The ESG Backlash

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The movement for environment, social, and governance (ESG) investing, after several years of headline-grabbing growth, is about to hit a wall of resistance. Conservatives have come to see this collection of business trends, most often encountered at corporate conferences and investing seminars, as yet another “woke” assault on mainstream society. Their growing opposition to ESG will likely chill industry enthusiasm and curtail the growth confidently predicted by many of its advocates.

The cultural and intellectual pushback has been brewing for some time — New York Times columnist Ross Douthat wrote about “woke capital” in 2018 — but hit critical mass last year. February 2021 saw the publication of The Dictatorship of Woke Capital: How Political Correctness Captured Big Business by finance analyst Stephen Soukup. In it, Soukup traces contemporary calls for “enlightened” and “responsible” investment from left-leaning writers going back over 150 years. In this history, progressive critics have always pushed for greater “social” control of corporate America, and the push for ESG currently in vogue among their ideological descendants is only the most recent threat to investors’ property rights.

In Woke, Inc.: Inside Corporate America’s Social Justice Scam, published in August, entrepreneur and conservative activist Vivek Ramaswamy called out business leaders for attempting to use their influential corporate perches to dictate one particular system of moral conduct one inconsistent with many conservative values — to the rest of the country. Ramaswamy has suggested a range of political and legal efforts to counteract this influence, and resigned as CEO of the pharmaceutical company he founded to become a full-time activist on these issues.

As the intellectual case has been building, political leaders across the country have been taking concrete steps to push back on ESG-related topics such as divestment from oil and gas and “anti-racism” policies that reject the goal of race-blind equality. Last June, Texas governor Greg Abbott signed a bill into law that bans the state government from doing business with companies that “boycott” the oil and gas sector or the firearms industry. In December, Florida governor Ron DeSantis made changes to the way his state’s retirement investments were being managed, citing worries over “outside fund managers who may pursue social ideologies inconsistent with the state’s values.”

These developments continued into this year. In January, West Virginia treasurer Riley Moore announced that his state would no longer do business with asset management mega-firm BlackRock, citing CEO Larry Fink’s high-profile public opposition to fossil-fuel energy. Officials who oversee state investment and pension funds are also organizing their efforts to oppose ESG. Among other recent advocacy efforts, the 24 members of the State Financial Officers Foundation wrote to the White House opposing the nomination of Sarah Bloom Raskin to be vice chair of the Federal Reserve for supervision because of her anti-fossil-fuel advocacy.

Supporters of ESG policy might note that, while conservative activists and Republican lawmakers might be pushing back, pro-ESG Biden appointees are in charge of regulatory policy at the federal level, including at the Securities and Exchange Commission (SEC). This is true, but the current direction of SEC policy-making itself may also be cooling ESG enthusiasm. Last year, Commissioner Allison Herren Lee announced the creation of the agency’s Climate and ESG Task Force, which would “identify ESG-related misconduct” via staff investigations and “tips, referrals, and whistleblower complaints.” Chairman Gary Gensler released a video just last week about such misconduct — in this case, the problem of investment funds that market themselves as “green” or “sustainable” but may have no data to back up the claim of being more environmentally friendly than any other fund. Exaggerated or unsupported environmental claims like this are often called “greenwashing.”