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  • Logan Delavan-Hoover

The War to Make Investing Worse for Everyone

What’s “Satan’s plan” this time? Gay marriage? School librarians? Dungeons and Dragons? Proctor and Gamble? The latest addition to the list is ESG, or Environmental, Social, and Governance investing, an investment strategy that takes climate change into account, according to Utah’s state treasurer. He’s backed by an under-the-radar, unpopular campaign to distort investment markets by punishing any consideration of environmental factors. While this may sound like a squabble over some uninteresting financial technicalities, it is, in fact, a battle with the future habitability of the planet at stake and an open contradiction of Republicans' purported economic values.

ESG is an investment framework that considers the climate impact of investments as well as the good corporate citizenship of a company. The term exploded onto the investment scene in a 2004 UN report, and has proliferated throughout the market since then. In practice, it looks like companies reporting on their adherence to ESG standards, and investors taking those disclosures into account. ESG is a common-sense approach, given the risks of climate change, the approaching green transition, and increased demand among clients large and small for socially responsible investments.

Yet, in the shadows, an all-out war is being waged against this approach. Backed by powerful right-wing advocacy groups, governors and treasurers in Republican states have begun a destructive crusade to divest all state investments from firms that use ESG. Essentially, the American right is trying to prevent the investment industry from thinking about climate change at all. Since this campaign began in 2021, 18 states have passed some form of anti-ESG legislation, with more laws likely in 2024.

While the dangers of this crusade are obvious to any climate advocate, it is also a stunning display of projection. Anti-ESG advocates have alleged that investment firms are violating their fiduciary responsibilities to their shareholders and putting political considerations, specifically left-wing political considerations, above maximizing returns on investment. This claim is not supported by the evidence, as the firms in question, including BlackRock, Morgan Stanley, Goldman Sachs, Wells Fargo, and JP Morgan Chase, are known for their single-minded focus on returns to investment, and use ESG as part of that mission, not in spite of it. The investment market is not known for yielding to progressive demands when it hurts their bottom line. One popular ESG fund has outperformed the market in three of the last five years.

Projection can be demonstrated by the fact that states participating in the ESG divestment push have actually experienced lower returns as a result of divestment, as seen in the cases of Texas and Florida. A 2022 paper from the Wharton School of Business estimated that the withdrawal of major bond underwriters from Texas after its 2021 ESG ban cost Texan municipalities up to $500 million in the first eight months alone. Also, Florida governor and failed presidential candidate Ron DeSantis is alleged to have used his anti-ESG push to divert state funds into the worse-performing firms of his political donors. The firms aren’t making investment decisions for political reasons, the state leaders are. Only one of these is violating their fiduciary responsibility. 

So, it's not about lower returns to investment. What is the issue then? In order to fit with conservatives’ restrictive social agenda, conservative free-market orthodoxy requires one assumption: that the business world will naturally take only conservative or neutral positions on social issues. When more progressive attitudes become profitable, the tenuous right-wing alliance between intervention in sociocultural issues and nonintervention in economic issues falls apart, and the GOP’s economic libertarianism is revealed to be a mirage. 

There has been plenty of legitimate criticism of ESG, which is not as popular on the left as its opponents claim, but to embark on a campaign requiring investment strategists to ignore the environmental factor entirely and, in doing so, hurt the finances of one's state, is a display of breathtaking hypocrisy that should be summarily rejected and used as a campaign issue.


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