Republicans are attempting to curtail the influence of environmental, social, and governance standards, which activists frequently use to pressure companies into promoting a variety of leftist political causes.
One-third of investment assets in the United States are now managed using ESG criteria, MarketWatch reported in November 2020. As of 2020, 3,038 investors, together representing over $103 trillion, had signed on to the United Nations’s Principles for Responsible Investment, a commitment to incorporate ESG into company practices.
The World Economic Forum reported at its May 2022 annual meeting in Davos that 70 companies have adopted Stakeholder Capitalism Metrics, a set of standards drafted by 120 of the largest companies to bring “greater comparability and consistency to the reporting of ESG disclosures.” Creating better reporting was also on the agenda for business leaders at the meeting.
ESG metrics are widespread but not standardized. A frequently cited MIT study found that ESG ratings from KLD, Sustainalytics, Moody’s ESG, S&P Global, Refinitiv, and MSCI, six large score providers, diverge significantly. The authors say this makes evaluating companies according to ESG standards difficult.
Some international organizations, such as the WEF and the Sustainability Accounting Standards Board, are aiming to develop a better international standard. The SASB is doing so by building on existing standards to create more consistent metrics tailored to each specific industry’s needs.
The U.S. Securities and Exchange Commission has also shown interest in regulating ESG.
For the first time, the SEC examined credit rating firms on ESG practices in its 2022 annual report, warning them of risks that may arise from inconsistent methodologies or conflicts of interest, according to Thomson Reuters. In January 2022, SEC Commissioner Allison Herren Lee suggested that corporate executive pay be tied to ESG goals.
The SEC also proposed a rule in March 2022 requiring registrants to disclose climate-related risks, greenhouse gas emissions, and climate-related financial metrics in an effort to provide consistent data to investors. The rule was criticized by 118 House members for the burden it would put on small farms. Among the critics was Sen. Joe Manchin (D-WV), who wrote that “the proposed rule aims to solve a problem that does not exist” and could create “undue financial hardships” for companies.
Most recently, the SEC took its first step toward creating its own ESG standards. It announced a proposed rule on May 25 that would require “meaningful specific” disclosures “regarding ESG strategies in registration statements, the management discussion of fund performance in annual reports, and in adviser brochures.”
On the heels of these developments, Republicans are speaking out about ESG’s growing influence. In a May 26 Wall Street Journal article, Mike Pence wrote that ESG allows the Left to “accomplish what it could never hope to achieve at the ballot box or through competition in the free market.”
“ESG empowers an unelected cabal of bureaucrats, regulators and activist investors to rate companies based on their adherence to left-wing values,” Pence wrote. “Without government intervention, the ESG craze will only get worse.”
On Friday, eight Republicans introduced the “No ESG at TSP Act.” The bill would prohibit the federal Thrift Savings Plan from “allowing participants to invest their retirement savings into funds that make investment decisions based on environmental, social, governance, or political criteria,” as it plans to next month.
“ESG investing is a woke scam,” said Rep. Chip Roy (R-TX), who introduced the bill. “It restricts the free flow of capital, undermines U.S. energy freedom to the benefit of our enemies, and advances woke racial and gender ideologies intent on dividing the republic.”
Roy says that the TSP changes, which were first announced last summer, would “allow billions of taxpayer dollars” to be put toward advancing liberal ends.
Legislatures are right to step in when the free market is threatened. Companies adhering to ESG standards are trampling consumer interests and shunning significant portions of their customer base to appease investors.
The ideals of climate justice, gender ideology, and other progressive political causes are not held by a significant portion of Americans. Not everyone wants to be inundated with products declaring the latest social justice slogan when they walk into the store.
Katelynn Richardson is a summer 2022 Washington Examiner fellow.
