Anti-ESG Movement Intensifies

Florida’s state treasury department is pulling $2 billion from BlackRock, Inc., which is the largest anti-ESG withdrawal announced by a U.S. state to date.   

So far, 19 Republican attorneys general from states largely with GOP-dominated governments, including Arizona, Kentucky and West Virginia, have criticized BlackRock for pursuing a “climate agenda,” at odds, they allege, with generating returns for state pensions. Louisiana and Missouri are among states that have also pulled money from the asset manager. In addition, Republican attorneys general from 24 states have told the SEC that the agency should not adopt its climate disclosure rules given the Supreme Court’s recent reaffirmation of its major questions doctrine in West Virginia v. EPA.

In August, Florida Governor DeSantis (R), a potential 2024 presidential candidate, led the adoption of a resolution calling for state funds to be invested without considering the “ideological agenda” of the ESG movement. At the time, DeSantis said “the tax dollars and proxy votes of the people of Florida will no longer be commandeered by Wall Street financial firms and used to implement policies through the board room that Floridians reject at the ballot box.”

Beginning next year, expect anti-ESG legislative proposals and oversight hearings in the Republican-controlled U.S. of Representatives, where regulators including SEC Chair Gensler and company representatives will be grilled for prioritizing ESG issues. Republican lawmakers including incoming chair of the House Financial Services Committee Rep. Patrick McHenry (R-NC) have voiced their concerns with ESG investing, citing underperformance, high-cost energy expenses, and harm to the oil and gas industry. They’ve also been highly critical of ESG regulations, like the SEC’s proposed climate-related disclosure rule for public companies. Republicans in the House will push measures, including the Ensuring Sound Guidance Act (H.R. 7151), which would eliminate the SEC’s climate-impact disclosure rule, to force investment advisers to prioritize clients’ financial gains over ESG factors. 

There will also be some anti-ESG efforts in the Senate. Prior to the November midterm elections, several Republican senators sent a letter to U.S. law firms warning them about the advice they provide to clients regarding ESG initiatives and to be prepared for congressional oversight hearings. Senator Tom Cotton (R-AR) has introduced legislation to overturn the Department of Labor's new rule permitting retirement plan fiduciaries to consider climate change and ESG factors when selecting investments and exercising shareholder rights. In a statement, Senator Cotton said "Retirement plans should prioritize investments with the highest return, not ESG scams.” In addition, Senate Republicans on the Banking Committee released a 20-page blueprint for lawmakers interested in pursuing BlackRock, Vanguard and State Street regarding their adoption of policies to reduce greenhouse gas emissions, identify gender and race-based pay disparities and encourage board diversity and racial equity.  Of note, Vanguard recently resigned from the Net Zero Asset Managers initiative “to provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks.” 

Outlook: Anti-ESG proposals in the House will likely pass out of congressional committees but would fail in the Democratic-controlled Senate. Nonetheless, companies should anticipate amplified anti-ESG rhetoric and scrutiny from lawmakers for those that have embraced ESG principles.