The Extreme Politics of Investment Management: How the Climate Debate Can Kill Fiduciary Duty


RRecently, state politicians united to ban state and local government agencies from doing business with investment firms and banks accused of ‘boycotting’ the gun and fossil fuel industry and peddling myths. on climate change. Although these political interventions are presented as a measure to protect investors’ returns, they have the unfortunate effect of diminishing confidence in the fiduciary duty of investment management professionals. Efforts like this politicize investment management and deliberately disregard the responsibility, judgment and skill of those tasked with managing the hard-earned assets of clients and pension plan beneficiaries.

In truth, the hyperbole around woke investment managers only serves to erode confidence in a highly regulated, highly skilled industry – all in the name of winning political points fast.

This is particularly detrimental because investment advisers must maintain a deep level of trust with clients as part of the fiduciary relationship. This duty is not influenced by the news of the day or passing fads. It is at the heart of all investment professionals. Of course, different advisors assess financial risks and opportunities based on client direction and professional judgment – which is why portfolio holdings look different – but the fiduciary advisor’s fundamental obligation has been and always will be results. financials of their investors. If politicians start drawing lines in the sand about what factors can and cannot be considered by advisers, it undermines the deep institutional knowledge that advisers rely on to make those decisions every day.

Investment managers are used to juggling multiple issues. From climate change to supply chains to shifting consumer preferences to corporate governance, there are many moving parts when evaluating investment opportunities. ESG considerations are only one piece of the puzzle to consider. ESG factors have been part of the investment and business landscape for years. In fact, the CFA Institute, the global association of investment professionals that sets the standard for professional excellence and credentials, comments on the subject and advises professionals on how to consider ESG factors in the framework of rigorous financial analysis for decades.

It’s only recently that the scrutiny of climate change has become political football for lawmakers looking for the next hot topic to comment on, oblivious to the fiduciary process and research that has led us to the construction of modern portfolios. .

Those who politicize ESG investment decisions seem to forget that professional advisers have always been guided by a high code of ethics – in addition to laws, regulations imposed by the United States Securities and Exchange Commission and precedents set by courts across the country. – which is not going away anytime soon. Any type of political narrative that casts suspicion on this age-old fiduciary tradition, whether it is requiring investment professionals to fully engage in climate responsibility or banning such considerations altogether, destroys confidence in the ability of advisors to fulfill their fiduciary duties of care. , loyalty and care, their most critical responsibility.

Ultimately, the personal opinions of investment managers on how to approach change do not trump client guidelines or fiduciary duties. Rhetoric to the contrary or state political decrees imposing conditions on which fundamental investment factors can be considered in their state are downright dangerous. More importantly, it suggests that the ethics and morals of their investment professionals are no longer trustworthy. This extreme effort to politicize the investment management industry threatens ethical practices, conflict of interest obligations, professionalism and, ultimately, retirement security. If investment firms and professionals are judged on policy alignment on climate change rather than firm experience, account security, investment skills and track record of performance , confidence in fiduciary duty is seriously threatened.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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