Senate Republicans are introducing legislation directing retirement plan sponsors to select investments solely based on monetary factors, an extension of the position adopted by the Trump Administration Department of Labor. The sponsors to the legislation defend it by arguing that retirement accounts should be off limits to politics. The debate stems from the increasing criticism of pension and mutual funds that incorporate environmental, social, and governance (ESG) factors into their investment policies.
In challenging investment managers’ focus on ESG data, however, critics conflate two distinct issues. A body of empirical literature makes the claim that ESG data is relevant to evaluating a company from an economic perspective. We term this a “value-based ESG strategy.” For example, portfolio managers may invest in companies that they believe face strong growth prospects because they have products to help in the mitigation and adaption of climate change, or in companies that have strategies which will enable them to transform their business models in the fact of climate change. This is a value-based strategy. Of course, this assumes a particular perspective on the risks associated with climate change—one can argue that climate change is not real or that, even if it is, regulators will not impose costly changes on companies. The point, however, for such portfolio managers climate change is an economic risk, and their incorporation of climate-related data is a value-based investment strategy.
Investors who believe you can make money by investing in companies that are addressing this problem can invest in the BlackRock Future Climate and Sustainable Economy ETF (BECO). Notably, BECO purports to be investing for value, not values, stating that it “seeks to maximize total return by investing in companies that BlackRock Fund Advisors (“BFA”) believes are furthering the transition to a lower carbon economy.” Similarly Morgan Stanley touts its sustainable equity funds as outperforming their traditional peer funds.
In contrast, Senate Republicans’ real concern appears to be investments that employ values-based strategies—that is, investing according to a set of principles irrespective of any link between those principles and economic value. An example of a values-based fund is the S&P 500 Catholic Values ETF (CATH). As the fund’s prospectus explains, “The S&P 500 Catholic Values Index applies exclusion criteria to the constituents of the S&P 500 in order to create a benchmark aligned with Catholic values. These values are consistent with the Socially Responsible Investment Guidelines outlined by the United States Conference of Catholic Bishops (USCCB). The index is designed for investors who wish to track a benchmark that is consistent with USCCB guidelines.” Notably, the fund’s website contains an explicit disclaimer about the risks of a values-based strategy: “CATH’s consideration of the Guidelines in its investment process may result in choices not to purchase, or sell, otherwise profitable investments in companies that have been identified as being in conflict with the Guidelines. This means that the Fund may underperform other similar funds that do not consider the Guidelines when making investment decisions.”
Concededly, the line between values-based investing and value-based investing is unclear, and few funds are as explicit in disclaiming the link as CATH. At the same time, many such funds are explicitly marketed as tools by which investors can invest according to their values. As a result, it may be difficult for investors to determine whether they are foregoing economic value when they invest in an ESG fund.
For example, on September 6, 2017, Point Bridge Capital, LLC launched the “Point Bridge GOP Stock Tracker ETF,” now called the “Point Bridge America First ETF,” with the ticker symbol of MAGA. In large and bold letters the homepage of the website for the fund states: “Bring Republican Investment Values to Life by Investing in the MAGA ETF.” The website explains Politically Responsible Investing® as “allow[ing] people to invest in companies that align with their Republican political beliefs.” The MAGA Index is made up of “the top 150 companies from the S&P 500 Index whose employees and political action committees (PACs) are highly supportive of Republican candidates.” MAGA is thus a good example of values-based investing.
Notably, nothing in MAGA’s fund materials purports to tie its investment strategy to economic value. Rather, the underlying rationale for the fund is that:
Money matters in politics, affecting elections and the creation of policy in Washington. Corporations continue to take political stances and actions that ignore the political beliefs and shared values of millions of Americans. The left is using corporate America to silence conservatives and promote their agenda. While some people have boycotted companies with whom they disagree, they remain invested in these companies in their mutual funds and stock portfolios. We have created the MAGA ETF as a solution to these issues.
CATH and MAGA illustrate that responsible investing is not limited to left-leaning funds. In essence, each is a form of “Socially Responsible Investing (SRI),” just based on a different set of values for the screening process. The current rabid debate about ESG investing has its origins in SRI. While SRI can be traced back some 200 years to the Quakers, it can be said to have formally begun with the launch of the Pax World Fund (which still exists) in 1971 that by two “United Methodist ministers—Luther Tyson and Jack Corbett—looking to avoid investing church dollars in companies contributing to the Vietnam War, founded the ground breaking Pax World fund.” The original SRI funds, created for religious groups, screened out “sin stocks” like alcohol, firearms, gaming, and tobacco. Thermal coal, especially, and oil and gas are increasingly on the list for exclusion. Proponents of negative screening also often make the argument that this will put pressure on these companies to change, or even go out of business, by raising their cost of capital. This is a highly researched topic but a recent working paper with one of us as a co-author suggests that negative screening has no effect on the returns of sin stocks.
