A majority of Americans don’t even know what it means, but ESG has become the latest front in the culture wars. In the last year, conservative activists and lawmakers have gone on the attack against “woke” capitalism — a term coined in 2018 to refer to companies that take a progressive stance on public policy issues. They blame these companies for spending too much time on issues like the environment and diversity and inclusion and not focusing enough on their traditional raison d’être: making money.
ESG refers to an investing approach that takes into account environmental, social and governance issues when choosing which companies to back. Long considered a noncontroversial strategy in the business world, ESG is now under attack by oil and gas industry heavyweights, some conservative activists and right-wing think tanks. The growing anti-ESG movement has pressured top financial firms to back off some of their net-zero commitments and motivated lawmakers in red states to take extreme actions that could upend their budgets.
Last year, a coalition of 19 states served major banks — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo — with “civil investigative demands” calling for them to disclose documents containing pledges made to global climate initiatives such as the Net Zero Banking Alliance.
The rhetoric used in such attacks has been aggressive. “The Net Zero Banking Alliance is a massive worldwide agreement by major banking institutions, overseen by the U.N., to starve companies engaged in fossil-fuel related activities of credit on national and international markets,” said Missouri Attorney General Eric Schmitt, saying that the banks’ membership in the group “will only result in the killing of American companies that don’t subscribe to the woke, climate agenda.”
In signing legislation in May to remove ESG considerations from the state of Florida’s investment decisions, Gov. Ron DeSantis said, “Our stance against ESG is another signal to the rest of the world that Florida believes in prosperity, we believe in freedom, and we’re a place where WOKE GOES TO DIE!”
DeSantis led an alliance of the governors of 18 states (Alabama, Alaska, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia and Wyoming) that have committed to taking steps to “protect” their residents from the “ESG movement,” such as by pulling state pension funds and state-controlled investments from firms that “follow the ESG model of ‘politics before fiduciary duty.’” So far, Florida, Louisiana and Missouri have pulled a total of more than $3 billion from BlackRock, and the anti-ESG backlash led global asset manager Vanguard to withdraw from a group of investors that seek to zero out greenhouse gas emissions by 2050.
The oil and gas industry vigorously sought to beat back increasing pressure from environmental activists and politicians to reduce fossil fuel production and curb greenhouse gas emissions.
The anti-ESG wave also led to a spike in shareholder proposals, which more than doubled from 30 in 2020 to 79 in 2023 as of June 1. Though only eight such proposals were voted on in 2021, this year almost 50 are on track to be decided. The movement has likely contributed to the drop in support for ESG proposals, which fell from 29.3% support in 2022 to 21.5% this year so far. When Trillium Asset Management submitted a proposal asking Bank of America to develop a policy to phase out the financing of fossil fuel projects, it got 11% of the vote in 2022, Lisa Hayles, the director of international shareholder advocacy at Trillium, told GreenBiz.com. When it was refiled this year, with less-prescriptive requests, it got less support, she says, attributing the decline to the anti-ESG trend.
The anti-ESG message has become a core part of the 2024 presidential campaign for the GOP. In a campaign video, former President Donald Trump slammed ESG as Wall Street “radical left garbage” and fellow candidate Vivek Ramaswamy has made his opposition to ESG a key part of his agenda.
That’s despite the fact that only 37% of Americans even know what ESG is, per a recent Gallup survey, and the number has remained largely unchanged in the last two years. The issue seems unlikely to gain much traction or inspire much outrage among voters.
The anti-ESG movement dates back to 2004, when a tobacco lobbyist and former tobacco executive formed the Free Enterprise Education Institute, a nonprofit that aimed to discredit corporate social responsibility initiatives.
In the next two decades, the oil and gas industry vigorously sought to beat back increasing pressure from environmental activists and politicians to reduce fossil fuel production and curb greenhouse gas emissions. Major oil and gas companies such as ExxonMobil, as well as industry groups like the American Petroleum Institute, funded conservative think tanks such as the Heritage Foundation, the American Legislative Exchange Council (ALEC) and the Heartland Institute, which have gotten more aggressive in recent years at opposing ESG initiatives, drafting anti-ESG legislation for lawmakers across the country and blanketing airwaves with their message.
At the heart of the campaign is Leonard Leo, the conservative donor who, through his leadership of the Federalist Society, has played an outsize role in installing the Supreme Court’s six-member conservative supermajority. Last year, Leo stepped down from leadership of the Federalist Society to chair a new company, CRC Advisors, which advises and manages conservative nonprofits. “The ESG movement is polluting our culture and assaulting the dignity and worth of people,” Leo told the Wall Street Journal, explaining that CRC Advisors “stands with a growing group of Americans who are fighting to crush leftist dominance in this arena.”
BlackRock has recently backed off some of its net-zero commitments and touted its intention to continue investing in fossil-fuel companies.
In total, the anti-ESG network includes dozens of organizations, according to research by the Center for Media and Democracy. Among them are Consumers’ Research, which spent almost $10 million and has personally attacked BlackRock chair and CEO Larry Fink; and the Republican Attorneys General Association, funded in part by Chevron and ExxonMobil, which sued to overturn a U.S. Department of Labor rule that allows ESG investing.
