Running a business is hard these days. Heavy-handed regulations and higher taxes are expected when leftists are in power. But industry became shell-shocked when traditional conservative allies targeted corporate environmental, social, and governance practices. No wedge has shredded the historic alliance between these long-standing allies more than such disputes.
This spring, waves of anti-ESG legislation shook corporate confidence in red states. Prohibitions became so troublesome that firms, including fossil fuel companies, began reporting the laws as new business risks in their 10-K filings. During Republican-led “ESG Month” this summer, hearings oscillated between healthy ESG skepticism and a witch hunt. The irony is that ESG became mainstream under President Donald Trump, driven largely by voluntary market forces.
This distinction explains conservatives’ surprise when the first anti-ESG law resulted in Texas blacklisting financial firms that remained invested in fossil fuels, contrary to the law’s intent. Anti-ESG laws may be good political messaging against “woke capital,” but they threaten the public pensions and state economies they should protect.
If the rise of ESG was a conspiracy, it was a conspiracy of the masses. Firms began adopting ESG not because of “woke” C-suites but because ESG values became popular with their business milieu, namely younger consumers, investors, lenders, and employees. A firm’s environmental reputation increasingly influences its earnings, credit rating, cost of capital, and human capital. Pecuniary ESG is a predictable business response to enhance shareholder returns.
That is not to suggest the entire ESG movement is the invisible hand’s green thumb at work. Conservatives are rightly skeptical of new regulations and governments crafting rules to favor certain industries. But swinging the government’s cudgel to promote conservatives’ preferred industries is not the answer.
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