Republicans to Pursue Legislation Against ‘Woke’ ESG Investing

All indicators suggest that if Republicans gain majority of Congress in the midterm elections they will plan to pursue legislation against ESG investing as part of an effort to push corporations and the financial sector away from so-called “woke” rhetoric. 

“Anti-ESG” is an issue with an increasingly national profile that could gain traction on the campaign trail. Already, GOP lawmakers are honing the message and targeting major investment firms like BlackRock, State Street and Vanguard.  Some have even accused major oil companies and financial institutions of being too “woke.” 

There is a growing list of prominent Republican leaders who are vocal on the issue. Former Vice President Mike Pence took up the cause with an op-ed in The Wall Street Journal last month, urging “the next Republican president and GOP Congress to end the use of ESG principles nationwide.” Sen. Ted Cruz (R-TX) accused BlackRock CEO Larry Fink of renouncing capitalism in favor of “woke” investments, and proposed the money manager be barred from voting on behalf of its investors to prevent it from advancing its own political interests. Additional GOP members that have voiced concerns over companies embracing ESG principles include Reps. Dan Crenshaw (TX), John Curtis (UT), Andy Barr (KY), Rick Allen (GA) and Senators Dan Sullivan (AK) and Kevin Cramer (ND). 

Legislative proposals to discourage the use of ESG principles have already been introduced in the current Congress including the “Investor Democracy Is Expected Act” (S.4241) which would require managers of passive investment funds to vote proxies based on the wishes of individual investors and the “Ensuring Sound Guidance Act,” (H.R.7151) which would require retirement plan sponsors and investment advisers to prioritize financial returns over other concerns like sustainability. 

If the GOP takes control in the midterms these legislative proposals will be priority and will likely pass out of congressional committee. However, chances of enactment of anti-ESG legislation into law are not likely as President Biden is expected to veto such efforts. As a result, GOP oversight of the new SEC climate proposal that would require publicly traded companies to disclose climate risks and greenhouse gas emissions, and of other financial regulators, promises to be intense. 

In the meantime, anti-ESG sentiment on Capitol Hill follows a trend in states like Utah, Texas and West Virginia, where there are laws denouncing ESG efforts. Absent federal legislation it is likely that more individual states will enact laws discouraging ESG practices.