Why are some state governments limiting ESG investment choices?

Are state governments limiting ESG?

Since 2022, a number of far-right lawmakers have been introducing what are commonly called “anti-ESG” bills across many states, in a coordinated legislative effort that is trying to prevent companies and investors from taking into account environmental, social, and governance risk factors when making their business and investment decisions.

As of June 2023, there had been 165 pieces of legislation introduced in 37 states. In 2023, 22 laws and 6 resolutions made it through the legislative process in 16 states, many of which were amended in the process to reduce the extreme parts of the bans on ESG practices. State pension funds, treasurers, and even groups like the Kentucky Bankers Association have sounded the alarm on these bills actively harming businesses and the retirement savings of many workers. Numerous investigations have shown the anti-ESG movement is funded and coordinated by powerful corporate interests that want to delay the renewable energy transition, bolster gun manufacturers, and stop social movements that advance racial equity and LGBTQIA+ rights. These same interests would also rather there be less transparency and disclosure in the financial system, making it harder for people to have access to important information about company actions and decisions. 

While anti-ESG bills have been proposed by Republican lawmakers, not all Republican lawmakers see this new anti-ESG push as the right path forward. 

In states like Missouri, South Dakota, and Nebraska, lawmakers have decided against supporting a number of bills after hearing from pension funds, local banking associations, and local Chambers of Commerce that the new bills would cost their states’ teachers and government workers billions in lost pension returns, and limit investors’ ability to make sound investment decisions. Some Republicans also see these new measures as a threat to the party’s long-standing relationship with business. In the past, Republican state funds have supported shareholders’ ESG resolutions because they believed they were in the best interests of the business.

What do Americans think about responsible investing?

Most people (76%) believe that companies should play a vital role in society and be held accountable to make a positive impact on the communities in which they operate. This includes 69% of Republicans and 82% of Democrats. A majority of people (63%) believe the government should not set limits on ESG investments.

Is the federal government limiting ESG?

No, but some Republican members of Congress support legislation that would prevent investors from having proper oversight on how public companies deal with long-term risks, reducing the accountability and transparency of how companies operate, and preventing the public from having more information to make better decisions about their investments.

Is President Biden behind the ESG agenda?

No. President Biden does not have an ESG agenda. The use of environmental, social, and governance factors has its roots in a practice known as socially responsible investing, which began as early as the 1960s.

Are the stocks of companies considering Environmental, Social, and Governance factors a bad investment?

No. Companies that take into consideration environmental, social, and governance risk factors and opportunities may be more likely to create long-term value for shareholders.