Although SRI started out on the left, it is now, somewhat ironically, being incorporated by the right. A March 26, 2021 Wall Street Journalarticle starts by saying “Values-based investing options for conservatives have lagged behind those available to investors concerned about climate change, diversity and animal rights.” It notes with satisfaction that “conservatives are taking a page from liberal investors.” Perhaps unwittingly, the WSJ is bestowing legitimacy on the use of SRI to influence company behavior, particularly when it is combined with strong shareholder engagement with the company’s board of directors and senior management. It’s just that what is “socially responsible” is a function of one’s political views.
The appeal of values-based funds—on either side of the political spectrum—is that people can invest their money in companies they think are living values they care about. For example, the SPDR® SSGA Gender Diversity Index ETF “seeks to provide exposure to US companies that demonstrate greater gender diversity within senior leadership than other firms in their sector.” State Street does not claim to be seeking “outperformance,” and there is a body of empirical research showing shows that more diverse groups make better decisions. But it is unclear whether State Street is seeking to market its fund in terms of economics or to those who are seeking a values-based strategy incorporating diversity.
Animal rights is perhaps more obviously a values-based approach. Those with this investment conviction can invest in the US Vegan Climate ETF (VEGN). “Through its passive rules-based approach VEGN seeks to avoid investments in companies whose activities directly contribute to animal suffering, destruction of the natural environment and climate change.” VEGN makes no performance claims, but it is conceivable that those companies for which this is an issue will attract better people and more customers.
A separate question is the extent to which values-based funds behave in a way that is consistent with their marketing. Recent articles, for example, have challenged so-called green funds for not living up to their claims because they hold investments in energy companies. The analysis is difficult, however, in part because there is no universal definition of ESG. Similarly, reasonable people can disagree on what investments are consistent with any values-based investment strategy. Again, consider the MAGA fund. MAGA is based on an index which “uses an objective, rules-based methodology” to identify Republican-friendly companies in the S&P 500® Index, defined in terms of campaign contributions and having at least 50% of their assets in the U.S.
Whether MAGA’s holdings can fairly be characterized as “companies that align with your Republican political beliefs” is less clear. At present, MAGA’s largest holding is Constellation Energy which proudly says on the homepage of its website: “Constellation is now America’s LEADING CLEAN ENERGY COMPANY! We’re the nation’s leading provider of carbon-free energy and are committed to being 100% carbon-free by 2040.” Another company in its top 10 holdings is NextEra Energy which states that, “A REAL PLAN FOR REAL ZERO. NextEra Energy has a plan to lead the decarbonization of America.” The homepage of its website also features its “2022 Environmental, Social, and Governance Report.” There is not a single major oil & gas company in MAGA’s top 10 holdings. This suggests that Republican values aren’t necessarily inimical to recognizing the reality of climate change and the opportunities to make money in addressing it. Indeed, it would appear that both companies would be appropriate holdings for the ESG funds spurned by Republicans.
A final concern is that investors may lose money by investing in values-based strategies. There are two main criticisms of SRI. The first is that negative screening reduces diversification and thus increases risk and suboptimizes returns. The second is that exclusion of “sin stocks” may be leaving money on the table. There is no empirically conclusive evidence that negative screening hurts performance as shown by the 30-year history of the MSCI KLD 400 Social Index vs. the MSCI USA Index. The market value of MAGA’s shares is down by 11.04% since inception (the S&P 500 is up about 72.88% in the same period of time). By comparison, the shares of CATH are up by around 11.67% since inception and 10.72% over the past five years, the shares of SSGA Gender Diversity Index ETF are up 8.95% since its inception on March 7, 2016, and the market price of VEGN is up 9.96% since its inception on September 9, 2019.
The experience of a specific values-based fund does not, of course, condemn a values-based investment strategy. We also note that many of the values-based funds, both those on the left and those on the right, have expense ratios that exceed industry norms, and expense ratios are one of the most important drivers of fund returns. The expense ratio for the MAGA fund, for example, is 0.72 %, the expense ratio for BECO is 0.70%, and the expense ratio for VEGN is 0.60%, MAGA’s expense ratio seems particularly high in that MAGA a passive fund. According to the latest Morningstar report on fund fees, the average for a passive U.S. equity fund like MAGA is 0.08%. The report also notes that fees for passive funds have fallen about 25% since 2017 and states that “The downward pressure on fund fees is unlikely to abate.”
