The movement to inject climate change and social justice politics into corporate boardrooms and investment strategies has suffered a series of setbacks in the past year, including getting shut out of a dozen states and getting pummeled by lawsuits and congressional investigations.
The road ahead gets rockier with the Republican-run House ready to swat down new federal rules to apply what is known as ESG to 401(k) investments.
The political left, meanwhile, isn’t giving up on institutionalizing this woke business ethos without a fight. Although armed with little more than public relations campaigns, liberal lawmakers have struggled to parry the Republican blitz against environmental, social and corporate governance investing, or ESG.
Opponents of ESG warn that climate change and other political considerations warp an asset manager’s fiduciary duty to yield the highest returns on investment, most notably companies’ environmental impact, potentially imperiling retirement plans and public pensions.
“Hell, I don’t want anybody who I’m turning my money over to have any consideration other than to give me the best return,” Sen. Mike Braun, Indiana Republican, told The Washington Times. “Pushing ideology through retirement and hard-earned investment funds does not make sense to me.”
Mr. Braun is leading an effort by all 49 Republican senators and Democrat Joe Manchin III of West Virginia to scuttle new Labor Department rules that allow 401(k) fund managers to engage in ESG investing. Opponents say the move would jeopardize the retirements of some 150 million workers and more than $10 trillion under the Employee Retirement Income Security Act of 1974.
Lawmakers are using the Congressional Review Act, a tool for overturning new federal rules with a simple majority vote in both the House and Senate, which cannot filibuster.
President Biden has threatened a veto if the resolution passes both chambers.
“To be clear, the rule is not a mandate — it does not require any fiduciary to make investment decisions based solely on ESG factors,” the White House Office of Management and Budget said in issuing the veto threat on Monday.
The House on Tuesday will pass the Congressional Review Act resolution introduced by Rep. Andy Barr, Kentucky Republican.
It’s a numbers game in the Senate, where Republicans need just one more Democrat to pass the resolution. The Senate must vote within 60 legislative calendar days from Sunday, the exact timing of which is at the discretion of Majority Leader Charles E. Schumer, New York Democrat.
Sen. Jon Tester, Montana Democrat, and independents Kyrsten Sinema of Arizona and Angus S. King Jr. of Maine — both of whom caucus with Democrats — are potential anti-ESG votes. All three are mum about their intentions.
If Sen. John Fetterman, a Pennsylvania Democrat who is being treated for depression, is absent from the vote, then the resolution will pass with all 49 Republicans and Mr. Manchin.
The Labor Department’s ESG 401(k) rule is also facing a lawsuit by 25 Republican-controlled states led by Texas Attorney General Ken Paxton and Utah Attorney General Sean Reyes.
“These asset managers are violating their fiduciary duties by failing to maximize their returns and instead push a partisan political agenda,” Mr. Reyes told The Times. “The Biden rule weaponizes and politicizes the role of asset managers at a time when 401(k)s are already taking major hits due to economic downturns and high inflation.”
House Republicans also are investigating ESG on multiple fronts, including with a Financial Services Committee task force and the creation of the “Anti-Woke Caucus” by Republican Study Committee Chair Jim Banks of Indiana.
Financial Services Committee Chairman Patrick McHenry, North Carolina Republican, and Rep. Bill Huizenga, a Michigan Republican who is leading the anti-ESG task force, are among those demanding records and information from the Securities and Exchange Commission about its proposed rule for public companies to disclose climate risks and carbon emissions impacts for investors.
“We want to know from them what is going through their head when they’re doing this,” Mr. Huizenga told The Times.
He said to anticipate public hearings on ESG, testimony from investment firms about their climate-friendly strategies and informational sessions about a topic that is unfamiliar to many lawmakers from both sides of the aisle.
Myriad red states have enacted laws that pave the way for divesting public pensions and ceasing other government business with pro-ESG financial institutions that they deem anti-fossil fuel. More Republican-led states are eyeing similar proposals.
Florida Gov. Ron DeSantis, a Republican, announced legislation this month that would prohibit ESG banking, including the use of ESG in any business conducted with state or local governments.
Florida was also part of a coalition of red states that last year divested more than $4 billion from BlackRock, which Republicans regard as the ESG ringleader.
BlackRock, one of the world’s largest asset managers, and other firms deny that they are anti-fossil fuel despite their support of “climate-conscience” investment practices. BlackRock points as evidence to the more than $200 billion it has invested on behalf of clients in traditional energy companies.
Democrats and pro-ESG financial firms were caught flat-footed by the backlash against ESG, which they say is crucial for achieving long-term investment returns in the face of a changing climate.
BlackRock responded to losing business because of its ESG stance with a public relations campaign. Other asset managers have tried to quell the ESG outrage by softening their positions. Late last year, Vanguard quit the world’s largest climate finance alliance known as the Net Zero Asset Managers initiative.
House Democrats last month launched the “Sustainable Investment Caucus” to educate their colleagues about the potential benefits of green investing.
The caucus’ co-chairs, Reps. Sean Casten of Illinois and Juan Vargas of California, did not respond to interview requests for this report.
“We’ve got to be honest: We are also creating this caucus for defensive reasons. One of the oldest rules in Washington is that losers cry louder than winners cheer,” Mr. Casten said when he was named co-chair. “When capitalism is working well but you’re not winning, you tend to call it woke capitalism. It’s still capitalism.”