ESG Is a Threat That Can’t Be Ignored Here’s the Game Plan
By Catherine Gunsalus, Heritage Action
For far too long, woke ESG activists have been working in the shadows. Their insidious efforts have been infiltrating financial markets and corporate boardrooms, all without the knowledge or consent of most Americans. Now, people are discovering just how deeply ESG has infected the American workplace, and states are fighting back.
ESG stands for environmental, social and governance, and these are the criteria asset managers now use when deciding whether or not to do business with American citizens and companies. In practice, these ESG standards are used by asset managers and financial institutions to push a left-wing political agenda and punish companies and citizens who do not comply with their progressive ideology. In February, Blue Cross Blue Shield rejected companies’ grant eligibility simply because their CEO was white, despite those companies having significant diversity in other leadership positions. That same month, Airbnb banned the parents of a conservative filmmaker from making rentals on their website.
Here’s what this looks like. Companies that do not meet a minimum ESG score may find they are unable to get a loan from a bank. They may even be completely boycotted by money managers such as BlackRock. If the company makes changes to comply, consumers face higher prices as companies are forced to keep pace with the left’s latest requirements. Companies that will not or cannot meet ESG score requirements may have to lay off employees, downsize operations or face bankruptcy. As companies struggle or go bankrupt, it puts a strain on the state economy. States whose economies rely on a particular industry – coal mining in West Virginia, for example – suffer significantly.
Not only are these asset managers actively working against the interests and values of states and taxpayers, but they are using state pension funds to do it. The pension funds of workers and taxpayers in the state are used to shut down industries and cut down jobs in that state. This is a clear indication that ESG investors care more about their woke goals than about the best interests of those whose money they control.
On the individual level, asset managers prioritizing a political agenda over financial factors often lead to smaller financial returns for citizens and their retirement accounts. With data showing that ESG funds tend to underperform in the broader market, it becomes more obvious that investors are violating their fiduciary responsibility to make decisions in the best interests of those for whom they invest.
All the while, quality of life in the American workplace deteriorates. Under ESG, employees aren’t valued as individuals, but instead are often segregated or even fired based on their race, sex and sexual orientation. Free speech is stifled, and freethinkers are pushed out.
While there is significant cause for worry, there is no need to despair, at least not yet. There are many ways individuals, industries and states can fight back, including through federal and state legislation.
One of the new ESG threats is President Joe Biden’s decision to codify environmental, social and governance decision-making criteria into law. In January, a new Department of Labor rule went into effect, allowing fiduciaries to consider ESG factors when making investment decisions for retirement accounts, such as 401(k)s, under the Employee Retirement Income Security Act of 1974 (ERISA). This places the retirement savings of 152 million Americans at risk.
Senator Mike Braun of Indiana and Representative Andy Barr of Kentucky led a Congressional Review Act (CRA) resolution to overturn Biden’s Department of Labor ESG rule. By early March, both the U.S. House and the Senate voted to pass the resolution, sending it to Biden’s desk. While Biden will most likely veto the resolution, Congress’ CRA resolution may be used to question the intent and legality of the rule.
The resolution also provided an opportunity to bring ESG policies into the national spotlight and send a message to the Biden administration that America’s leaders will not sit quietly by while the woke activists erode the strength of the nation’s industries and shrink the retirement accounts of hard-working Americans.
Another major ESG push by the Biden administration has been the Securities and Exchange Commission’s rule, which would require companies to provide climate disclosures. This means businesses would be required to include information about how climate change could impact their business, operations or financial condition. The disclosures would need to include the company’s greenhouse gas emissions and even the emissions of other businesses with which the company is connected.
This rule is not about creating better financial practices. It is a direct attack on American small businesses and, specifically, the oil and coal industries. The rule creates a nightmare of bureaucratic red tape that is estimated to suck over $10 billion in compliance costs out of the economy.
The good news is that Americans opposing this effort have been so impactful that the SEC is still trying to finalize the rule, despite having introduced it in March 2022. Thousands of comments were submitted opposing the rule, and the Supreme Court’s decision in the West Virginia vs. EPA case last June has called into question whether the SEC has the authority to implement the rule at all.
To better coordinate opposition to Biden’s federal ESG regulations, Republican congressmen have created a working group. Led by Financial Services Oversight Subcommittee Chairman Bill Huizenga of Michigan, the working group will organize efforts to protect U.S. capital markets from the threat of ESG policies. This working group, along with Senate efforts, will prove especially helpful in combating the Biden administration’s ESG agenda at the federal level.
While legislative and administrative action at the federal level can help curb attempts from the Biden administration and liberal policy-makers to implement ESG policies nationally, states have been a key part of the fight to protect workers, investments and taxpayer dollars.
One method states have taken to protect taxpayer dollars is to invest these dollars with asset managers who will do their fiduciary duty and not invest based on ESG criteria. For example, Florida CFO Jimmy Patronis reallocated $2 billion in taxpayer dollars that were previously managed by BlackRock, citing concerns over the company’s anti-fossil fuel policies. States such as Arizona, Arkansas, Utah and Missouri have taken similar steps.
The decision to invest dollars with investment firms that are not attacking American-made energy, like oil and gas, has been a popular choice, and many state legislatures are taking additional action with one of two common solutions. The Heritage Foundation offers model legislation for both of these options that have each enjoyed support in multiple states.
First, the economic boycott model legislation is used to address companies that hold contracts with the state while boycotting industries vital to that state’s economy. This model ensures the state is not contracting with companies that are engaged in economic boycotts based on environmental, social or governance criteria. For example, if a state’s economy relies heavily on coal mining, it would be contrary to the state’s interest to hold contracts with companies that are actively boycotting coal companies.
One of the earliest examples of this strategy was West Virginia. In July 2022, the state stopped doing business with five major financial firms after discovering that those firms were boycotting the fossil fuel industry. This year, Iowa, Missouri, Oklahoma, Florida and Utah have introduced legislation following this model.
Second, the fiduciary model protects state investments and pension funds by ensuring the state’s asset managers are making decisions based on financial factors only. A fiduciary, by definition, is required to make decisions in the best interest of those for whom they manage funds.
The fiduciary model clarifies that ESG considerations are inherently non-financial decisions, and therefore making financial decisions based on those factors is not acting in the best interests of the stakeholder. This model also includes guidelines for proxy voting, again ensuring that those controlling others’ money do their fiduciary duty to prioritize return on investment, not ESG goals.
A few states with fiduciary model bills introduced this year include Nebraska, Oklahoma, South Carolina, Arizona, Missouri, Kansas, Kentucky, Georgia and Utah. Whether or not they make it through to be signed into law on the governors’ desks, these fights are important if only for the opportunity to increase awareness and understanding of what ESG is and how it negatively impacts state economies.
The first step in this fight is exposing the political intentions of these asset managers. Citizens must be educated on how ESG works against them and the potential long-term effects of letting woke financial firms use taxpayer dollars to fund a woke agenda that makes America weaker and more dependent on Chinese energy and products.
Businesses should focus first on the financial health of the company, including potential for growth, job security for employees and returns for stakeholders. Corporations should resist the ESG agenda and avoid being pressured by the woke left to abandon sound business practices.
Individuals can act by contacting state and federal representatives, using ESGHurts.com as a tool when calling for action on particular bills and submitting public comments on Biden’s rules.
For too long, ESG has operated in the shadows, effective because of its secrecy. Now, ESG has been exposed and Americans are fighting back.
Catherine Gunsalus is the director of state advocacy for Heritage Action.