The Backlash Against ESG Faces Its Own Backlash

When Woke, Inc. author Vivek Ramaswamy launched his asset management firm less than a year ago, he claimed its goal was to take politics out of business decisions. Slamming the notion of stakeholder capitalism and the movement to embrace environmental, social, and governance, or ESG, principles as “woke,” Ramaswamy said his firm would push companies to “focus on excellence over politics.”

Now it appears that Ramaswamy’s anti-ESG message — which has been embraced by Republican politicians in dozens of states and is fueling a presidential bid by Ramaswamy — is having the exact opposite effect. State pension funds or other powerful players in at least five Republican-controlled states say that instead of creating excellence, these new culture-war policies are interfering with the market and could cost pensioners and taxpayers billions of dollars.

What Ramaswamy failed to mention when he launched Strive Asset Management last year was that for months he had been crisscrossing the country with Republican politicians to promote an agenda in which they had common ground: pulling state pension money from BlackRock, whose policies they viewed as anathema to the fossil-fuel industry even though BlackRock says it has $170 billion invested in U.S. publicly traded energy companies and is not planning to divest from them. BlackRock CEO Larry Fink, the bête noire of the anti-ESG movement, has said that the stakeholder capitalism he endorses has nothing to do with politics and is not “woke.” But BlackRock has pushed companies to take sustainability seriously, and at least six red states have already pulled more than $4 billion from the money management giant.

The Republican-state-led anti-ESG effort, which was launched by Texas in 2021, is multipronged. In terms of legislation, there are two types of bills. So-called boycott bills typically target financial institutions deemed to be discriminating or “boycotting” the fossil-fuel and firearms industries and prohibit state entities from doing business with those institutions on matters like municipal bond underwriting. Then there are so-called no-ESG bills that force state pension funds to divest from firms or strategies that consider ESG factors when making investments. These bills also want to make sure that the pension funds’ managers aren’t voting the funds’ proxies on ESG-related issues. But while such bills are in the works, most states have either not passed or not implemented them. And in lieu of legislation, some state attorneys general are filing lawsuits, while treasurers and comptrollers are issuing their own anti-woke rules.

The overreach is so broad that even pension funds in deep-red states are pushing back. 

You can read my entire Institutional Investor article here:

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