This Asset Manager Believes Allowing 401(k)s To ‘go Woke’ Forces Some Into Leftist Views

A new regulation issued by the U.S. Department of Labor goes into effect at the end of January. Employers will be allowed to put politics over profits by favoring ESG-friendly options when choosing investments for the 401(k) plans they provide for their employees.

In fact, they will even be able to choose ESG funds as the default option when a worker doesn’t choose one for their 401(k) — despite studies like this one cited by the Harvard Business Review that suggest ESG funds underperform their non-ESG counterparts.

Red flags about ESG in 401(k) plans

In that study, researchers at University of Chicago analyzed the Morningstar sustainability ratings of over 2,000 mutual funds that manage over $8 trillion in investor savings. Although the funds with the highest sustainability ratings attracted more capital than the lowest-rated funds, none of them outperformed the lowest-rated funds.

Now one active ETF manager warns that lower returns aren’t the only potential danger from the Biden administration’s new rule about including ESG factors in 401(k) investments. In an interview with ValueWalk, Adam Curran, founder of Curran Financial Partners, explained why he feels it threatens “the American dream and capitalism.”

“I’m sounding the alarm on ESG,” Curran says. “… This is nefarious. It’s not about making the world a better place. It’s about power. I see a problem when Washington is an arm’s length away from individuals who dictate where mom and pop Main Street investors’ money must be siphoned.”

Where do the ESG scores come from?

According to Curran, the Biden administration believes investment advisors have the responsibility to go beyond choosing the investments that are in their clients’ best interests. He noted that the new rule allows investment fiduciaries, including 401(k) managers and mutual funds, to include a metric for ESG scoring when choosing investments for clients.

However, including an ESG component in retirement funds could allow employers to hijack their employees’ retirement savings and force them to financially support left-wing causes they don’t agree with.

“If those ESG scores just lived on a website, it would be OK,” Adam says. “If they feel like scoring companies and announcing to the world that they believe certain companies are better than their competitors as a whole, it’s OK, but now ESG scores are going into 401ks. They dictate which companies get more capital. These investments are coming from people who don’t believe ESG should be involved in their investment decisions. ESG is being forced upon 49% to 51% of humanity.”

Fiduciary responsibilities

He noted that 401(k) plan administrators and investment advisors have always had the fiduciary duty to put plan participants’ money in the best-performing investments with the lowest fees. Curran added that the line-up of funds that workers have access to in their 401(k)s should be the best-in-class funds. However, he questions why the Biden administration can now say the responsibility to provide access to the best-performing investments isn’t enough.

“Biden has come out and said they have the fiduciary responsibility not only to investors and not only in seeing they pick the best mutual funds for 401(k) investors,” Adam says. “They also have the fiduciary responsibility to earth… Investment advisors should look out for investors’ best interests and leave being a good steward of the earth to conservationists.”

He also believes allowing ESG metrics to be included when choosing investments creates a conflict of interest because it allows a small group of individuals to dictate where money goes in the stock market. For example, people might be forced to put their retirement money in companies that care less about their products and more about “wokeism.”

“ESG is one of the biggest threats to the American capitalist system that has been so good for so long,” he said. “It’s awfully popular now to cast stones at America… But if you live in this country, the standard of living is better than the lion’s share of humanity because of the capital markets. When you add ESG scoring into the capital markets, they’re rigged by woke ideology.”

Tesla’s poor ESG scores

Adam believes that the scoring systems used to determine “good” or “bad” companies have essentially made some stocks uninvestable. While there is no consensus across ESG indices, there are some interesting trends. For example, Exxon Mobil tends to have a better ESG score than Tesla in many scoring systems.

Those who create the ESG scoring systems say Tesla deserves a bad ESG score because they received several bad employment reports from the automaker’s assembly line in California. ESG proponents also cite a lack of diversity and say Tesla is working its employees too hard in “Andrew Carnegie-like conditions,” Curran adds.

“A lot of those reports were filed upon Elon Musk announcing they were leaving California and moving to Texas because California was putting its boot on his neck by not allowing his employees to work during the COVID crisis,” he said. “When incidents like that happen, politically charged events, it’s now lending itself to less money being siphoned to Tesla. It doesn’t take a rocket scientist to see it. Loudmouth, ‘woke’ people now have the ability to dictate where investor capital goes.”

Disparities in ESG scoring

Another reason Adam is concerned about the Biden administration’s push to include ESG factors in 401(k) fund selection is the lack of consensus across scoring systems. He noted that the disparities between just two scoring systems can be like night and day.

“And yet, our government is anxious to begin utilizing these ESG scores,” the fund manager states. “How about we figure out a fair scoring mechanism before assigning trillions in capital to companies that have bent the knee and kissed the ESG ring? It doesn’t take much to realize the tomfoolery going on.”

Despite the wide disparities in ESG scores, he believes all makers of the ESG scoring systems currently in use are “woke, left-leaning companies saying all liberal platitudes have better ESG scores than those focusing on separating people from their money, creating products and services that delight us, and running a business, not making political activist statements.”

A fair approach to ESG scoring?

When asked whether he has any ideas about how to assign ESG scores in a fair and balanced way, Adam says that he thinks a lot of people see conservatives as “oil-guzzling, gun-toting racists.” However, he pointed out that this view simply isn’t accurate.

“I believe if given a choice, most sound-minded individuals support investing in and purchasing the products of the businesses that are being the best actors in our community,” Curran says. “Look no further than Chick-fil-A. Everyone loves waiting in line to get a chicken sandwich, but Arby’s has a chicken sandwich that’s arguably just as good and cheaper.”

He believes the market has a self-regulating mechanism that has people on the left side of the aisle seeing the market as terrible and evil. However, the investor also emphasized that investors who believe ESG scoring mechanisms are important to progress and humanity should be entitled to vote with their investments and support companies with favorable ESG scores.

“Where it becomes dangerous is when the federal government is using this ambiguous scoring mechanism to determine where people must put their money,” he clarified.

Why ESG might not be needed

At the end of the day, Curran describes himself as a “market purist.”

“I think, by and large, with an open and free press that’s not manipulated by bad actors, corporate market participants will be outed, and capital will stop flowing to them,” he said. “It’s when an invisible hand is steering money in one political direction that’s tremendously dangerous.”

The fund manager also said he would be just as concerned about ESG if conservatives controlled the scoring mechanisms.

“I would also be terrified if conservatives had access to this apparatus because we have crazy people in our party too,” he said. “If conservatives were given the ability to assign companies a score, it would be just as big a threat to the capitalist system and the markets as what’s happening right now.”

Approach to ESG

In response to his concerns about ESG, Curran’s firm has established an exchange-traded fund that avoids companies he believes to be participating excessively in political and social activism. For example, he tries to avoid companies that issue a lot of press releases on social media or release marketing material about various social issues rather than about their businesses.

“Those behaviors are not focused on products that separate people from their money,” he states. “They’re putting politics and activism above products and excellence. When we boycott those companies, we’re left with a bundle of high-quality, comfort-food business.”

The ETF’s make-up mirrors that of the market. For example, Adam notes that 20% of the overall market is technology, 11% is financials, and 13% is healthcare. His God Bless America ETF contains the same overall makeup.

Michelle Jones contributed to this report.