Whether a values-based strategy underperforms, however, is not the point. In values-based investing, people should be free to invest their money however they want, even if at a potentially lower risk-adjusted return. The real problem is that values are obviously in the eye of the beholder and what is value investing for one person may be perceived as values-based investing by another. This is what is at the heart of the current controversy over ESG investing in terms of criticisms from the Right. If some people do not believe climate change is real, that is their point of view. But it goes too far for them to call a value-based climate strategy a values-based one. Nor is a fund that loads up with oil and gas stocks to seek outperformance engaging in a values-based strategy.
We do not expect the controversy about ESG investing to disappear anytime soon. Much of it is healthy, such as correcting for excessive claims that an ESG fund “will make the world a better place” when there is no demonstrable way to show that it will. Conservatives who complain that ESG investing is a way of forcing a social and environmental agenda on companies that has nothing to do with company profitability, perhaps even hurting it, need to look in the mirror if they are creating anti-ESG funds of their own. This is simply swapping out one set of values for another. Both are forms of Socially Responsible Investing.
We also suggest that those buying into these funds look carefully at the holdings. Do the companies in the fund really reflect the values the fund is claiming to support? Just as those concerned about climate change are unhappy when they find an ESG or climate fund owns shares in an oil and gas company, those who have invested in MAGA need to decide if Constellation Energy and NextEra Energy truly reflect their Republican values—even if these companies are major donors to the GOP. Whether on the left or right end of the political spectrum, it is unlikely one can find a fund that ticks every values box.
HALIFAX – Nova Scotia Premier Tim Houston says it’s “disgraceful and demeaning” that a Halifax-area school would request that service members not wear military uniforms to its Remembrance Day ceremony.
Houston’s comments were part of a chorus of criticism levelled at the school — Sackville Heights Elementary — whose administration decided to back away from the plan after the outcry.
A November newsletter from the school in Middle Sackville, N.S., invited Armed Forces members to attend its ceremony but asked that all attendees arrive in civilian attire to “maintain a welcoming environment for all.”
Houston, who is currently running for re-election, accused the school’s leaders of “disgracing themselves while demeaning the people who protect our country” in a post on the social media platform X Thursday night.
“If the people behind this decision had a shred of the courage that our veterans have, this cowardly and insulting idea would have been rejected immediately,” Houston’s post read. There were also several calls for resignations within the school’s administration attached to Houston’s post.
In an email to families Thursday night, the school’s principal, Rachael Webster, apologized and welcomed military family members to attend “in the attire that makes them most comfortable.”
“I recognize this request has caused harm and I am deeply sorry,” Webster’s email read, adding later that the school has the “utmost respect for what the uniform represents.”
Webster said the initial request was out of concern for some students who come from countries experiencing conflict and who she said expressed discomfort with images of war, including military uniforms.
Her email said any students who have concerns about seeing Armed Forces members in uniform can be accommodated in a way that makes them feel safe, but she provided no further details in the message.
Webster did not immediately respond to a request for comment.
At a news conference Friday, Houston said he’s glad the initial request was reversed but said he is still concerned.
“I can’t actually fathom how a decision like that was made,” Houston told reporters Friday, adding that he grew up moving between military bases around the country while his father was in the Armed Forces.
“My story of growing up in a military family is not unique in our province. The tradition of service is something so many of us share,” he said.
“Saying ‘lest we forget’ is a solemn promise to the fallen. It’s our commitment to those that continue to serve and our commitment that we will pass on our respects to the next generation.”
Liberal Leader Zach Churchill also said he’s happy with the school’s decision to allow uniformed Armed Forces members to attend the ceremony, but he said he didn’t think it was fair to question the intentions of those behind the original decision.
“We need to have them (uniforms) on display at Remembrance Day,” he said. “Not only are we celebrating (veterans) … we’re also commemorating our dead who gave the greatest sacrifice for our country and for the freedoms we have.”
NDP Leader Claudia Chender said that while Remembrance Day is an important occasion to honour veterans and current service members’ sacrifices, she said she hopes Houston wasn’t taking advantage of the decision to “play politics with this solemn occasion for his own political gain.”
“I hope Tim Houston reached out to the principal of the school before making a public statement,” she said in a statement.
This report by The Canadian Press was first published Nov. 8, 2024.
REGINA – Saskatchewan Opposition NDP Leader Carla Beck says she wants to prove to residents her party is the government in waiting as she heads into the incoming legislative session.
