Earlier this year, Missouri Secretary of State Jay Ashcroft proposed new rules aimed at increasing transparency around so-called “environmental, social and governance” (ESG) investing. These proposed standards would require investment advisors and broker-dealers to disclose to clients when investment strategies focus on ESG factors rather than generating a return for investors. To the surprise of no one, his leadership on this effort has earned him attacks by liberal media outfits like the St. Louis Post-Dispatch.
But as conservatives, we wholeheartedly support Ashcroft’s efforts. Investors have a right to know exactly how their hard-earned money is being invested. Yet, too often, financial firms tout the benefits of ESG without clearly explaining the tradeoffs for investors. Studies show ESG funds tend to underperform the broader market. Investors may be unaware they are sacrificing returns to promote various social or political causes. Too often, those causes run contrary to the investor’s values.
Full transparency enables investors to align investments with their values. Progressives who prioritize climate change mitigation, pro-abortion policies or so-called “social justice” may accept lower profits to advance those ideals. Most Missourians seeking to invest, however, care more about returns and securing a stable financial future for their family than propping up the liberal agenda of the day. We deserve to know our money isn’t being deployed against our values at the expense of our financial future. Ashcroft’s disclosure requirements will empower investors to make fully informed decisions.
Some claim focusing solely on profits is immoral or shortsighted and claim investors have an obligation to address liberal causes like climate change. But individual investors should be empowered to decide for themselves instead of relying on liberal activists or deep-pocketed Wall Street investors. Imposing ESG criteria without consent is a form of ideological coercion antithetical to principles of a free market upon which this nation was founded.
Additionally, ESG rating systems are often arbitrary, inconsistent, and tilted toward progressive causes. Ratings firms may penalize oil companies while ignoring unethical labor practices at other industry giants. Selective application of ESG standards corrupts investment decisions and capital flows.
Ashcroft’s proposed rules inject much-needed sunlight into the opaque world of ESG investing. Investors will gain clarity on how fund managers define, measure, and prioritize ESG factors. With clearer information, individuals can judge for themselves whether a given fund’s values and priorities align with their own.
Missouri is leading the way on ESG transparency. All states should follow suit to protect investor interests and respect investor values. Ashcroft’s disclosure requirements enable citizens to control where their money goes. Despite the opposition of liberals at the St. Louis Post-Dispatch, conservatives should cheer this common-sense step for transparency and freedom.
