ESG 'sustainable investments' is not a good strategy and has no place in Kentucky pensions
It’s no secret that Kentucky’s public pension systems are underfunded. The Kentucky General Assembly has painstakingly dedicated tremendous resources to solving this issue so the commonwealth’s state workers can retire soundly. What’s been less obvious are the covert efforts of asset managers, like Blackrock, to use the hard-earned retirement dollars of Kentucky’s public servants to fund their own political agendas, putting our pension systems at greater risk.
The world’s most powerful asset managers have increasingly united around an elitist, global push for Environmental, Social, and Governance investing. Zealous proponents call it “sustainable investing,” but don’t be confused—that’s just a fancy way to describe an investment philosophy that is no longer guided by selecting investments which actually make money. For billionaires in California and New York, this feel-good language is cover for using someone else’s money to support their favorite political causes.
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Once upon a time, investments were about good returns; any departure from this philosophy is reckless at best and sinister at worst. ESG is not an investment strategy. Investment strategies seek solid financial returns. ESG is more akin to political contributions or philanthropy, the consequences of which actively damage Kentucky pensioners. ESG funds statistically provide lower returns and underperform the market. They also carry 43% higher fees on average than non-ESG funds.
Data from 2023 show that, due to ESG policies, many large financial institutions took hits after divesting from fossil fuels in favor of the tech industry. That is because fossil fuels outperformed the S&P 500’s ESG index by 22% over the past year, while tech suffered significant losses. More incredibly, since July 2020, coal has provided investors with whopping returns of nearly 800%. The facts are unavoidable, fossil fuel boycotts make for terrible investment strategies. That is why, in 2022, the KY General Assembly passed SB 205 which directs the State Treasurer to compile a list of companies engaged in fossil fuel boycotts and instructs state governmental entities to begin the divestment process from listed companies. At the beginning of this year, I released the first list and by Spring 2024, state governmental entities will begin the divestment process.
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This legislative session, the Kentucky legislature also passed House Bill 236, which prohibits asset managers from essentially donating portions of Kentucky pensions to political and ideological causes. It clarifies that Kentucky pension systems must invest for the sole purpose of providing the best financial return. It also makes proxy voting for pension systems more transparent.
This legislation ensures Kentucky’s pension investments remain focused on solid returns and are safe from being weaponized against our signature industries, such as coal, oil, and gas. These bills have been passed in bi-partisan ways despite pushback from high-powered, conglomerate firms. Kentucky’s pensioners should feel confident knowing their pension dollars are invested by the state in order to provide financial security, not to further someone else’s political agenda.
Allison Ball, a ninth-generation Kentuckian, is the 38th State Treasurer for the Commonwealth of Kentucky. Treasurer Ball and her husband, Dr. Asa James Swan, have two children, Levi and Marigold.
This article originally appeared on Louisville Courier Journal: ESG so-called sustainable investment has no place in Kentucky pensions
