Just weeks after the Biden administration imposed new rules promoting ESG investing by retirement fund managers, Gov. Chris Sununu issued his own order blocking state agencies under his control from joining in the “woke” investment movement.
“Executive branch agencies shall prioritize investment decisions that maximize financial returns and minimize risk, as part of their fiduciary duty to act in the best interest of the State and the beneficiaries of the state’s trust funds,” Sununu’s order read in part. By mandating “maximizing returns,” Sununu is effectively banning the “environmental, social, and corporate governance” (ESG) investment criteria.
“The most important responsibility we have is getting the best return for our retirees. And this ESG stuff doesn’t get the returns,” Sununu told NHJournal Tuesday. “It hurts returns, it increases risk, and it doesn’t fulfill the mission.”
Sununu’s executive order also instructs relevant state agencies to review their policies to ensure “no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts solely based on ESG criteria.” And it instructs State Treasurer Monica Mezzapelle to “report on an annual basis” to the governor and legislature “regarding compliance with the duty to make investment decisions based upon the fiduciary duty to maximize short or long-term financial benefits for the state.”
The order is just the latest action the Sununu administration has taken to oppose the new ESG rule. Last month, Sununu joined 18 fellow GOP governors in a letter to the Biden administration, pledged to fight the move.
“Yet again, President Biden put his political agenda above the wellbeing and individual freedoms of hardworking Americans,” Sununu and the governors wrote.
And his Attorney General, John Formella, is part of a lawsuit attempting to block the new rule from being applied.
“This action is all about protecting the hard-earned retirement savings of Granite Staters and of Americans all across the country,” Formella said in a statement. “Asset managers should not have an automatic green light to just start directing trillions of U.S. retirement dollars into ESG investments without their clients’ directing them to.”
ESG investing has become a hot-button political issue since the Biden administration’s Department of Labor issued a new rule on compliance with the Employee Retirement Income Security Act of 1974 (ERISA). Biden’s move is so controversial that both chambers of Congress rejected the rule in bipartisan votes, forcing Biden to issue his first veto to protect it.
“This bill would risk your retirement savings by making it illegal to consider risk factors MAGA House Republicans don’t like,” Biden said via Twitter at the time. “Your plan manager should be able to protect your hard-earned savings — whether Rep. Marjorie Taylor Greene likes it or not.”
The vetoed bill did not “make it illegal” to consider the fiduciary impact of any “risk factors;” rather, it mandated that only fiscal considerations are allowed in making investment decisions, as was the case before the Biden rule.
All four New Hampshire federal delegation members voted in favor of the Biden administration’s pro-ESG rule. None of the four would respond to questions from NHJournal regarding their votes.
Supporters of the Biden rule note it only applies to private retirement funds, not state retirement funds. And, some say, the response from opponents is an overreaction given the limited scope of the new rule. In an amicus brief defending the new ERISA rule, former Obama Treasury official Mark Iwry wrote, “applying the governing statutory authority…an ERISA fiduciary’s investment decisions may never sacrifice risk-adjusted financial returns in order to achieve nonfinancial goals.”
And the libertarian magazine ‘Reason” also reported the amount of pro-ESG wiggle room is modest. Quoting the new rule, it wrote, “Fiduciaries must invest ‘based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis.’” Though it also noted the language used by the Biden Labor Department explicitly stated new analysis under the rule “may include the economic effects of climate change and other environmental, social, or governance factors on the particular investment or investment course of action.”
Greg Moore, head of Americans for Prosperity in New Hampshire, praised Sununu’s new order for putting New Hampshire on the right side of the issue, regardless of the reach of Biden’s policy.
“We welcome Gov. Sununu’s efforts to protect the retirement savings of Granite Staters. Unlike President Biden, who is trying to reach into Americans’ wallets to help out his well-connected, liberal buddies, the governor is working, through this and his letter with other governors to the president, to stop the misguided the Department of Labor rule.”
“I applaud Gov. Chris Sununu for protecting retirees who served our state by ensuring politics don’t come into play when it comes to retirement savings — only return on investment,” added state Rep. Joe Sweeney (R-Salem), who sits on the House Finance Committee.
At a recent roundtable on the ESG rule hosted by AFP-NH, several speakers referenced studies showing ESG investing has underperformed the market. According to Terrence Keeley, chief investment officer of 1PointSix LLC, “ESG funds have underperformed the broader market by more than 250 basis points per year, an average 6.3 percent return compared with an 8.9 percent return.
“This means an investor who put $10,000 into an average global ESG fund in 2017 would have about $13,500 today, compared with $15,250 he would have earned if he had invested in the broader market,” Keeley wrote last year.