Environmental, Social, and Governance (ESG) investing has gained popularity for promoting environmental sustainability, social justice, and ethical governance. However, this approach often leads to lower investment returns, significantly impacting taxpayers and the economy.

In states like Louisiana, where the oil and gas industry is crucial for economic stability, mandating ESG investing could have serious consequences. Governments must focus on maximizing fiduciary responsibilities over politically driven ESG criteria to ensure the highest returns for public funds.

Louisiana’s economy heavily relies on oil and gas activities.

According to the U.S. Energy Information Administration (EIA), Louisiana is a leading crude oil and natural gas producer, contributing substantially to the state’s economic output. The state has substantial refining capacity, with some of the nation’s largest refineries located along its Gulf Coast. Imposing ESG mandates can disrupt this critical sector, potentially reducing economic growth and increasing consumer costs. Louisiana risks undermining its economic foundation by diverting investments to ESG funds, which often underperform compared to traditional indices.

Recognizing these economic threats, Louisiana has taken proactive steps to protect its financial interests.

In 2022, the Louisiana Treasurer announced a plan to divest state funds from BlackRock, citing concerns over the company’s focus on ESG criteria that conflict with the state’s economic interests. This plan included removing $794 million from BlackRock funds. This underscores Louisiana’s commitment to prioritizing financial returns and protecting the state’s vital oil and gas industry from the negative impacts of ESG-driven investment strategies. This year, Louisiana passed SB234, prohibiting state and local government entities from contracting with entities that discriminate against firearm dealers and ammunition industries.

Texas and Oklahoma have taken similar stances against ESG investing.

Texas passed Senate Bills 13 and 19 in 2021, prohibiting state investments in companies that boycott firearm and ammunition industries or fossil fuels, respectively. These laws help preserve economic interests and keep public funds from chasing poor returns. Similarly, Oklahoma passed the Energy Discrimination Elimination Act (EDEA) in 2022 to protect its vital oil and gas sector from the adverse effects of ESG investing. This Act restricts state and local governments from contracting with financial firms that boycott energy companies and ensures that investment decisions are based on financial merit rather than political considerations.

The pushback against ESG mandates is not limited to Texas, Oklahoma, and Louisiana. Across the United States, states are grappling with the implications of taxpayer funding for ESG activities. A state-by-state snapshot of the ESG policy landscape reveals a growing trend of legislative actions to curb ESG investing. States like Florida and West Virginia have also passed laws to prevent state funds from being used for ESG investments.

A study by the Committee to Unleash Prosperity reveals that ESG investing often results in lower financial returns. This finding supports the argument that ESG criteria should not drive public investment strategies. Additionally, research from the Center for Retirement Research shows that ESG investments underperform compared to traditional indices, further questioning the efficacy of ESG mandates.

Investment managers for state and local funds, such as public pensions for teachers and state employees, have a fiduciary duty to ensure the highest rate of return. ESG investing often conflicts with this duty by prioritizing non-financial criteria, leading to lower returns. The legislative actions in Louisiana, Texas, and Oklahoma exemplify how state policy can safeguard scarce taxpayer resources.

The opportunity costs of ESG investing are significant. Diverting funds from high-performing investments in traditional energy sectors to ESG projects can result in lower economic growth and higher consumer costs. In Louisiana, where the oil and gas industry is a cornerstone of the economy, such a shift can lead to job losses, reduced economic activity, and lower tax revenues, ultimately harming the communities that ESG policies aim to protect.

Policymakers in Louisiana and other states should continue prioritizing fiduciary responsibilities and avoiding ESG investments that do not serve the best interests of taxpayers. Transparent and independent audits of investment decisions can ensure that public funds are managed responsibly, promoting economic growth and stability. While ESG investing is acceptable for the private sector, given that individuals can choose what to invest in and take on whatever amount of risk makes sense for them, the government has no money, so it should use taxpayer dollars as conservatively as possible.