not effective in terms of creating actual diversity within corporations. Google, for example,  reportedly spent $114 million on its diversity program in 2014, but its diversity report in 2022  showed that Black employees make up just 5.3% of the workforce and 4.7% of leadership roles. 

Other companies seem to incorporate diversity language solely for marketing benefit. Two  prominent case studies exposing this practice come to mind. In one reported case, Wells Fargo  employees interviewed “diverse” candidates after the position had already been filled. In  another, a former Miami Dolphins head coach has alleged the New York Giants attempted to  circumvent a diversity requirement in the Rooney Rule by holding a “sham interview” with him  three days after it was promised to another candidate.

As policy leaders planning for the next congress, we urge you to consider using your oversight  responsibilities to shine a light on this damaging trend, including assessments of the following  issues:  

1. Legal implications of ESG investing including possible violations of fiduciary duties  and antitrust laws.  

2. ESG’s negative impact on energy independence and national security. 

3. How ESG is being used to justify poor business performance or cover for poor labor  and environmental compliance records. 

4. Financial losses for retirees and pensioners due to ESG investing.  

5. The prevalence of marketing over measured outcomes, such as “greenwashing”. 

6. How ESG creates division in the workplace by forcing controversial “anti-racism”  training on employees.  

7. The impact of gender-based quotas that reek of tokenism and affirmative action  and can perpetuate harmful stereotypes such as women needing special treatment  to succeed.  

8. ESG’s increasing alignment with a woke agenda embraced by many Democrats  including the mobilization of dangerous political campaigns like “defund the  police”. 

9. Attempts by administrative agencies to mandate ESG standards via regulatory fiat  without a clear grant of Congressional authority. 

10. Whether foreign governments are funding ESG campaigns to undermine American  competitiveness and economic strength. 

11. Assessing state actions by Attorneys General and financial officers aimed at  protecting local citizens as well as business and consumer interests from ESG.

12. Developing policies that will protect American investments from virtue signaling  schemes and maximize tangible financial value.  

As more Americans learn about ESG, they are catching on to its harmful outcomes and looking  for ways to push back. One poll asking who—asset managers or individual investors—should  decide whether retirement funds and pension plans are allocated towards ESG criteria found  that 66% supported the right of individual investors to opt out of ESG-style investments. Only  20% supported deferring to asset managers.

Accordingly, the below signatories stand ready to assist your oversight and policy development goals.