Why are Republicans opposed to ESG?
Outside of investment circles, the acronym for environmental, social, and governance principles isn’t widely known, but it’s quickly becoming a popular GOP talking point in the run-up to the 2024 presidential election.
According to the GOP, the nation’s top money managers are violating their fiduciary duty by pursuing an ideological agenda at the expense of financial returns.
Red states from Texas to West Virginia have pulled billions from BlackRock and other money managers in an effort to prevent public pension funds from considering ESG when making investment decisions, despite concerns that doing so may be financially detrimental.
Big money managers are divided. “We have one bias,” BlackRock Senior Managing Director Dalia Blass told the Texas Senate Committee on State Affairs last week, “and that is to get the best risk-adjusted returns for our clients.”
What exactly is ESG investing?
In addition to financial analysis, ESG is an investing strategy that considers environmental, social, and corporate governance factors.
The United Nations Principles for Responsible Investing have been signed by money managers such as BlackRock. When making investment decisions, they are increasingly considering environmental, social, and governance factors.
Who are the main ESG players?
BlackRock, Vanguard, and State Street are the top three investment firms. They manage a total of $22 trillion in assets.
Why is ESG contentious?
BlackRock, the nation’s largest asset manager, and its CEO Larry Fink have long advocated for ESG investment strategies. Today, an increasing number of money managers are urging corporations to assess environmental and social risks such as climate change and board diversity.
“Companies must ask themselves: What role do we play in the community? How are we reducing our environmental impact? “Are we attempting to develop a diverse workforce?” In 2018, Fink wrote in his annual letter to CEOs.
Republicans across the country have accused BlackRock and other asset managers of abusing their power to push liberal policies and put undue pressure on companies to reduce emissions or hire more diverse boards.
Fink denies that he is motivated by politics. “It is not about politics in stakeholder capitalism. There is no social or ideological agenda here. “It’s not woke,” he wrote to CEOs in January.
Not only the political right is to blame. Money managers are caught in the crossfire of politics.
Democrats and environmentalists have chastised BlackRock for not doing enough in terms of ESG, as well as for holding large stakes in fossil fuel companies and gun manufacturers.
Oil and gas are causing an ESG backlash.
As the Republican Party prepares to take control of the House, the latest front in the culture wars is heating up. As red states fight the transition away from fossil fuels, ESG is viewed as a threat to the oil, gas, and coal industries.
When filing regulatory statements, the Securities and Exchange Commission has proposed requiring businesses to disclose the risks that climate change poses to their operations.
Corporate environmental efforts frequently include carbon footprint reduction and divestment from fossil fuels. Investors are now taking these efforts into account when deciding which companies to invest in, and this trend is gaining traction.
What is Exxon Mobil’s role in this?
Big money managers backed an activist investor, Engine No. 1, to win seats on Exxon Mobil’s board of directors in 2021, as part of a proxy campaign to get the oil giant to better prepare for the financial realities of climate change.
The Exxon vote demonstrated to Republicans how much power the top three money managers – BlackRock, Vanguard, and State Street – wield over public companies.
During an energy policy speech in Houston in May, former Vice President Mike Pence criticised putting “left-wing” goals ahead of the interests of businesses and their employees.
Bills and boycotts: How the GOP is dealing with ESG
A group of 19 state attorneys general is looking into banks’ roles in a coalition to reduce greenhouse gas emissions. They claim that banks prefer companies with a “woke climate agenda.”
Republicans are introducing legislation in several states to boycott companies that support sustainability. In addition, House Republicans have stated that they intend to investigate ESG in congressional hearings next year.
DeSantis leads the fight against ESG in Florida.
Florida Gov. Ron DeSantis, a likely GOP presidential candidate in 2024, is a leader in the anti-ESG movement, having scored political points by waging a war against corporate “wokeness,” from legislation restricting how private employers offer diversity training to a feud with Walt Disney over its opposition to state legislation prohibiting classroom instruction on gender identity and sexual orientation in kindergarten through third grade.
Is Republican pressure effective?
Vanguard, a money manager, recently withdrew from a climate change investment initiative. The Net Zero Asset Managers coalition is made up of companies that have committed to achieving net-zero emissions in their portfolios by 2050.
Republicans on the Senate Banking, Housing, and Urban Affairs Committee issued a white paper criticising BlackRock, Vanguard, and State Street’s participation in the coalition.
“Climate change, and the ongoing global response to it, will have far-reaching economic consequences for companies, financial markets, and investors,” Vanguard said in a statement.
Vanguard announced its withdrawal from the coalition in order to “make clear that Vanguard speaks independently on matters of importance to our investors.”
It was excused from last week’s grilling of finance executives at the Texas ESG hearing. State Street and BlackRock were not.
What do voters believe about ESG?
According to a survey conducted by Penn State’s Center for the Business of Sustainability and communications firm ROKK Solutions, ESG isn’t resonating with voters on either side of the aisle, albeit for different reasons.
The government should not set limits on ESG investments, according to 63% of voters polled, Democrats because ESG investments are a social good, and Republicans because doing so would interfere with free markets.
“Our research discovered that neither Republican nor Democratic voters support policymakers’ potential legislative efforts to limit ESG initiatives,” researchers discovered. “The majority of respondents agreed that companies should have the freedom to invest in ESG initiatives that benefit society without interference from the government.”