Oh sure whatever:
Republican lawmakers in New Hampshire are seeking to make using ESG criteria in state funds a crime in the latest attack on the beleaguered investing strategy.
Representatives led by Mike Belcher introduced a bill that would prohibit the state’s treasury, pension fund and executive branch from using investments that consider environmental, social and governance factors. “Knowingly” violating the law would be a felony punishable by not less than one year and no more than 20 years imprisonment, according to the proposal.
Pensions & Investments reports:
“Executive branch agencies that are permitted to invest funds shall review their investments and pursue any necessary steps to ensure that no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts with any regard whatsoever based on environmental, social, and governance criteria,” the bill said.
The New Hampshire Retirement System “shall adhere to their fiduciary obligation and not invest with any firm that will invest state retirement system funds in investment funds that consider environmental, social, and governance criteria, as the investment goal should be to obtain the highest return on investment for New Hampshire’s taxpayers and retirees,” the bill said.
Investors aren’t allowed to consider governance! Imagine if this was the law; imagine if it was a felony for an investment manager to consider governance “with any regard whatsoever.”
I’m sorry, this is so stupid. “ESG” is essentially about considering certain risks to a company’s financial results: You might want to avoid investing in a company if its factories are going to be washed away by rising oceans, or if its main product is going to be regulated out of existence, or if its position on controversial social issues will cost it sales, or if its CEO controls the board and spends too much corporate money on wasteful personal projects. Obviously ESG in practice is also other, more controversial things:
- If you care about the environment, social issues, etc., you might want to invest in companies that you think are environmentally or socially good, whether or not they are good financial investments.
- You might incorrectly convince yourself that the stuff you think is environmentally or socially good is also good for the bottom line: You might have a wishful estimate of how quickly the world will transition away from fossil fuels, to justify your desire not to invest in oil companies. You might tell yourself “this company’s stance on social issues will cost it lots of customers” when really the customers don’t care, but you do.
But if you make it a crime for investors to consider certain financial risks then you get too much of those risks.
In particular, I suspect, you get too much governance risk. If every investor tomorrow said “okay we don’t care about the environment,” most companies probably wouldn’t ramp up their pollution: Their executives probably don’t want to pollute unnecessarily, polluting probably wouldn’t help the bottom line, and many companies just sit at computers developing software and couldn’t pollute much if they wanted to. But if every investor tomorrow said “okay we don’t care about governance,” then, I mean, “governance” is just a way of saying “somebody makes sure that the CEO is doing a good job and doesn’t pay herself too much.” If the investors don’t care about that, then a lot of CEOs will be happy to give themselves raises and spend more time on the corporate jet to their vacation homes.
Author(s): Matt Levine
Publication Date: 17 Jan 2024
Publication Site: Bloomberg