Is ESG another CRT?

Published March 30, 2023 by Bernie Niemeier

In January, Virginia Attorney General Jason Miyares joined a group of 24 other state attorneys general in challenging a U.S. Department of Labor rule allowing fiduciaries to consider environmental, social and corporate governance (ESG) criteria such as climate change in making investment decisions for retirement funds. The AGs argued that ESG practices work against investment companies’ fiduciary duties to maximize profits for their clients.

Of the 25 plaintiff states, 22 are solidly red states; all but two have Republican governors.

In March, congressional Republicans, with the help of two moderate Senate Democrats, passed legislation to undo the Labor ESG investing rule. President Joe Biden issued the first veto of his presidency on March 20, preserving the ESG rule for now.

The attempts to overturn the Labor rule are part of ongoing GOP efforts to oppose corporate use of ESG standards in making financial decisions like loans and investments. This comes despite widespread ESG support from big business and arguments from some financial experts that anti-ESG stances could hurt state retirement funds.

In Republican-controlled Texas, for example, the legislature has prohibited most of its state agencies and local governments from entering into contracts with firms that “boycott” energy companies using fossil fuels. This led to Texas state worker pension funds pulling investments from big mainstream companies like BlackRock.

Eyeing a potential presidential run, Virginia’s Republican governor, Glenn Youngkin, has fallen into line and spoken out against ESG, just as he’s taken predictable stances banning teaching “critical race theory” in state public schools (which, arguably, wasn’t happening anyway). Additionally, he mandated that public school students play on sports teams and use locker rooms matching their assigned-at-birth genders.

In January, the governor took credit for blocking a $3.5 billion Ford Motor Co. electric vehicle battery plant from bringing 2,500 jobs to Pittsylvania County over concerns the factory would be, in Youngkin’s words, “a front for the Chinese Communist Party.”

He also supported state legislation to ban abortions after 15 weeks, although that effort was doomed to fail in the Democratic-held state Senate.

Politicians often propose such “brochure bills” that have a better chance of appearing on a campaign flyer than making it through a committee and being passed into law. They go through the motions to satisfy their party’s base and donors. Think of it as a process of checking off boxes for electoral reasons, not for governing or legislating.

Youngkin’s checked most of these boxes lightly and only once, just enough for a campaign ad. This is political gamesmanship that values talking points over policy and substance.

However, it’s doubtful whether this gambit will pay off for Youngkin, who lagged far behind former President Donald Trump and Florida Gov. Ron DeSantis in a March poll by Roanoke College of Virginia Republicans’ choices for the 2024 GOP presidential nominee.

Meanwhile, the business community, once almost entirely aligned with Republican positions, has shown little interest in wading into such culture-war conflicts. The U.S. Chamber of Commerce, which spent $81 million on lobbying last year, has in recent years begun endorsing some Democrats. It’s also supported ESG and immigration labor reform and opposed the Trump administration’s trade war with China. Because of these evolving stances, House GOP leaders, including Speaker Kevin McCarthy, have refused to take meetings with the chamber and considered launching a House investigation into the chamber over its endorsements of ESG criteria.

Big corporations, which largely comprise the chamber’s membership, have gradually trended toward more progressive positions on social issues, including gender-based rights, diversity, equity and inclusion, and ESG policies. Some Republicans rail against this as “corporate wokeness” — whatever that means.

It’s time to get politicians out of our bedrooms, bathrooms, doctor’s offices and classrooms. And let’s also keep them out of our boardrooms and financial investment decisions. Fiduciary responsibility means considering all risks and opportunities, including those related to ESG.  

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