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December 29, 2022 at 12:04 PM
What You Need to Know
- The political assault by the right is backed by former Vice President Mike Pence, as well as by the governors of Florida and Texas.
- Such a coordinated political attack on the finance industry may be without precedent, said Jill Fisch of the University of Pennsylvania.
- Still, roughly 20 of the 35 anti-ESG-related bills introduced during the past two years failed to become law.
The investing strategy known as ESG is under attack, and virtually no one expects the backlash to die down.
More than a dozen Republican state attorneys general have blasted ESG financial practices, while Republicans in Congress plan to increase their scrutiny of what they call “woke capitalism.”
One of their main complaints is that environmental, social and governance investing is part of a broader Democratic effort to prioritize climate change and other societal issues to the detriment of the fossil-fuel industry.
The political assault by the right is backed by some of the party’s biggest names, including former Vice President Mike Pence and the governors of Florida and Texas, Ron DeSantis and Greg Abbott. Pence and DeSantis are widely seen as potential 2024 presidential candidates.
Wealthy GOP supporters such as Peter Thiel, as well as billionaire Elon Musk, also have criticized ESG. And there’s a long list of right-wing activists such as Leonard Leo who have spoken out against BlackRock Inc. and other Wall Street giants they claim are catering to a Democratic agenda.
Such a coordinated political attack on the finance industry may be without precedent, said Jill Fisch, a professor of business law at University of Pennsylvania, who’s tracked corporate-governance issues for more than three decades.
Fisch notes that there’s “big money behind the scenes,” what with Big Oil among the more generous backers of GOP candidates. “I don’t see it going away,” she said.
Moves by States
That’s particularly bad news for BlackRock, the world’s largest asset manager and a vocal backer of ESG. Florida and at least six other states have already announced plans to pull funds from the New York-based firm.
The acronym ESG was coined almost two decades ago with the idea that investors should take into account environmental, social and corporate governance risks in their financial calculations.
Today, roughly $8.4 trillion is invested in ESG-related products. But according to Republican politicians like DeSantis, ESG “sacrifices returns at the altar of the select few, unelected corporate elites and their radical woke agendas.”
DeSantis has proposed a framework for anti-ESG bills that Florida lawmakers are expected to take up in their next session in March. The proposed legislation will prohibit state money managers from considering ESG factors when investing funds.
Meanwhile Florida’s chief financial officer, Jimmy Patronis, is pulling $2 billion from BlackRock in the largest anti-ESG withdrawal announced by any state, and has advised the state’s investment arm to stop working with the firm, signaling that further withdrawals may happen.
In Texas, legislation is already being crafted to restrict the use of ESG criteria. House Bill 645 would prohibit financial institutions from using what it calls “value-based criteria” in their business practices. For example, it says that banks can’t discriminate or advocate for a person based on their social media activity, political affiliation or ESG standards.
The legislation will likely be among a plethora of bills proposed in Texas, some arguably more political than practical, that target environmental or social policies.
Oklahoma lawmakers will consider a bill filed by state Senator Casey Murdock that would prohibit government entities from contracting with companies that have restrictive firearms policies, according to the state’s legislative website.
The move follows a nearly identical 2021 Texas law, which temporarily halted a handful of banks from underwriting municipal bond deals in the state.
GOP Push
With the new Congress split between a Republican-controlled House and Democratic-controlled Senate, anti-ESG legislation is likely to go nowhere in Washington over the next two years. But that isn’t stopping GOP members from making proposals.
In the U.S. Senate, five Republicans, including Tom Cotton of Arkansas and Marsha Blackburn of Tennessee, wrote a letter in November to dozens of law firms perceived as helping the ESG strategy that says Congress plans to use its oversight powers to see if antitrust violations are “being committed in the name of ESG.”
And U.S. Representative Andy Barr of Kentucky, one of the top Republicans on the House Financial Services Committee, has said that he and his colleagues will be “exercising rigorous oversight of both regulators and private sector asset managers who have politicized capital allocation that damages American workers, retirees, and discriminates against U.S. energy producers.”
