The Senate voted Wednesday to overturn a Labor Department rule allowing retirement plans to consider environmental, social and governance factors when making investment decisions, following a similar vote by House Republicans on Tuesday.
Critics say ESG investments allocate money based on political agendas, such as a drive against climate change, rather than on earning the best returns for savers. They say ESG is just the latest example of the world trying to get "woke."
Before risking their money, all investors including both traditional and ESG ones look at how much revenue a company is bringing in, how much profit it's making and what the prospects are for the future.Environment. It can pay to avoid companies with poor records on the environment, the thinking goes, because they may be at greater risk of big fines from regulators. Or their businesses could be at particular risk of getting upended by future government attempts to protect the environment.
Investors measuring a company's social impact often look at whether pay is fair and working conditions are good through the rank and file, for example, because that can lead to better retention of employees, lower turnover costs and ultimately better profits. Not every ESG investor considers all these factors, but they all get lumped in together under the "S" umbrella.That includes tying executives' pay to the company's performance, whether that's defined by the stock price, profits or something else, and having strong, independent directors on the board to act as a powerful check on CEOs.Investors who use one or more ESG criteria or push companies on such issues as a group controlled $8.4 trillion in U.S.
Not only have sharp drops for all kinds of investment prices raised worries, so has the increased political backlash. During the final three months of 2022, which was a particularly tough period for financial markets, investors pulled nearly $6.2 billion more out of sustainable funds than they put in, according to Morningstar.
Investors are also pushing executives across corporate America to give more details about their carbon emissions, measurements about their impacts on human rights and audits for racial equity.
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