Beck held her first caucus meeting with 27 members, nearly double than what she had before the Oct. 28 election but short of the 31 required to form a majority in the 61-seat legislature.
She says her priorities will be health care and cost-of-living issues.
Beck says people need affordability help right now and will press Premier Scott Moe’s Saskatchewan Party government to cut the gas tax and the provincial sales tax on children’s clothing and some grocery items.
Beck’s NDP is Saskatchewan’s largest Opposition in nearly two decades after sweeping Regina and winning all but one seat in Saskatoon.
The Saskatchewan Party won 34 seats, retaining its hold on all of the rural ridings and smaller cities.
This report by The Canadian Press was first published Nov. 8, 2024.
HALIFAX – Nova Scotia‘s growing population was the subject of debate on Day 12 of the provincial election campaign, with Liberal Leader Zach Churchill arguing immigration levels must be reduced until the province can provide enough housing and health-care services.
Churchill said Thursday a plan by the incumbent Progressive Conservatives to double the province’s population to two million people by the year 2060 is unrealistic and unsustainable.
“That’s a big leap and it’s making life harder for people who live here, (including ) young people looking for a place to live and seniors looking to downsize,” he told a news conference at his campaign headquarters in Halifax.
Anticipating that his call for less immigration might provoke protests from the immigrant community, Churchill was careful to note that he is among the third generation of a family that moved to Nova Scotia from Lebanon.
“I know the value of immigration, the importance of it to our province. We have been built on the backs of an immigrant population. But we just need to do it in a responsible way.”
The Liberal leader said Tim Houston’s Tories, who are seeking a second term in office, have made a mistake by exceeding immigration targets set by the province’s Department of Labour and Immigration. Churchill said a Liberal government would abide by the department’s targets.
In the most recent fiscal year, the government welcomed almost 12,000 immigrants through its nominee program, exceeding the department’s limit by more than 4,000, he said. The numbers aren’t huge, but the increase won’t help ease the province’s shortages in housing and doctors, and the increased strain on its infrastructure, including roads, schools and cellphone networks, Churchill said.
“(The Immigration Department) has done the hard work on this,” he said. “They know where the labour gaps are, and they know what growth is sustainable.”
In response, Houston said his commitment to double the population was a “stretch goal.” And he said the province had long struggled with a declining population before that trend was recently reversed.
“The only immigration that can come into this province at this time is if they are a skilled trade worker or a health-care worker,” Houston said. “The population has grown by two per cent a year, actually quite similar growth to what we experienced under the Liberal government before us.”
Still, Houston said he’s heard Nova Scotians’ concerns about population growth, and he then pivoted to criticize Prime Minister Justin Trudeau for trying to send 6,000 asylum seekers to Nova Scotia, an assertion the federal government has denied.
Churchill said Houston’s claim about asylum seekers was shameful.
“It’s smoke and mirrors,” the Liberal leader said. “He is overshooting his own department’s numbers for sustainable population growth and yet he is trying to blame this on asylum seekers … who aren’t even here.”
In September, federal Immigration Minister Marc Miller said there is no plan to send any asylum seekers to the province without compensation or the consent of the premier. He said the 6,000 number was an “aspirational” figure based on models that reflect each province’s population.
In Halifax, NDP Leader Claudia Chender said it’s clear Nova Scotia needs more doctors, nurses and skilled trades people.
“Immigration has been and always will be a part of the Nova Scotia story, but we need to build as we grow,” Chender said. “This is why we have been pushing the Houston government to build more affordable housing.”
Chender was in a Halifax cafe on Thursday when she promised her party would remove the province’s portion of the harmonized sales tax from all grocery, cellphone and internet bills if elected to govern on Nov. 26. The tax would also be removed from the sale and installation of heat pumps.
“Our focus is on helping people to afford their lives,” Chender told reporters. “We know there are certain things that you can’t live without: food, internet and a phone …. So we know this will have the single biggest impact.”
The party estimates the measure would save the average Nova Scotia family about $1,300 a year.
“That’s a lot more than a one or two per cent HST cut,” Chender said, referring to the Progressive Conservative pledge to reduce the tax by one percentage point and the Liberal promise to trim it by two percentage points.
Elsewhere on the campaign trail, Houston announced that a Progressive Conservative government would make parking free at all Nova Scotia hospitals and health-care centres. The promise was also made by the Liberals in their election platform released Monday.
“Free parking may not seem like a big deal to some, but … the parking, especially for people working at the facilities, can add up to hundreds of dollars,” the premier told a news conference at his campaign headquarters in Halifax.
This report by The Canadian Press was first published Nov. 7, 2024.
