Ohio, Oklahoma push back on ESG investing

The political pushback against Environmental, Social, Governance (ESG) investing continues as two more states last week took action to quash the incorporation of progressive factors in financial decision-making.

Ohio legislators passed a bill to limit the state’s five public pension funds from pursuing investments influenced by social and environmental policy. The bill also aims to ban funds from engaging in shareholder activism. It awaits a signature from the state’s governor, Mike DeWine.

In Oklahoma, the state’s attorney general appealed to the Sooner State’s Supreme Court to reinstate an anti-ESG law that was struck down by a lower court. The so-called Oklahoma Energy Discrimination Act would prohibit public pension funds and state contracts from engaging with financial firms accused of discriminating against the oil and gas industry.

Joining a growing list

The two states join an ever-growing list of mostly Republican-controlled jurisdictions that have turned against ESG investing, labeling it an activist and left-wing (see "woke") practice that is more aimed at advancing ideological agendas over maximizing shareholder value.

At last count, 11 states (Texas, West Virginia, Oklahoma, Florida, Kentucky, Missouri, Arizona, Idaho, North Dakota, Utah, and Ohio) have passed anti-ESG legislation, with eight states (Indiana, Wyoming, Iowa, South Carolina, Arkansas, Tennessee, Louisiana, and Montana) considering or have pending anti-ESG bills.

These legislative efforts reflect a broader national debate on the role of ESG considerations in public finance and corporate governance, with significant variations across state lines influenced by political, economic, and ideological factors.

In October, U.S. Sen. Bill Cassidy, (R-LA), introduced a bill to prohibit asset managers from favoring environmental, social, and governance factors when evaluating people’s retirement plans.

Cassidy, the ranking member of the Senate Health, Education, Labor, and Pensions Committee, said potential investments should be evaluated only with regard to financial performance and not on progressive factors.

'Best return for their retirement'

“Asset managers should prioritize helping Americans achieve the best return for their retirement, not funneling their clients’ money to fund a left-wing political ideology,” Cassidy said.

Critics also contend that ESG mandates can impose more costs on companies that could lead to higher prices for consumers and reduced profitability.

But advocates say the call against ESG investing ignores both the realities of current world problems but also the broad potential benefits ESG investing can produce.

Paul Polman, the former CEO of Unilever, and co-founder of IMAGINE, an activist foundation that promotes ESG implementation and Sustainable Development Goals, says such finance is integral to tackling the climate crisis.

“88% of investors globally place climate change risks at the top of their portfolios concerns,” he says on his website.

Moreover, Polman claims that 81% of the ESG-driven investments have outperformed their benchmarks.

“Very few alternatives to ESG investments have outperformed,” he said.

He stressed that companies that focus on the social side of investing are increasingly rewarded by the financial community.

“The flip side is that financial markets are starting to punish companies that do not take care of people in their value chain,” he said.

Wayne Visser, a professor and author specializing in sustainable transformation, says there is extensive evidence for a strong business case for sustainability.

“I summarize this as 10 Rs,” he writes. “Investing in sustainability reduces risk, improves reputation, builds resilience, increases resource efficiency, anticipates regulation, ensures recruitment and retention of talent, boosts revenues, increases returns, stimulates research & development, and clarifies a company’s reason for being.”

Nevertheless, the anti-ESG movement is expected to pick up steam under the new Trump administration.

States like Texas and Florida have enacted laws restricting state contracts or pension investments with firms perceived to boycott fossil fuels or adopt ESG principles. Others have withdrawn funds from major financial firms promoting ESG initiatives, arguing these policies are economically and ideologically misaligned with state interests.

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