Woke or broke? House panel takes up ESG investing impact on states

House Republicans and Democrats clashed Wednesday over the impact of environmental, social and governance-related investment rules on states and local governments, with House Republicans pledging to ramp up scrutiny on what’s become the latest flashpoint in the culture wars.

“ESG is just window dressing for liberal activism and radical far-left ideology,” said House Oversight and Accountability Committee Chair Rep. James Comer, R-Ky., during the first in a series of hearings on ESG standards that will be held by the committee.

“This is a coordinated effort by unelected shadow organizations to force their policies on U.S. taxpayers, investors, and retirees.”

Both parties argued that the other side’s position put politics over an investment manager’s fiduciary duty, and cited data that backed up their respective arguments that ESG-driven decisions either outperform or underperform the market.

Democrats argued that states like Texas, Florida, Kentucky and Indiana will see higher borrowing costs and lower pension returns due to their anti-ESG laws.

Republicans contended that ESG standards subject AAA-rated states like Utah to unfair criteria, that states like Illinois will see their pensions worsen under ESG-related decisions, and that ESG investment standards violate state and federal laws and consumer rights.

The federal hearing takes up a partisan debate that so far has taken place largely on the state level, which has seen a wave of anti-ESG laws and investigations enacted over the last two years in Republican states and a rising number of pro-ESG legislation in Democratic states.

Ranking member Rep. Jamie Raskin, D-Md., contended the anti-ESG agenda is financed by the fossil fuel industry and that Republican states that enact anti-ESG rules would “rather be broke than woke.”

“ESG considerations are totally consistent with an asset manager’s fiduciary duty to maximize shareholder value,” Raskin said. He called a Texas law restricting local governments from hiring banks that are seen to be boycotting gun or fossil fuel industries a “sledgehammer.”

“This anti-woke sledgehammer in Texas is costing the cities and towns between $305 million to $532 million in additional interest payments a year,” Raskin said, citing a Wharton study.

“Florida will spend between $97 million and $360 million on municipal bonds alone to satisfy the new anti-woke standard,” he added, citing a Sunrise Project study.

Alabama Attorney General Steven Marshall testified that “an unelected cabal of global elites is using ESG to hijack our capitalist system, capture corporations and threaten the hard-earned dollars of American workers.”

Utah Attorney General Sean Reyes said ratings agencies have unfairly targeted the state based on ESG factors.

“S&P pointed out the issue of drought without taking into consideration a whole host of mitigating factors,” Reyes said. “S&P makes it look like the most important factor isn’t Utah’s credit history but one instance of drought.”

Reyes and Marshall, noting the various state investigations and lawsuits Republicans launched against ESG rules, urged the House to ramp up oversight of issues like President Biden’s recent veto of a labor rule allowing retirement plan managers to consider ESG factors in their investment decisions. A group of 26 Republican states have challenged the rule in court.

“It is in this larger body of Congress where this policy should be determined,” Reyes said.

Marshall was one of 17 Republican attorneys general who this week filed a lawsuit to stop BlackRock from imposing ESG policies on utility companies.

In defense of the use of ESG factors in making investment decisions, Illinois Treasurer Michael Frerichs said it was “simply additional information that investment professionals use.”

“ESG is about looking at a wider range of risks and value opportunities that can have a material financial impact on investment performance,” Frerichs said.

“We are witnessing a widespread, highly coordinated, politically-motivated attack on investors and the hard-working people they serve,” he added.

Rep. Eric Burlison, R-Mo., contended that ESG investment considerations are part of the reason why Illinois faces a massive underfunded pension system.

“We can talk about whatever moral decision you want to make [but] when you mess around with other people’s money and they get hurt, who pays? They do. And we’re trying to make sure people aren’t messing around with retirees’ funds.”

Corporations like Disney and Anheuser Busch as well as Democratic states now realize the costs of pushing a “woke” agenda, said Rep. Lauren Boebert, R-Colo.

“When you go woke, you go broke,” Boebert said.