All indications suggest that if Republicans gain majorities in Congress this fall they will pursue hearings and legislation against ESG investing as part of an effort to push corporations and the financial sector away from so-called “woke” issues (e.g., climate change and sustainability, diversity and inclusion, and voting rights).
Resistance to ESG—or at least what some lawmakers stylize as ESG—could gain traction on the campaign trail. Already, GOP lawmakers are targeting major investment firms including BlackRock, State Street, and Vanguard. Some have even accused major oil companies and financial institutions of being too “woke” through their support of ESG initiatives that happen to align with Democratic priorities.
A growing list of prominent Republican leaders and lawmakers, mostly from fossil-fuel producing states, are vocal on the issue.
- A lunch hosted by the Republican Study Committee, the largest ideological caucus in Congress with over three-quarters of Republican House Members involved, “quickly turned into a bashing session against… corporate ESG,” according to Axios. At the event, Rep. Andy Barr (R-KY) described ESG as a "threat" to the U.S. that has been "undermining American competitiveness."
- Former Vice President Mike Pence took up the cause in 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.
- Senator Lisa Murkowski (R-AK) unexpectedly voted against Lisa Gomez to lead the DOL’s Employee Benefits Security Administration, citing concerns with the Biden administration’s proposed fiduciary ESG regulations, delaying her confirmation.
Legislative proposals to discourage the use of ESG principles have already been introduced in the current Congress. These include 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.
Outlook: Republican resistance to ESG is largely driven by the political expediency of attacking relatively novel investing approaches as inflation soars, opposition to certain social issues, and, yes, supporting the interests of fossil fuel industries (which many ESG opponents represent). If the GOP takes control of Congress in the midterms, anti-ESG legislative proposals will be a priority and will likely pass out of congressional committees, with advance hearings potentially summoning corporate leaders. President Biden would almost certainly veto such efforts, making enactment of legislation unlikely. As a result, GOP oversight of financial regulator activity promises to be intense (the expected SEC climate proposal that would require publicly traded companies to disclose climate risks and greenhouse gas emissions comes to mind). In the meantime, absent federal legislation, it is likely individual states will join Utah, Texas, and West Virginia in enacting laws discouraging ESG practices.