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Opinion Don’t be fooled by the GOP crusade against ‘woke Wall Street’

House Speaker Kevin McCarthy (R-Calif.) signs a resolution on March 9 aiming to forbid retirement fund managers from considering environmental, social and corporate governance factors when making investment decisions. (Drew Angerer/Getty Images)
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The first veto of Joe Biden’s presidency came on a topic causing increasing fury on the right: ESG investing, short for “environmental, social and governance.” As part of their new zeal for anti-corporate posturing, Republicans are going after Wall Street for being “woke,” and they managed to pass a bill prohibiting investment firms from factoring risks such as climate change into their decisions on retirement plans. Biden vetoed it Monday.

If you took Republicans’ feigned outrage at what they call “woke Wall Street” seriously, you might think they were undergoing a dramatic ideological repositioning. Though conservatives have long declared their commitment to limited government and laissez faire economics, today’s Republicans are eager for government to make more economic decisions for market actors, at least on issues that fit in with their larger culture war. But look more closely and you’ll also see another version of an old story: The GOP helping out its favored industries while claiming it’s good for everyone.

The bill Biden vetoed sought to overturn a Labor Department regulation covering retirement funds. Existing law says managers of those funds have to maximize returns. The new regulation says that in determining risks and benefits of investments, managers may “include the economic effects of climate change and other environmental, social, or governance factors.”

The bill to nullify that rule would have the effect of forbidding managers of retirement funds from taking ESG into account. It was supported by every Republican in Congress, along with one Democrat in the House (Jared Golden of Maine) and two Democrats in the Senate (Joe Manchin III of West Virginia and Jon Tester of Montana).

ESG investing has become increasingly prevalent in both the public and private sectors in recent years; there are trillions of dollars in ESG funds in the United States and abroad. As the financial risks of climate change have become more apparent, and companies and investment firms have made decisions with those risks in mind, Republicans have made opposition to ESG investing a culture-war crusade.

They talk about ESG in terms that are both apocalyptic and fact-free. A policy statement from 19 GOP governors organized by Florida Gov. Ron DeSantis slammed ESG as “a direct threat to the American economy” and “our way of life” that turns investment decisions over to “the woke mob.” Many GOP states are not just avoiding ESG funds when they invest state money, but refusing to do business with firms that use ESG in any of their investment products.

ESG is anything but radical. In fact, the main critique of it from the left is that it often amounts to little more than lip service to goals it espouses, giving companies an opportunity to “greenwash” their image without changing much about the way they do business.

Though Republicans charge that ESG sacrifices profit in the service of liberal goals, studies have shown that the effect of ESG on companies’ performance is usually positive. That’s one of the key reasons investors and companies factor in ESG considerations in the first place: to minimize risks and maximize profits over the long term.

So the Republican states that are at war with ESG are depriving themselves of tools that might produce better returns for their state pensions, says Tensie Whelan, director of New York University’s Stern Center for Sustainable Business. States, she says, “are applying very sweeping approaches which are going to end up costing their pension holders a lot of money and just don’t make sense.” For example, one study found that as a result of anti-ESG bills, Texas cities wound up paying hundreds of millions of dollars in extra interest costs when the bond market became less competitive.

This whole debate is less about whether ESG is a good thing on balance than whether government should decide whether it’s something retirement funds can consider. The true conservative answer ought to be an emphatic no: If financial firms want to use those criteria, one might expect conservatives to say, they are free to do so, and if those funds perform worse, investors will avoid them. It’s the market in action.

But Republicans aren’t satisfied with the market. Instead, says Whelan, they have chosen to “rile people up who’ve never even heard of ESG in the first place,” even if it violates the near-religious faith in economic liberty they used to profess.

Yet conservatives’ belief in the magic of the market has always been selective. They’ve long supported billions of dollars every year in subsidies to the fossil fuel industry, just one of many ways they’re happy to have government put its finger on the scale to benefit the right people.

That’s right at the heart of the ESG debate: Those who attack ESG are clearly seeking to steer investments away from sustainable energy and back to fossil fuels.

“A lot of this is the fossil fuel industry scared witless that they’re going to be outcompeted by renewables,” Niko Lusiani of the Roosevelt Institute told me, “and that the big asset managers are going to realize that and move their money there.” The anti-ESG crusade is amply funded by right-wing dark money groups.

That’s the real ideological through-line: Republicans were shills for big corporations when they claimed to believe in laissez faire, and they still are. They’re just picking and choosing a little more, based on which corporations support their cultural crusade.