Republicans, Democrats Continue to Speak Past Each Other on ESG

Future ESG policy is likely to be influenced more by which party is in power than by its actual merits.

The debate in Congress about environmental, social and governance investment factors and their relationship with fiduciary duties appears to have come to a bipartisan loggerhead after testimony from both sides of the aisle on Tuesday.

The narratives of the two parties have consolidated to a degree that testimony during two House Committee on Oversight and Accountability hearings—one held on May 10, one held Tuesday—adhered mostly not just to party lines, but to party talking points. For Republican speakers, ESG was often described as a radical and “woke” leftist political agenda to move capital to preferred ideological projects and away from ideological foes. For most Democrats, ESG is a risk assessment strategy designed to capture unpriced risks and opportunities that account for ESG factors and an energy transition necessary to protect investors from both environment and economic calamity.

For the most part, the debate during these sessions has been dominated by the E in ESG, and to a lesser extent the S, whereas the G is hardly mentioned, except in very rare occasions specifying gender and race on corporate boards.

These hearings provided insight into how both parties intend to legislate and regulate on ESG in the future, with ramifications cascading from major asset managers to institutional investors to everyday retirement 401(k) savers. Below is a summary of some of those positions.


Representative Jamie Raskin, D-Maryland, explained at the first ESG hearing in May that market actors should be free to invest using ESG factors and that the leading asset managers see ESG as long-term planning for challenges such as climate change. He accused the fossil fuel industry of lobbying to limit market freedom in this respect.

Illinois Treasurer Mike Frerichs, who also testified at the May hearing, explained that ESG is about data and additional information on risk, noting that the strategy is “about value, not values.” He continued that there is a “politically motivated attack on investors” by “blacklisting” asset management firms engaging with ESG.

Shiva Rajgopal, a professor at Columbia Business School who testified at Tuesday’s hearing, argued that ESG is essentially more data for fiduciaries that is often unavailable through mandatory disclosures. He said climate risks negatively affect industries such as energy, transportation and tourism and argued that these material risks are not properly priced in markets. Rajgopal stated that fiduciaries that do not account for ESG factors are “derelict in their duty” to their clients.


At the May hearing, Alabama Attorney General Steve Marshall said ESG is an agenda pushed by an “unelected cabal of global elites” trying to use the financial system to effectuate policy they do not have the votes to pass through Congress. ESG forces investors to “forego profits for woke priorities” and thereby compromises retirement savings and investment returns and thereby violates fiduciary duties.

ESG also increases energy prices—by restricting investment in fossil fuels—and exacerbates inflation, many Republican witnesses argued at both hearings. A wide range of social ills, such as electricity shortages, inflation and unemployment, were attributed to ESG.

Mandy Gunasekara, the director of the Center for Energy and Conservation at the Independent Women’s Forum and a former chief of staff at the EPA, testified on Tuesday that ESG “makes the American dream contingent on acquiescing to the demands of the woke left.”

Also at Tuesday’s hearing, Representative Lisa McClain, R-Michigan, attributed declining retirement assets last year to ESG and said that “managers are investing your money in causes they believe in.”

ESG: Regulatory Ping-Pong

In the annual Form 10-K filings made by firms such as State Street and BlackRock, regulatory and reputational risk of ESG strategies were listed as material risks, which have been arguing points for the Democrats. Meanwhile, Republican-led state governments have been restricting and divesting from firms that apply ESG factors and, as State Street acknowledged in its 10-K: “Views on ESG practices, particularly those related to climate issues, have also become political issues, which can amplify the reputational risks associated with such allegations.”

The current Department of Labor rule which permits ESG factors to be included in fiduciary decisionmaking, currently being challenged in the courts, reversed a rule from the administration of former President Donald Trump that advised focusing only on “pecuniary” factors when it came to retirement plan investments, although it did not rule out ESG factors. That rule was seen by some ERISA attorneys and retirement plan advisers as having a “chilling effect” on ESG investing in 401(k) plans.

Growing Republican hostility to ESG could signal a desire to reverse the current rule established under President Joe Biden in a future Republican administration, potentially leading to a ping-pong regulatory fight between administrations and reducing regulatory clarity concerning ESG.

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