September 25, 2018
I wrote this article for my local newspaper. It has not been published yet so I am submitting for consideration.
Im a millennial. Im not afraid to proudly state as much. My generation gets beat up a lot by right wingers and the press. However, data shows that we are extremely entrepreneurial, widely accepting of historically marginalized groups, are more independent thinkers. Unfortunately, every millennials social media feeds are filled with friends who havent yet left Moms basement pushing the latest cryptocurrency ICO, or as Ive recently had the displeasure of finding, the latest ESG fund. ESG stands for Environmental, Social, Governance. What does that mean? They are nearly impossible to define as there are dozens of ratings agencies with conflicting definitions.
While my hipster social media acquaintance filled my newsfeed with the virtue of his latest ESG investment, it forced me to delve deeper as I know he comes from a wealthy family and assume they know what theyre talking about when it comes to investing. A quick google search for ESG investing shows everything from articles about Wall Street executives doing a complete 180 on the issue following a job change without citing a specific data point that relates to performance, a new group that appears to be standing up for Main st. investors, and a whole slew of obscure new investment funds promising to solve the worlds ills complete with accompanying podcasts ala cryptocurrencies. With all the fanfare from Hipster Guy, I kept digging.
The pro-ESG echo chamber seems to parrot the line, ESG provides value in the long run. That sounds great to me considering the fact that I am 29 years old and have a 35-40 year time horizon until retirement. Strangely, I couldnt find a single data point or real life example that actually demonstrates this. However, notable Vanguard investor Dan Wiener recently wrote: They (ESG Funds) may allow their investors to sleep better at night from a social-conscience point of view, but they arent going to put more money in your pocket, they arent going to give you more money to direct towards the social, environmental, or governmental issues that matter most to you, and they havent had much of an impact, if any, on corporate-governance practices.
The Vanguard Social Index Fund, one of the longest running ESG Funds which has been in existence since 2000, has underperformed the SP 500 over that period of time. As a data driven millennial, these real-world data points are more important to me than fairytales. As a 29-year-old with a modest retirement account, if I were to invest in this fund over an SP 500 index fund, this decision will cost me hundreds of thousands of dollars. If I am ever fortunate enough to break into a six-figure income bracket, this decision would cost my family me over a million dollars by my retirement date. My decision is now made.
Unbelievably, though an overwhelming majority of investors reject the notion of their investments being used to promote social and political change, many mutual funds still vote in accordance with the opaque, undefined ESG principles and are using our retirement accounts to force public companies to capitulate. Why? There are companies called proxy advisory firms. These firms make vote recommendations on corporate proxy ballot items for shareholders meetings that many mutual fund companies follow. These are non-transparent, conflicted companies who are paid to make recommendations on the latest hot social issues. One of these companies, ISS has been admonished for conflicts and was caught up in a bribery scandal. The other leader in this space, Glass Lewis, a San Francisco based, foreign public employee union owned firm. The virtuous human beings at Glass Lewis were mired in scandal after demanding a part time food truck worker be fired after they didnt leave a tip after ordering a $170 meal. These are the do-gooders directing my proxy votes? Food trucks aside, how is this allowed?
As a Nevadan, I was pleased to find that my Senator, Dean Heller has been a leader on this issue. In May, he and other Senators sent a letter to these proxy advisory firms demanding transparency. There is a bi-partisan bill before the Senate Banking Committee, H.R. 4015, The Corporate Governance Reform Transparency Act. This bi-partisan bill will reform these dark outside entities controlling corporate America.
Maybe Hipster Guy can afford to be as prudent and savvy with his investments as he is with his breakfast, but I will take the hundreds of thousands of extra dollars Ill have by rejecting his foolish investment advice and donate the political and social causes I care about. My retirement account shouldnt be forced, against my will, to shed value so Hipster Guy can sleep at night. I sleep just fine.