WASHINGTON, March 2 (Reuters Breakingviews) – For an organization which professes a love of free markets, the U.S. Republican Party is surprisingly keen to meddle in financial decisions. Its representatives in the U.S. Senate on Wednesday voted to overturn a rule that makes it easier for retirement fund managers to consider sustainability factors like climate change when making investments. Yet Republicans face an uphill battle against flows of money and their own voters’ preferences.
Conservative politicians have recently ramped up their campaign against investments based on environmental, social and governance factors (ESG). Florida has ordered state funds to consider only financial returns when allocating capital. Texas has blacklisted firms like BlackRock (BLK.N) which it says are punishing the energy industry. House Financial Services Committee Chairman Patrick McHenry formed a “Republican ESG Working Group” in early February.
Latest Updates
View 2 more stories
Some skepticism is warranted. Equity funds focused on ESG underperformed non-ESG peers last year, according to Refinitiv Lipper data, dented by rising gasoline prices and overexposure to falling tech stocks. Many ESG funds also employ fuzzy and sometimes contradictory criteria. However, investors continue to vote with their wallets. Net outflows from sustainable funds only totaled $13 billion last year, while non-ESG vehicles lost $420 billion.
And even during that subpar year, investors were happy to spend more on ESG-compliant vehicles. They were willing to pay 20 basis points more in annual fees for sustainable funds compared to non-ESG ones, according to a study published by the National Bureau of Economic Research in January.
Republicans haven’t convinced the American public to ditch ESG, either. A total of 63% of voters oppose government restrictions on sustainable investing, according to a September survey conducted by Penn State University and ROKK Solutions. Meanwhile, seven in 10 Republican voters pushed back against ESG constraints, saying they “interfered excessively” with the free market.
Investors won’t face restrictions anytime soon. President Joe Biden is all but certain to veto the resolution approved on Wednesday. Its passage through Congress signals the anti-ESG battle in U.S. politics is far from over. Yet as long as investors and voters remain unconvinced, Republicans will be swimming against the tide.
Follow @BenWinck on Twitter
CONTEXT NEWS
The U.S. Senate voted on March 1 to reverse a Labor Department rule that makes it easier for retirement fund managers to consider environmental, social and corporate governance factors when making investment decisions. Democratic Senators Joe Manchin and Jon Tester voted with Senate Republicans to eliminate the rule.
The Senate vote came a day after Republicans in the House of Representatives moved to overturn the Biden administration rule, by a margin of 216 votes to 204.
The White House said on Feb. 27 that President Joe Biden would veto the resolution if it made its way through Congress.
Editing by Peter Thal Larsen, Sharon Lam and Streisand Neto
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
