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The Problem With Hating ESG
The Heartland Institute ranks presidential aspirants on how ardently they toe the fossil fuel industry’s line.
THE MODERN REPUBLICAN PARTY HAS MET THE ENEMY and the enemy is . . . any and all efforts to use the levers of government to address the existential threat of climate change, advance social issues, or promote the common good.
The enemy has a name: ESG. That stands for environmental, social, and governance. It is pegged as a concerted leftist plot, onerous to businesses and disastrous to the economy. It has become a rallying cry for conservatives and a litmus test for political candidates, including the men and woman seeking the Republican nomination for president.
There are legitimate reasons to be wary of ESG, which is essentially a reporting framework to gauge how well companies are stewarding “natural and social capital” in addition to the regular kind. Knowledgeable critics have noted that we have lost ground on every important environmental measure as ESG-labeled investments have proliferated. And there are concerns over cynical “greenwashing” and whether these standards are too broad to designate something concrete and specific about companies to which they’re applied.
But Republicans and right-wing critics have far deeper anxieties when their thoughts turn to ESG.
“ESG is a kind of social credit scoring system that is designed to move the entire U.S. economy further to the left, by forcing businesses to promote social justice and environmental causes, like battling climate change,” declares Justin Haskins, the director of the Socialism Research Center at the Heartland Institute, a “free market” think tank, in a recent opinion column on the Fox News website. He warns darkly that 96 percent of the world’s 250 largest companies by revenue based on their Fortune 500 ranking “have ESG reports, with many employing large teams dedicated exclusively to that cause.”
One might think that a system embraced by nearly all of the world’s wealthiest companies might actually be good for business. But one, according to Haskins, would be wrong. ESG is, in his view, a scourge on corporate culture, a “woke ideological agenda” that must be systematically rooted out. There are simply some things that the market should not be free to choose—like taking steps to reposition the nation’s energy needs away from fossil fuels and toward more sustainable sources.
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Over the summer, Haskins oversaw a team of Heartland Institute researchers in combing through the voting records and past pronouncements of the various contenders for president in order to rate their level of antipathy toward ESG, the higher the better. The three major prongs in this assessment were whether the candidates opposed the use of public money, especially pensions, for ESG causes; called for blocking government agencies from dealings with pro-ESG interests; and supported legislation to bar banks and other financial institutions from weighing ESG concerns.
This information was then used to produce a report, released in mid-October, that assigned a grade to each contender, on an A to F scale.
Before we get into those rankings, let’s take a moment to look at the larger picture regarding the movement against ESG, which has joined CRT (critical race theory) as a favored bugaboo of the right. The goal in both cases is to transform something bad that is not happening—teaching children to be ashamed of being white, in CRT’s case; forcing businesses and investors to march to the beat of a woke drummer, in ESG’s—into something bad that is happening: the silencing of educators and complacency about accelerating environmental degradation, both of which come with enormous costs.
AN ARTICLE BY JOURNALIST JESSICA CAMILLE AGUIRRE in the latest issue of Sierra, the quarterly magazine of the Sierra Club, does a great job of explaining what is going on. The push to bar pension fund investors and others from taking into account anything other than monetary gains while making investment decisions is not coming from the pension fund investors or pensioners but from outside activists with an extreme and essentially anti-free-market agenda.
She writes: “For the new iteration of the Republican Party, molded around identity politics and a sense of grievance in the face of change, the anti-ESG movement has created a climate tightrope: to prohibit in the name of freedom and pollute under the guise of fairness.” It is a movement that “has redrawn traditional party lines, with progressives rallying in favor of market freedom while conservatives try to cast climate-minded investing as part of the culture war.”
Aguirre describes an exchange that took place on CNBC in April between Vivek Ramaswamy, the investor and Republican presidential candidate, and Brad Lander, the comptroller of New York City, who oversees some $240 billion in pension fund investments. Ramaswamy argued in favor of ramping up capital investment in oil companies, claiming that “fossil fuel companies dramatically outperformed the S&P by over 80 percent last year.”
But Lander, who is working to shift three of the five city pension funds into carbon-neutral investments, said it was his job to look beyond “short-term, one-year returns” to his pensioners’ longtime interests, which include having to live on the planet in whatever shape it’s in. Any sane person pondering the present and future consequences of global warming, including ever-increasing numbers of hugely costly weather and climate disasters, would recognize what Aguirre calls an “imperative to divest from companies whose business models threaten the future of the planet.”
Or, as the New York Times has put it, “There’s just one problem with this fledgling anti-E.S.G. movement: To act and invest in a state’s best interest ought to mean taking every risk into account, including climate change.”
Applying ESG principles makes good economic sense as well as a good public policy, as renewable energy is becoming not just cleaner but cheaper than continued reliance on fossil fuels. “Why protect [companies] that clearly will no longer be relevant?” one advocate for ESG asked Aguirre. The advocate, Danielle Fugere, went on to say:
That is old technology. Why aren’t they supporting the technologies of the future? Why are they holding America back? We have always been innovators, and they’re saying, “We won’t progress—we must continue to use an old technology that is dirty, that is causing harm, and that is destroying our climate.” Go figure.
Another quoted source, Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, noted that companies across the land “are moving their processes to be more renewable, from getting rid of internal combustion engines and going to EVs to how they’re using water.” It’s a transition that creates an abundance of investment opportunities. “The market is speaking,” he said. But the anti-ESG crowd does not want to listen.
