The ESG Investing Backlash – Kiplinger’s Personal Finance

Divesting from ESG

Over the past two decades, the financial community has largely come to accept that environmental, social and governance (ESG) factors may influence a company’s profitability and stock performance. In the past year, however, some governors have politicized ESG investing, dubbing it “woke” and banning this investment style from their state pension funds. It seems the culture wars are coming to investing.

Why the Sudden ESG Backlash?

The U.S. economy is on the path to a major transformation, powered less by fossil fuels and more by climate-friendly energy sources like wind and solar. The fossil fuel industry may publicly acknowledge the need to decrease greenhouse gas emissions to mitigate climate change, but the industry remains resistant behind the scenes. As a result, ESG investors have pushed the industry to disclose more hard data on how it will manage this transformation. This effort culminated in draft requirements for public companies to report more broadly on their greenhouse gas emissions with the Securities and Exchange Commission. Citing issues like the cost of extra reporting, the attorneys general in 21 red states wrote comments in August protesting the draft rule. 

A second reason for the backlash is the success of shareholder resolutions targeting companies with poor reporting or performance on climate change and diversity. These gains galvanized opposition to ESG investors.

If it seems as though the anti-ESG effort has suddenly sprung up in an organized manner, it’s because it has. An investigative report found that the State Financial Officers Foundation (SFOF), dark money groups, ALEC, the Heritage Foundation and others were orchestrating the bans. A dark money group called Consumers’ Research is managing the messaging and appears to be fundraising for the campaign.  

ESG bans in 2021 mostly focused on fossil fuels, but have branched out to cover other “woke” corporate issues such as gun control, reimbursing travel for abortion care, diversity training and others.

Republicans aim to take ESG bans from the states to the federal arena if they win both houses in November.

State ESG Bans

Many states with Republican governors have embraced ESG investing bans in pension funds, as well as bans of major firms offering ESG investments. Some states target funds that limit or exclude investment in the fossil fuel industry, others in firearms, and some exclude any kind of ESG investment. A number of states are also targeting BlackRock (BLK), the largest global investor and a proponent of ESG investment. These states include: Texas, Florida, West Virginia, North Dakota, Oklahoma, Minnesota, Idaho, South Carolina, Louisiana, Idaho, Wyoming, …….


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