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.
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They’ve also launched investigations into the impact of big money managers on issues ranging from carbon reduction to racial justice.
“As noble as those goals may be, they are not entirely motivated by value maximisation, and they do not align with the views of many Americans who invest with those asset managers,” Vivek Ramaswamy, author of “Woke, Inc.: Inside Corporate America’s Social Justice Scam” and co-founder of Strive Asset Management, told USA TODAY.
Big money managers disagree. “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.”
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 is not ‘woke,'” he wrote to CEOs in January.
It’s not just the political right. 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. ESG is seen as a threat to the oil, gas and coal industries as red states fight the transition from fossil fuels.
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 often include reducing carbon footprints and divesting from fossil fuels. Investors now consider these efforts when deciding which companies to invest in and that trend is gaining momentum.
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.
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.”
