Time to End the ESG Shakedown

When the debate over environmental, social, and governance (ESG) investing and regulation started heating up around five years ago, most commenters had to describe what it was before they could argue to change it. Now, with several years of net-zero climate pledges, mandatory diversity, equity, and inclusion (DEI) trainings, and get-woke-go-broke marketing disasters under our belt (not to speak of the neglect of fiduciary duty they involve), most attentive readers are familiar with the troubling reality of ESG. With the return of Donald Trump to the White House and Republican majorities to the House and Senate, the time has come to push beyond awareness of ESG’s disturbing implications and banish it from the halls of power.

Some advocates of a market economy may well urge caution here, especially if they have fallen for the canard that woke corporate policies are largely a matter of voluntary agreement. We may not like ESG programs being implemented in corporate America — the argument goes — but in a free society, you can’t punish CEOs for implementing them.

That is true, as far as it goes, but fundamentally misunderstands why executives have agreed to such policies. ESG investing guidelines and regulations have, from the very beginning, been a corporatist collaboration between a tiny cadre of activists and senior policymakers in national governments and multilateral institutions such as the United Nations. The ESG movement has not only been a matter of elite consensus with no real grassroots support; it has been foisted on corporate America via thinly veiled threats of future legal and political retribution.

Proponents have informed executives that firms which refuse to join the bandwagon will suffer “reputational risk” for going against the (allegedly) enlightened tide of history. But such risk has always been artificially conjured. ESG proponents can — and do — create it themselves to penalize noncompliant behavior. In short: ESG has been a shakedown from Day One.

There are limits to what any president can accomplish unilaterally, but some of the moves that President Trump could take would be quite straightforward. President Biden issued several executive orders connected to the ESG agenda early in his term. In his first week on the job, he ordered  a “whole-of-Government Approach to the Climate Crisis,” and in June of that same year, he announced an order “Advancing Diversity, Equity, Inclusion, and Accessibility in the Federal Government.” Both should be repealed via executive orders as soon as Donald Trump returns to the White House on the afternoon of January 20, 2025.

Trump and his chief of staff, Susie Wiles, should also make it clear to newly appointed cabinet members and agency heads that they must weed out any existing teams, task forces, committees, or inter-agency working groups that advanced climate activism and DEI. Any agency that is not charged by Congress with pursuing those specific goals should not have staffers assigned to those goals. The Environmental Protection Agency is the place for climate policy; the Equal Employment Opportunity Commission is the place for workplace discrimination claims. The executive branch does not need an infinite regress of staff, in each agency, assigned to advance every progressive policy priority under the sun.

New leaders at the independent agencies, such as the Securities and Exchange Commission and the Federal Trade Commission, will receive less direct instruction from the new president. Still, they will have broad discretion to set the agenda at their respective agencies for enforcement, future rulemakings, and repeals. SEC chairman-designate Paul Atkins, for example, will have the ability to fully reverse the pro-ESG mission creep seen over the last four years. He can, instead, focus the SEC on such charmingly old-fashioned goals as encouraging capital formation and new investment opportunities rather than micromanaging the board decisions of every public company in America.

One often-ignored element of executive leadership can have broad-reaching impacts across multilateral institutions and United Nations agencies alike: The instructions given to our political appointees and foreign service staff ahead of their attendance at multilateral conferences and meetings can radically change their outcome. The conservative foreign policy and legal movements have, for decades, rightly objected to the concept of globalist majoritarianism — by which every tinpot dictator and despot in the world has equal weight in international institutions to the U.S. government. We should, under no circumstances, continue to participate in multilateral institutions that no longer serve U.S. interests or, worse, have become actively hostile to them.

President Reagan, for example, withdrew the U.S. from the United Nations Educational, Scientific and Cultural Organization (UNESCO) in 1983 because, as the administration said at the time, “It has exhibited hostility toward a free society, especially a free market and a free press, and it has demonstrated unrestrained budgetary expansion.” George W. Bush brought us back into UNESCO in 2002, but President Trump, in his first term, pulled us out again. Then–UN Ambassador Nikki Haley explained that the agency’s “extreme politicization has become a chronic embarrassment.”

President Trump also, in 2019, withdrew the U.S. from the Paris climate agreement. Though the Biden administration rejoined in 2021, that should be no barrier to the new Trump team’s announcing another departure — preferably on Day One.

Congress can — and should — pass legislation clarifying the mission of the SEC and the requirements of long-standing law, such as the Employee Retirement Income Security Act of 1974, with regard to ESG policy goals. This is especially important in areas where agency rulemaking has pinged back and forth in recent years between opposing policies in different administrations. A new congressional majority can finally give market participants some principled predictability in the long term.

The House of the Representatives has passed a handful of bills in recent years that point the way . The Protecting Americans’ Investments from Woke Policies Act (H.R. 5339) from Representative Rick Allen (R., Ga.), the Prioritizing Economic Growth Over Woke Policies Act (H.R. 4790) from Representative Bill Huizenga (R.,  Mich.), and the Stopping Excessive Climate Reporting Act (H.R.7355) from Representative Beth Van Duyne (R., Texas), are all good places to start.

Congress will likely want to dodge the issue of reforming ESG regulations and leave it to new appointees, such as the SEC’s nominated Chairman Atkins, to make the changes through agency action. This would be a terrible mistake. Congressional inaction would saddle those new leaders and their staffs with years of slow, tedious rulemaking that would then be challenged by outside activist groups in federal courts.

The Republican side of the aisle already shares the consensus that federal policy on investing and pension management should not favor progressive policy priorities. Congress should fix the obvious problems through legislation and allow the SEC to spring forward with an invigorated sense of mission in 2025. This will hopefully close the book on the entire debate and shut down calls from certain culture warriors to create a new, anti-woke version of ESG policy for right-wing priorities. We can, and should, go back to neutral.

Options under Article III (the courts) are also bright. Multiple lawsuits are already in progress challenging ESG-themed policies that were enacted at the federal level during the Biden years. In December, for example, the Fifth Circuit Court of Appeals held that the SEC did not have the statutory authority to require Nasdaq-listed companies to disclose their board members’ sex, race, ethnicity, and sexual identity.

The Fifth Circuit challenge to the Department of Labor’s ESG and pension funds rule is now back where it started — in the U.S. District Court for the Northern District of Texas. The case is up for reconsideration in light of the recent Loper Bright v. Raimondo decision and the end of Chevron deference for federal agencies. Precedent in Loper Bright joins several other recent court decisions — West Virginia v. EPA, SEC v. Jarkesy, Corner Post v. Federal Reserve, and National Rifle Association v. Vullo — that should aid the rollback of ESG-themed policies.

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