Efforts to prohibit financial institutions from considering ESG criteria reflect a fundamental misunderstanding of free-market capitalism on the part of its self-proclaimed defenders. If private investors and companies want to pursue ESG goals, it is not politicians' place to interfere.
When it burst into the mainstream several years ago, the sustainable investment movement met relatively little resistance as it sought to persuade managers and shareholders to shift their focus from short-term profits toward environmental, social, and governance (ESG) goals. Lately, however, a counter-movement seeking to prohibit financial institutions from following ESG guidelines has been gaining steam in the United States.
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The Only Way to End the War
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To be sure, ESG warrants more than a little skepticism. Several studies highlight the risk that companies will use it as a public-relations exercise. Often, green pledges turn out to be insincere greenwashing. But the Republican-led effort to ban private investors from pursuing ESG goals is deeply misguided.
Florida Governor Ron DeSantis, who is reportedly laying the groundwork for a presidential bid in 2024, is the unofficial leader of the conservative war against ESG. “From Wall Street banks to massive asset managers and Big Tech companies,” he said in a speech in July, “we have seen the corporate elite use their economic power to impose policies on the country that they could not achieve at the ballot box.” In the same speech, DeSantis announced a series of legislative proposals and administrative actions meant to “protect Floridians” from the ESG movement, which “threatens the vitality of the American economy and Americans’ economic freedom.” The anti-ESG crusaders seem particularly anxious about the possibility that investors would be allowed to discriminate against gun manufacturers and fossil-fuel companies. In the first five weeks of this year alone, Republican state lawmakers proposed as many as 49 laws to prevent banks and pension funds for public employees from integrating sustainability criteria into their decision-making. Several states – including Arizona, Florida, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Missouri, and North Dakota – have already passed bills restricting ESG. At the federal level, congressional conservatives are also promoting anti-ESG legislation. Republican Senator Mike Braun is currently seeking to overturn a decision by President Joe Biden’s Department of Labor, which went into effect January 30, to allow retirement fiduciaries to consider ESG criteria in their risk-return analyses. Braun has already convinced every Republican senator to support his effort. While state governments have the power to prohibit public pension funds from relying on ESG investment criteria, the Republican campaign has also taken aim at private banks and institutional investors. BlackRock, the world’s largest asset manager, is a favorite target. The conservative attack on ESG has less to do with economic freedom than with the US culture wars and the right-wing obsession with “woke capital.” DeSantis, after all, is the same governor who in 2021 used the state government’s power to prevent privately owned cruise lines from asking customers whether they had been vaccinated against COVID-19. Although the GOP has long claimed the mantle of devotion to free markets, it is increasingly clear that DeSantis and the rest of his party have other priorities...
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