With financial institutions doubling down on their support for Environment, Social, and Governance (ESG) principles, the Biden administration is now requiring employers to offer workplace retirement plans that take ESG metrics into account. Lawmakers have an obligation act as bulwarks against this increasingly pervasive movement.
ESG is a set of progressive-aligned principles which dictate that companies adopt and promote distorted versions of the greater good – especially on environmental issues – instead of focusing on profit. While that may sound noble, ESG’s real-world application has had ruinous effects in countries like Sri Lanka, Ghana, and the Netherlands.
As ESG interests grow in the U.S., state financial officers, attorneys general and governors like Ron DeSantis are challenging this woke capitalism in its current iteration.
Red state financial officers, specifically treasurers and auditors, first sounded the alarm about ESG investments. Following President Biden’s inauguration, 24 state financial treasurers authored a letter warning him against nominating Sarah Bloom Raskin, an ESG proponent, to the Federal Reserve.
Soon after, the S&P Global unveiled its ESG Credit Indicator Report Card on U.S. States And Territories to essentially replace traditional credit rating criteria. This prompted Utah Treasurer Marlo Oaks and his state’s delegation to condemn S&P Global’s ESG indicators because they “obscure real investment risks, undermine faith in the impartiality of credit ratings, and penalize states whose politics do not align with the political interests behind the ratings system.” More troubling, these new indicators aim to discredit Utah’s AAA credit rating. Idaho Treasurer Julie Ellsworth similarly criticized its “ESG Credit Indicator” arguing its methodology is subjective and flawed, since it has a history of defrauding 19 states – including Idaho – of nearly $1.375 billion.
Thus far, West Virginia Treasurer Riley Moore has taken the most significant action against ESG with the state’s inaugural Restricted Financial Institution List, which publicly lists the in-state financial institutions boycotting traditional energy companies. Five of the six largest asset managers were initially deemed boycotters of coal, oil, and gas companies. After the list was published, U.S. Bancorp eventually reassessed policies that barred the financing of coal mining, coal power, and pipeline construction activities and was therefore not included on the final list of boycotters.
Similarly, 19 state attorneys general are reinforcing the anti-ESG efforts of their financial officer colleagues. In a letter to BlackRock, led by current Missouri Attorney General and likely incoming U.S. Senator Eric Schmitt, the AGs argued the company has politicized energy investments under the environmental (“E”) prong to pressure companies to adopt anti-fossil fuel positions like net-zero emissions. These policies not only exacerbate high-cost energy and limited supply, but are also contributing to inflationary woes and weakening natural security.
Perhaps the biggest political figure lending support to anti-ESG efforts is Florida Governor Ron DeSantis, a high-profile governor who wants to follow West Virginia’s lead. Last month, DeSantis made clear his intention to put “people before corporate power” during the 2023 Florida legislative session and protect his residents from “woke” capitalism. A proposed bill lays out three main goals: prohibit financial institutions from discriminating against Floridians for having non-leftist views; bar State Board of Administration (SBA) fund managers from weighing ESG factors in the state’s $240 billion pension fund; and require SBA fund managers to “consider maximizing the return on investment on behalf of Florida’s retirees.”
As state lawmakers and officials start fighting back, ESG is also being challenged on Wall Street and across the private sector.
Tech entrepreneur Vivek Ramaswamy recently launched Strive Asset Management to compete with the three leading pro-ESG financial institutions – BlackRock, State Street, and Vanguard – which cumulatively oversee $22 trillion in managed assets. In response to the company’s launch, BlackRock soon announced it won’t back shareholders’ votes to micromanage a company’s environmental programs that are too “prescriptive or constraining on companies and may not promote long-term shareholder value.”
This initial result suggests market competition can force the Big Three to reconsider adopting ESG metrics. And perhaps this same pressure can be applied to the Biden administration and in blue states.
McKinsey Associates concedes that ESG has lost “some of its luster” while the Economist warned ESG investing is “an unholy mess that needs to be ruthlessly streamlined.” Why? Great confusion over its purpose abounds, and opposition to these metrics is slowly but surely building up.
ESG’s devoted backers are souring on the name in the hopes that an imminent rebrand will restore confidence in these principles. But it’s too late. No cloaking of ESG in better-packaged flowery language can salvage its dishonest virtue signaling image. It’s not the language that’s the problem, it’s the concept. The public officials standing acting as bulwarks against it deserve our thanks and praise.