Conservative attacks on ESG investing have spread to statehouses across the country.
Now business groups are fighting back.
From North Dakota to Mississippi, state lawmakers have defeated proposals that would bar state governments or pension funds from doing business with financial institutions that follow ESG – environmental, social and governance – principles, making way for weakened versions of legislation.
“We’re starting to see a backlash in the states to measures that would restrict investors from taking into account long-term business risk in their portfolios,” Republican strategist Ron Bonjean told USA TODAY. “There is a clear business and financial case to these measures’ failures: the free market depends on investment decisions that take material risks into account.”
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Conservative gospel has long been that the government should not interfere in private business. But for months now, conservative advocacy groups backed by right-wing donors have mounted a campaign in red states to stop “woke” investments that take into account climate risks and social issues.
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Last week the Senate overturned a federal rule on ESG investments that allows retirement plans to consider ESG factors when choosing investments. President Joe Biden is expected to veto the bill.
“This is a resolution that strongly deserves to become law. We know it isn’t the end of the fight, but it’s a very strong beginning,” House Speaker Kevin McCarthy said Thursday at the bill signing.
In February, Florida Gov. Ron DeSantis, a likely 2024 GOP presidential contender who has scored political points by waging a war against corporate “wokeness,” announced legislation “to protect Floridians from the woke ESG financial scam.”
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Asset managers like BlackRock, State Street and Vanguard say these factors are essential to investment strategies because they can spotlight investments that are riskier than they may appear.
Backlash from business groups picks up steam
Now business groups are getting involved. They argue that restrictive ESG bills restrain free markets.
“Our biggest concern is the idea of somebody telling our banks who to do business with or who not to do business with,” Rick Clayburgh, chief executive of the North Dakota Bankers Association, recently told the Washington Post. “We believe our banks should be allowed to do business with customers they know, the people they know and to make those decisions.”
Should government intervene or let free markets decide on ESG?
Business groups in Kansas and Indiana where the GOP controls the legislature recently opposed bills that would curb ESG.
In Kansas, that opposition caused a Senate committee chair to abandon a plan to prevent firms handling private investments from using ESG principles and canceled a discussion of a weakened version of the anti-ESG bill after a state pension fund warned that the bill could lead to $3.6 billion in losses over 10 years, the Associated Press reported Thursday.
“Private companies should be left to make decisions on what they believe to be best and let the free market determine their success or failure through creative destruction,” Eric Stafford, vice president of government affairs for the Kansas Chamber, told the House Committee on Financial Institutions and Pensions on Wednesday. “Government should not alter the free market, whether it be in support of or opposed to and penalizing of policies such as ESG.”
Republicans are divided on what to do about ESG
Republicans are divided over whether the government should intervene on ESG issues.
So far, the anti-ESG push isn’t resonating with Republican voters, according to a survey from Penn State’s Center for the Business of Sustainability and communications firm ROKK Solutions.
Some 63% of voters surveyed said the government should not set limits on ESG investments, Democrats because ESG investments are a social good and Republicans because doing so would interfere with free markets, the survey found.
“Voters, including Republicans, oppose government action to curb ESG investment,” Bonjean said. “The reason is these voters value free market dynamics, which is a traditional conservative value.”
