Environmental, social, or governance (ESG) investing continues to be a hot-button issue, with Republican politicians like Florida Governor Ron DeSantis proclaiming newfound success in seriously challenging it.
- On Tuesday, Florida Governor Ron DeSantis signed House Bill 3, the fulfillment of his months-long battle against ESG investing, which prevents social awareness and activism from being considered in investment decisions.
- This comes after President Joe Biden enacted the first veto of his presidency in March against a bipartisan bill overturning a recent labor department rule, which allows retirement investments to consider ESG.
- ESG has been hotly debated in the past year, with BlackRock CEO Larry Fink defending the practice as necessary and Vanguard CEO Tim Buckley dismissing it as an irresponsible investing tactic.
- Berkshire Hathaway CEO Warren Buffett is similarly skeptical of ESG and prefers to defer to protecting his stockholders.
- Tesla CEO Elon Musk tweeted in November that “ESG is the devil.”
Why It’s News
Cynical or not, attacks on ESG have become one of the leading issues going into the 2024 presidential election. Governor DeSantis has taken the national lead in declaring the issue a serious problem, and his attacks against the practices of “woke capitalism” are the spearhead of Republican strategy going forward.
“They want to use economic power to impose this agenda on our society. And we think in Florida, that is not gonna fly here,” says DeSantis.
ESG critics note that the practice has yet to prove to be effective or wise at providing solid returns for investors, as was seen in 2022 when the majority of ESG indexes underperformed. Critics also note that these investments allocate money based on political narratives and agendas.
ESG defenders note that the practice has the opportunity to help investors seek out risky but profitable opportunities in the wake of the global shift toward net zero-energy generation. Fink and other defenders argue that ESG is a necessary part of “stakeholder capitalism” and that corporations have a responsibility to help address social issues and address structural problems.
Still, many opponents of ESG investing argue that DeSantis and congressional Republicans are going too far by trying to ban ESG investing. They contend it should be up to the investor. And if a state decides it does not want its pension funds invested in ESG-supported funds, it can state that, but it cannot say the fund is not permitted to be infused with ESG provisions.
“If we as a rating agency cannot assess environmental, social, or governance risk that creates a problem for us. There are climate and weather risks that are highly relevant, especially in a state like Florida, and would be captured in our assessment of credit risk,” DBRS Morningstar co-head Thomas Torgerson tells Reuters.