Note: This letter to the editor appeared in the Wall Street Journal on March 2, 2023, in response to the Journal’s March 1, 2023, op-ed titled “Republicans Ought to Be All for ESG.”

Sen. Chuck Schumer argues in favor of a regulation explicitly allowing retirement-fund managers to include environmental, social and governance objectives as investment criteria, maintaining that ESG factors “minimize risk and maximize their clients’ returns” (“Republicans Ought to Be All for ESG,” op-ed, March 1). Oh, please. ESG criteria, among which are disinvestment from industries purportedly contributing to the climate “crisis,” charitable donations to community (leftist) groups, and identity-group representation on corporate boards, are necessarily political. They allow fund managers to substitute their political preferences in place of the fiduciary interests of plan participants under the Employee Retirement Income Security Act of 1974.

A substantial body of evidence demonstrates that the insertion of nonpecuniary investment criteria imposes a substantial penalty over time in terms of realized returns. This isn’t surprising: The criteria impose artificial constraints on investment choices. Far from being a way to “let the market work,” ESG in reality is the most recent version of the timeless game of “Other People’s Money.”

Read the full letter to the editor on the Wall Street Journal.