IMonday, March 20, President Biden used his right of veto for the first time to oppose a law, passed on March 1er March by the Senate and previously passed by the House of Representatives. This law abolished a recent federal regulation authorizing American pension funds to take into account extra-financial environmental, social or governance criteria (known as ESG) in the choice of their investments.
This veto does not reflect an essential political opposition between Republicans and Democrats since the text had been adopted both by the House, controlled by the Republicans, and by the Senate, controlled by the Democrats. This is a phony “squabble” that we would like to decipher for the French public, as ex-financiers.
This veto does not represent an opposition between financiers either. All seek to optimize their financial performance, a goal that is even the fiduciary responsibility of those who manage other people’s money. Financiers have always sought to assess all the risks weighing on their investments, including those grouped together today under the name of “ ESG risks”. It is not a discovery that the solvency and the profitability of a company depend at the same time on purely financial internal elements, but also on extra-financial external elements.
Two very different things
In finance, risks are related to returns. If the integration of ESG criteria does not significantly improve the assessment of risk, an investment cannot generate a higher return. Promoting ESG criteria is therefore purely formal dressing to conform to the times. So when the American president declares that the text threatens “saving for retirement by making it illegal to take risk factors into account”this is a pretense.
If Republican financiers do ESG finance like Monsieur Jourdain did prose, without knowing it, then why not want to say so? Because this ESG dressing sometimes carries progressive positions on the “S” (the social) which are precisely the targets, qualified as “wokists”, of the reactionary campaign of the governor of Florida Ron DeSantis, chief slayer of the ESG and likely candidate for the Republican primary.
Moreover, the criticism of these Republicans plays on velvet because some of the ESG proponents have created great confusion by associating ESG with the concept of sustainability. A seminal report written in 2004 by financial institutions (including Goldman Sachs) under the aegis of the United Nations Global Compact was (falsely?) naively and explicitly titled “Who Cares Wins” (“who cares wins”). This pious wish, which is still very much alive today, taken up for example through the slogan “Doing well by doing good” (“to get rich by doing good”), unfortunately makes no sense for a financier. Just look at the stock market performance of the oil sector to be convinced. Optimizing financial gain and saving the health of our biosphere are two very different, even antagonistic things.
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