Another prominent conservative think tank, the Texas Public Policy Foundation, which is funded by oil and gas companies, wrote the 2021 law that bars Texas state agencies from doing business with companies that discriminate against the fossil-fuel industry. The law inspired similar actions in West Virginia, Louisiana, Oklahoma, Arkansas, Florida and Kentucky.
The anti-ESG movement really picked up steam in early 2022, when a powerful nonprofit with a boring name, the State Financial Officers Foundation (SFOF), started coordinating state campaigns against ESG. That spring it hired Leo’s firm, CRC Advisors, which started holding weekly Zoom calls with state treasurers to update them on ESG developments. Participating in the calls were representatives from groups like the American Petroleum Institute, the major lobbying group for the oil and gas industry, and ALEC, a corporate-funded group of conservative state lawmakers who draft model legislation that often ends up becoming law.
In late 2022, conservative activists including Andy Puzder, the former Carl’s Jr. chairman and failed labor secretary nominee under Trump, met in Washington, D.C., to strategize about how to stop ESG. Puzder framed the battle in world-historical terms, telling attendees that the fight against ESG was “the challenge of your generation.” He continued, according to audio of the speech obtained by Documented: “My father’s generation’s challenge was the Nazis, who, by the way, were, of course, very proud socialists. The challenge of my generation was the communists, who were, of course, very committed socialists. The challenge of your generation is ESG investing, and it’s more insidious than communism or the Nazis.”
Momentum picked up this year. So far in 2023, Republican lawmakers have introduced 165 pieces of anti-ESG legislation in 37 states.
The anti-ESG campaign has targeted financial firms from BlackRock to Bank of America. The head of Consumers’ Research, Will Hild, says he’s singling out Bank of America because the bank is so outspoken about climate risks, citing its work calculating greenhouse gas emissions for its clients.
Anti-ESG forces have divided the right, arousing opposition from free-market conservatives who don’t want companies to be overly regulated and told what to do.
There is some evidence that “the pressure is working,” says the CMD’s David Armiak. In addition to Vanguard quitting the Net Zero Asset Managers Initiative, BlackRock has recently backed off some of its net-zero commitments and touted its intention to continue investing in fossil-fuel companies. And some of the world’s biggest insurance companies pulled out of the Net Zero Insurance Alliance soon after Republican attorneys general sent threatening letters to alliance members, expressing antitrust concerns tied to their sustainability initiatives.
The campaign is costing taxpayers, according to some studies. The anti-ESG legislation adopted by Texas last year limited competition in the bond market by blacklisting certain firms that consider ESG, raising costs for Texas agencies by as much as $532 million in the law’s first eight months, according to a study by Wharton Business School professor Daniel Garrett and Federal Reserve economist Ivan Ivanov.
While they have had some success, anti-ESG forces have divided the right, arousing opposition from free-market conservatives who don’t want companies to be overly regulated and told what to do, says the Center for Media and Democracy’s Armiak. A pair of proposed anti-ESG bills were crushed in North Dakota earlier this year, in part due to opposition from conservatives. “It’s not really a natural fit for Republican politicians,” Joshua A. Lichtenstein, a lawyer and ESG specialist with the firm Ropes & Gray, told the Washington Post, noting the tension “between somebody traditional for free markets versus someone from the anti-woke movement.”
In general, the financial industry has been opposed to anti-ESG initiatives. “This is an attempt to bring a culture war perspective into the investment world,” says David Keto, managing principal of the SRI Group LLC, which consults on investment strategies. “And it’s not welcome in the investment world,” which wants to have the freedom to take into account risk factors like climate change. He cited Wall Street’s opposition to a Trump-era rule that would have prevented retirement plan fiduciaries from taking ESG factors into account. Recently, the Kentucky Banking Association sued the state’s attorney general over his efforts to investigate the use of ESG in the state’s financial decisions.
Funds that market themselves as opposed to ESG investment considerations have experienced a steep drop in new deposits, from $377 million in the third quarter of 2022 to $183 million in the first quarter of 2023, according to Morningstar.
Meanwhile, some banks — including JPMorgan and Wells Fargo — are under pressure to sever ties to anti-ESG group the State Financial Officers Foundation, which has pressured state governments to blacklist companies that employ ESG practices. In October, 14 senators and House representatives sent a letter to the banks, calling the SFOF “a dark money group that has been weaponizing state treasurers and lawmakers against climate-related financial risk management by coordinating to cancel contracts and otherwise sever ties with financial firms that consider climate change in their business strategies.”
The movement’s resilience is hard to gauge, though it could prove successful politically, helping win over voters and electing lawmakers who put more anti-ESG policies into practice on the state and federal level. “I don’t know how much of it is sticking,” says Keto, noting that ESG has become the new CRT (critical race theory) for some politicians and activists. “How do you know to hate it if you can’t even define it?”
