ESG Agenda Risky Business

The Oklahoma State Treasurer’s office will continue improving Oklahoma’s economy and public investments through time-tested strategies to increase our state’s growing $15.5 billion portfolio. Today’s investment landscape contends with environmental, social and governance or ESG. An idea that once addressed only social responsibility, the name grew in scope and prevalence to become a big part of today’s public narrative. Keeping ESG out of investing is necessary due to its broad goal complexity, unmanageable reporting framework and heavy-handed mandates.

ESG is not intended to create shareholder value. During the November Board of Trustees meeting of the Teachers’ Retirement System, members voted to divest $184 million in pension funds because certain financial institutions were deemed by my office to be supporting ESG causes negative to Oklahoma industries Joseph Cappello, Deputy Chief Investment Officer, told the Teachers’ Retirement System board,

“We are very comfortable if you choose to divest.” Cappello detailed the $123 million in index funds would cost the system $32,700 or 0.026 percent to divest, the $61 million bond portfolio has no estimated cost, as selling this security traditionally has no commissions.

During the Tobacco Settlement Endowment Trust Fund board of investors meeting in November, board members voted to select a new firm to manage the trust’s passive large-capital growth portfolio. The divestment and management switch will cost nothing, plus provide additional benefits in reducing cost and fees to the trust by nearly 74%.

ESG is not based on investment performance. During a U.S. House Ways and Means Committee “Ensuring ‘Woke’ Doesn’t Leave Americans Broke” hearing in November, Marlo Oaks, Utah’s State Treasurer, testified about the dangers of ESG turning into a scheme that “dangerously moves the market to one view. The perspective of a small group of like-minded individuals that is generally subjective and controversial.”

Oaks continued, “ESG has created an uncontrollable impulse to pressure U.S. corporations to solve complex global and societal issues. These issues such as climate, income, inequality, guns and abortion to name just a few should be in the purview of a democratically elected government” and not Wall Street.

ESG is a management risk. Mason Bolay, from First Bank & Trust in Perry, Okla. also testified at the hearing on how ESG hurts two non-energy industries in Oklahoma, farming and agriculture. Bolay stated,

“Government mandates imposing ESG principles, though well-intentioned, adding more environmental regulations and sustainability demands can place significant financial burdens on farmers and ranchers.” Bolay continued, “Instead of government mandates imposing ESG principles … passing a strong, improved Farm Bill would help maintain and strengthen crop insurance and ensure those sectors remain viable.”

ESG is a risk betting on the future.

Non-financial, “purpose-driven” investing is not based on performance and needs careful evaluation and diversification as any new factor is introduced into a market. Evaluating our state’s relationship with financial institutions has proven to enhance agency partnerships with better cost and fee structures, resulting in strengthening fund growth and increasing returns to beneficiaries—not money managers, political movements or other third parties.

Edited by David Arnett, Tulsa Today

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