In both Kansas and Indiana, where the GOP has legislative supermajorities, bankers associations and state chambers of commerce criticized the strongest versions of anti- ESG legislation currently under consideration as anti-free market.
In Kansas, their opposition prompted a Senate committee's chair to drop the toughest version of its bill — applying anti-ESG rules to firms handling private investments — before hearings began this week.
And last month, legislative researchers in Indiana claimed that its pension system expected the first version of a House bill to cost the system $6.7 billion over 10 years, prompting lawmakers to rewrite it before the chamber passed it.
ESG stands for environmental, social and governance and those factors' increased use in investing in recent years inspired GOP attempts to thwart it. Now, those efforts are riling groups long allied with Republicans in backing less government regulation.
About one-eighth of U.S. assets being professionally managed, or $8.4 trillion, are being managed in line with ESG principles, according a report in December from US SIF, which promotes sustainable investing.
Critics of ESG contend that using investments to support liberal policies such as fighting the use of oil and gas, stricter gun laws and pro abortion efforts sacrifices earnings for investors and undercuts the finances of public pensions.
At least seven states, including Oklahoma, Texas and West Virginia, have enacted anti-ESG laws in the past two years. GOP Govs. Ron DeSantis of Florida and Greg Gianforte of Montana also have moved to ensure their states' funds aren't invested using ESG principles.
“The agent who is representing or investing on behalf of the principal has a fiduciary duty to put the principal’s interest over the agent’s interest,” Kansas Attorney General Kris Kobach, a conservative Republican, told the state Senate committee this week. “That principle is such a core of American law.”
Anti-ESG efforts also draw support from companies and industries that feel under attack, such as oil and natural gas producers. During an Indiana House committee hearing last month, lawmakers heard a litany of complaints from businesses, including those in coal mining and firearms production, about difficulties they blame on corporate ESG policies.
“This is, again, a social agenda chasing something that they shouldn't be chasing,” Kansas Senate committee Chair Mike Thompson, a Kansas City-area Republican who labels ESG investments as “potentially dangerous.”
Supporters say ESG isn't about boycotting certain industries or companies but of doing a better job assessing future risks, such as costs from major accidents or pollution, or a diminishing local water supply. They argue that considering such factors is part of an investment manager's obligation to get the best returns possible.