ESG under attack in America; does it matter?

All the promotion and investment pumped into environmental, social and governance (ESG) has done nothing to halt critics in their campaign against it. 

If anything, that campaign has only increased in intensity, especially for ESG in America.

In the last few weeks, anti-ESG efforts in America have gained momentum, with right-leaning states pursuing legal avenues to reduce the impact of what they frequently call “woke capitalism”. 

Across the country, the topic is the latest global issue to be swept into the growing quagmire of American political polarisation.

There have been significant pushes by the anti-ESG lobby in two US states in the past few weeks, both targeting investment managers.

Conservative Republican governor Ron De Santis has told the state’s pension fund managers that their primary goal is investment options that yield the highest return. Specifically, they should not consider ESG initiatives as part of this, he said. 

He hailed the move as a victory, saying that Florida was “fighting back” against an ideological agenda imposed on it without a democratic mandate.

The state’s comptroller Glenn Hegar blacklisted ten asset management firms in late August. One of them was BlackRock Inc, the largest asset manager in the world. Over 350 mutual funds suffered the same fate. 

The move was in response to these entities allegedly “boycotting” investments connected to fossil fuel production and gun manufacturing. 

It means the listed firms are in danger of losing their right to business with Texas state institutions, pension funds, and local governments.

Officials in Florida and Texas are making strong statements against ESG, but that may not matter much considering the tide of activity in the opposite direction. 

Pension funds are at the centre of both states’ pushback. Still, the latest figures from financial service firm Morningstar Inc suggest that pension funds are the most active supporters of ESG in America. 

“On average, public pension plans voted 90% of the time in favour of ESG shareholder resolutions,” the agency said after a round of nationwide research. 

“ESG-focused funds averaged 85%.”

Bloomberg’s co-founder Matthew Winkler echoed this sentiment. Earlier this month, he wrote a scathing attack on DeSantis’ ESG stance, and claimed it would ultimately deprive his state of billions in investment opportunities. 

“Whatever the flaws of ESG investing… there are few signs that the most rewarding trend for money managers worldwide is abating,” he said.

Let’s first state the obvious; the anti-ESG movement is making its voice heard in the United States. 

As a highly polarised society and a country where the free-market right has significant leeway over public policy, it’s no surprise that anti-ESG efforts can establish a strong base there. 

Secondly, these events are further signs that ESG will be swept entirely into the exhausting battle between left and right in the world’s biggest economy. 

Just as with firearms, LGBTQ+ issues, universal healthcare, university tuition and election integrity – American voters will either be pro or anti, with little room for moderated voices in between. 

Given the federal nature of the US, this will likely lead to a situation where firms and investors supporting ESG will find themselves embraced in some states and shunned in others. 

In terms of scale, multiple anti-ESG individuals have singled out BlackRock Inc as an enemy – and BlackRock is the world’s largest investor. Ergo, opponents don’t have a problem risking engagement with the most immense financial opportunities.

It’s an uncertain environment, for sure. Backlash is growing against the movement, which, at the same time, has its own problems with suspected green-washing and other face-saving activities. 

But ultimately, we should distinguish rhetoric from reality. Politicians on the right criticise ESG, claiming investment is forced there instead of other areas with great monetary potential. 

But behind the scenes, figures would suggest that there is significant potential in ESG and likely will be in future. 

The pushback is also quite marginalised on a global scale. The US is a significant home base for ESG opponents, but many of the companies they target also operate in jurisdictions friendlier to ESG, like the EU. 

The ESG focus in these jurisdictions is unlikely to fade anytime soon, so it would suggest that the targeted organisations continue as planned despite legal pushback from right-leaning areas. 

In other words, companies look set to proceed with or without the blessing of ESG critics.