And it’s not just the environment that’s paying the price. Legislation that restricts the ability of pension funds and governments to invest as they see fit also entails a fiscal cost. In Texas, anti-ESG rules passed in 2021 that barred cities from using certain banks to underwrite municipal bonds ended up adding $300 million to $500 million to the cost of state bonds in just the first eight months, according to a study by a finance professor at the University of Pennsylvania’s Wharton School.
Now investment fund managers, bankers, and others are pushing back against proposals to restrict their ability to do business with financial institutions that take ESG-related concerns into account. As a result, anti-ESG proposals have gone down in flames even in deep red states.
In North Dakota, two anti-ESG bills were defeated in February, with one losing by a vote of 90-3, after they drew criticism for violating conservative free-market principles. “Our biggest concern is the idea of somebody telling our banks who to do business with or who not to do business with,” said Rick Clayburgh, chief executive of the North Dakota Bankers Association.
And in Kansas, a bill to prevent firms handling private investments from taking ESG principles into account was torpedoed after a state pension fund warned it could lead to losses of $3.6 billion over a 10-year period.
“Private companies should be left to make decisions on what they believe to be best and let the free market determine their success or failure through creative destruction," Eric Stafford, vice president of government affairs for the Kansas Chamber, a business lobby group, told a legislative committee. “Government should not alter the free market, whether it be in support of or opposed to and penalizing of policies such as ESG.”
SO, TO REVIEW: ANTI-ESG POLICIES slow our response to a changing environment, interfere with the free market, and are fiscally irresponsible. Let’s return our attention to the rankings produced by the Heartland Foundation—an organization with a long history of turning contributions from the fossil-fuel industry into opposition to cleaner and more sustainable energy.
Haskins, in his piece about the group’s “Anti-ESG Report Card,” notes that just four presidential contenders, all Republicans—Ron DeSantis, Donald Trump, and two recent dropouts, Mike Pence and Tim Scott—“met our gold standard for an anti-ESG platform.”
DeSantis, the governor of Florida, got the highest grade, an “A+,” because he has an actual track record of passing “anti-ESG reforms.” A bill that he signed into law earlier this year, known as H.B. 3, restricts the use of ESG in government contracts, funds, and pensions and requires many state financial institutions to consider only “pecuniary factors” when making decisions about investing state funds.
DeSantis also warmed the cockles of the Heartland Institute’s heart by stressing the need to “cripple the ESG movement” in his 2023 book, The Courage to Be Free, and by making “his opposition to ESG a central theme in his 2024 presidential campaign.” Finally, a contest in which Ron DeSantis comes out on top.
Trump and his former veep each snared an “A.” Both have been vocal in opposing ESG, with Trump saying, “The entire ESG scheme is designed to funnel your retirement money to the maniacs on the radical left.” Pence, who yielded to popular opinion and dropped out of the race a couple weeks ago, claimed ESG regulations “weaponiz[e] the financial system” and “allow left-wing radicals to destroy American energy producers from within.”
Both are also credited with the passage of agency rules during their administration that would have “protected American retirees from having their savings used to further ESG objectives” and barred large banks from “using ESG to discriminate against customers and potential customers.” These measures were quashed when Biden took office.
Scott got a slightly lower grade, “A-,” because while he has backed anti-ESG legislation and otherwise distinguished himself as “one of Congress’ most ardent anti-ESG advocates,” he has been “conspicuously silent on the issue” during his bid for president, which he has just mercifully decided to suspend.
Ramaswamy, who has made opposing ESG “one of the most important aspects of his 2024 presidential campaign” and “even launched his own asset management company dedicated to offering non-ESG investment products,” came away with a mere “B.” That’s because the folks at Heartland “did not find any evidence that Ramaswamy supports stopping financial institutions and insurance companies from using ESG to discriminate against their customers.” Evidently, if you want a high grade from the Socialism Research Center, you must be willing to interfere with the free market more directly.
Other Republican candidates such as Doug Burgum and Chris Christie received middling grades for expressing ambivalence about ESG, betraying the cause by incentivizing “hydrocarbon companies to reduce emissions,” or otherwise suggesting that climate scientists might have a point.
But the two worst grades went to the non-Republicans in the race. Robert F. Kennedy Jr. got a “D” for having spent “most of his career as an environmental lawyer and a major advocate for renewable energy policies,” a legacy that has included suing oil extractors and coal companies. Paradoxically, it noted, Kennedy has in recent years “been particularly scathing in his criticism of woke climate activism by corporations, which often manifests itself through ESG policies.”
And worst of all, scoring a “F,” was Joe Biden, the probable Democratic nominee, who has been “one of ESG’s greatest allies,” openly supportive of green energy, social justice, and racial equity. The group intones: “Though Biden’s 2024 campaign website contains no explicit references to ESG, his track record thus far indicates he will continue to push the ESG agenda using every means at his disposal, if he is re-elected.”
None of the five candidates at last week’s Republican presidential debate made any mention of ESG, although there was some talk about the need to “unleash” America’s energy potential in which the words “clean” or “renewable” made no appearance. The most telling exchange was when Haley accused DeSantis of opposing fracking in Florida, which he sternly denied.
“We are absolutely going to frack,” DeSantis assured the world. But then he went and spoiled it all by saying something stupid: “I don’t think it’s a good idea to drill in the Florida Everglades.”
The Heartland Institute might want to go back and lower his grade.