ESG Investing, or Environmental, Social, and Governance Investing, is a relatively new concept in the world of finance. The idea is that when making investment decisions, you should consider not just the financial performance of a company, but also how the company operates and impacts the environment, the communities in which it operates, and its internal governance practices.
However, while ESG investing may seem like a noble cause, there are concerns that it can put social agendas ahead of the best interests of investors. In this sense, ESG investing can be seen as having conflicting interests with the goal of maximizing returns for investors.
In November or 2022,President Biden rescinded the Trump administrations prohibition on retirement plans factoring in environmental, social and governance (ESG) in investment decisions and shareholder rights. Under President Trump, they were only permitted to consider financial factors. The recent change allows retirement plans to take into account ESG factors such as climate change and racial justice and many investment advisors are jumping on the ESG bandwagon.
It is my strong opinion that investment advisors who prioritize ESG factors over the stated goals and objectives of their clients are abusing the trust of their clients in order to push a social or climate agenda. What's more, many investors might have fund managers pushing these criteria for their IRA or 401(k) and not even know it.
If ESG Investing is something you believe in and feel strongly about, I would encourage you to have a talk with your investment professional about how a shift of focus in deciding what to invest in can impact your portfolio.
In conclusion, ESG investing can be a double-edged sword because to some, it may seem like a good way to help change the world or save the planet. On the other side of that however, it can also put your financial goals at risk because you may have to trade portfolio performance for the climate change agenda or some other form of social agenda.
If you are interested in learning more more about ESG investing and protecting the investments in your IRA or 401(k) from avoidable conflicts of interest that can arise, email right now,and I would be happy to provide you with more information.