President Joe Biden issued his first veto on March 20, rebuking Republicans who had hoped to overturn a Biden-administration rule on environmental, social and corporate governance guidelines (E.S.G.). It “allows retirement-plan managers to consider climate change in their investment decisions,” reads a Wall Street Journal article.

Republicans lambasted Biden’s regulation as part of a “woke agenda” that will hurt retirement savings and “fund left-wing political causes.” Meanwhile, Biden maintained that Republicans’ attempts at repealing the rule “would risk […] retirement savings by making it illegal to consider risk factors MAGA House Republicans don’t like.”

This was just the latest volley in a back and forth culture war between Republicans and Democrats that continues playing out at the federal level and in the states, even including Georgia. But far too often, both sides are wrong, and prefer to rely on government force and sidestep their fiduciary responsibilities.

By way of background, the E.S.G. fight stands at the cross-section of money management and social and political ideology. Banks that adopt E.S.G. policies are more likely to eschew investing in/conducting business with certain companies that don’t match their vision for the future.

This has resulted in large firms boycotting fossil fuel companies for instance, but E.S.G.-oriented policies can capture a host of other business models that particular banks see as problematic for whatever reason. This could even include companies like gun manufacturers.

Some say these policies are simply about promoting sustainability. Others call it activism. In truth, many on the political Left undoubtedly see E.S.G. as a backdoor way of promoting their values by starving certain companies of capital, and many on the Right see these efforts as threats and would like to put an end to them.

Red state after red state has introduced anti-E.S.G. legislation over the years—forbidding state agencies or local governments from investing their state pension funds and public school endowments in companies engaged in certain E.S.G. policies. Several of these bills have even become law, but they risk hurting taxpayers.

By next year, roughly half of professionally managed assets will take E.S.G. into consideration, Deloitte predicts. This means states that have enacted anti-E.S.G. legislation will have grossly limited their options—reducing competition for their portfolios and the return on taxpayer investments.

Texas led the way with its anti-E.S.G. law, which mandates state and local retirement funds divest from investment firms that boycott fossil fuels. Yet a study shows that it may cost the state upwards of $532 million per year in higher interest payments on municipal bonds, but it’s not just Texas. Other states that have enacted similar legislation are facing millions in increased costs—demonstrating that this is a bad deal for taxpayers.

As a general rule, I prefer the government stay out of most business decisions and companies to have a reduced footprint in the political realm. However, as private companies, it is their right to engage in political activism if they wish. I don’t have to agree with their viewpoints or positions—and I often don’t—to support their liberty to influence public policy.

At the same time, state governments shouldn’t feel compelled to invest with any particular company or fund. That’s their freedom too, but enacting laws eliminating many options for non-financial reasons is a ridiculous investment strategy. States have a fiduciary responsibility to obtain the best deal possible for taxpayers, and studies have shown that anti-E.S.G. policies are a financial drag.

Some of the Left falls into the E.S.G. trap too, but from the opposite perspective. If they want to only invest in pro-E.S.G. companies, like California often does, then they are also limiting their options and focusing less on possible returns on investment. Moreover, if they want the government to force private companies into adopting E.S.G. policies, then that’s an inappropriate interposition into the private market, which will likely backfire. Governments aren’t known for making the best business decisions.

The E.S.G. debate has already begun in Georgia, but it stands in stark contrast with developments in Texas. Rep. John Carson, R-Marietta, introduced HB 481, which would define the state retirement system’s goal as to “provide the greatest possible long-term benefits to members of the retirement system by maximizing the total rate of return on investment within prudent limits of risk.” In short, it would require the state to only invest only where it makes the most financial sense for Georgians.  

To date, HB 481 hasn’t moved in the General Assembly, and with Georgia’s legislative session winding down, it will have to wait until next year for serious consideration. If this issue comes up again, lawmakers ought to put culture wars aside and focus on the state’s fiduciary responsibility.