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Kentucky’s attorney general says ESG is inconsistent with Kentucky law (2022)
| Environmental, social, and corporate governance |
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| • What is ESG? • Enacted ESG legislation • Arguments for and against ESG • Opposition to ESG • Federal ESG rules • ESG legislation tracker • Economy and Society: Ballotpedia's weekly ESG newsletter |
May 26, 2022
Kentucky Treasurer Allison Ball (R) asked Kentucky Attorney General Daniel Cameron (R), about ESG, specifically, “Whether 'stakeholder capitalism' and 'environmental, social, and governance' investment practices in connection with the investment of public pensions funds" were "consistent with Kentucky law governing fiduciary duties.” On May 26, 2022, the Attorney General’s office replied:[1]
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There is an increasing trend among some investment management firms to use money in public and state employee pension plans—that is, other people’s money—to push their own political agendas and force social change. State Treasurer Allison Ball asks whether those asset management practices are consistent with Kentucky law. For the reasons below, it is the opinion of this Office that they are not. ... [W]hile the public pension plans administered by the Kentucky Public Pension Authority has shown year-over-year improvement in funding, there is a concern that this trajectory may be threatened by extreme approaches to investment management—particularly those that put ancillary interests before investment returns for the benefit of public pensioners and state employees. One such approach is 'stakeholder capitalism.' According to its advocates, '[s]takeholder capitalism is an expansion of corporate management fealty beyond shareholders to include the workforce, supply chain, customers, communities, societies, and the environment.' What this means in reality is that investment management firms who embrace stakeholder capitalism propose prioritizing activist goals over the interests of their public and state employee clients. To achieve this version of 'capitalism,' investment management firms are adopting 'environmental, social, and governance'—or 'ESG'—investment practices. ESG investing is an 'umbrella term that refers to an investment strategy that emphasizes a firm’s governance structure or the environmental or social impacts of the firm’s products or practices.' American economist Milton Friedman once criticized an earlier version of this trend whereby one set of stockholders sought to convince another set of stockholders that business should have a 'social conscience.' As he explained, 'what is in effect involved is some stockholders trying to get other stockholders (or customers or employees) to contribute against their will to ‘social’ causes favored by activists. Insofar as they succeed, they are again imposing taxes and spending the proceeds.' Friedman found this problematic because 'the great virtue of private competitive enterprise' is that it 'forces people to be responsible for their own actions and makes it difficult for them to ‘exploit’ other people for either selfish or unselfish purposes. They can do good—but only at their own expense.' Today, in perhaps an even more pernicious version of the trend, the debate is no longer left to stockholders. In fact, there is little-to-no debate. Investment management firms in some corporate suites now use the assets they manage—that is, other people’s money—to enforce their preferred partisan sensibilities and to seek their desired societal and political changes. Investment management firms have publicly committed to coordinating joint action for ESG purposes, such as reducing climate change. ... Whether these ancillary purposes are societally beneficial is beside the point when speaking of the duty of fiduciaries. Fiduciaries must have a single-minded purpose in the returns on their beneficiaries’ investments. ... While asset owners may pursue a social purpose or 'sacrifice some performance on their investments to achieve an ESG goal,' investment managers entrusted to make financial investments for Kentucky’s public pension systems must be single-minded in their motivation and actions and their decisions must be '[s]olely in the interest of the members and beneficiaries [and for] the exclusive purpose of providing benefits to members and beneficiaries….'[2] |
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See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
- ↑ [https://ag.ky.gov/Resources/Opinions/Opinions/OAG%2022-05.pdf Commonwealth of Kentucky Office of the Attorney General, "OAG 22-05," May 26, 2022]
- ↑ Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
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