Among the talking points on the
"Stop Environmental, social, and governance (ESG) scores from taking over corporate America," Masters writes under a tab titled "Put an end to wokeness."
Blake, an Arizona Republican seeking to unseat his state's Democratic incumbent, Mark Kelly, in the November midterm elections, has been unusually vocal in his opposition to one of the asset management industries biggest trends. But he's not alone.
Coined roughly two decades ago, ESG funds make up a once-sleepy corner of the investment industry that has recently exploded into controversy. Also known as sustainable and impact investing, the field has grown from $178 billion in investor assets in 2005 to almost $17 trillion in 2020,
Proponents of ESG argue that it makes sense to take into account what climate change and future emissions regulations mean for corporations and their investors, both institutional and individual. They also contend that investors who are concerned about the environment and social justice should be able to direct their money to companies that support their goals.
Critics counter that many investors are unaware that their money, after being entrusted to BlackRock, Vanguard, State Street and other giant firms, is being invested according to ESG principles. They argue that the chief goal of fund managers should be to achieve the biggest returns possible, regardless of whether a company pursues sustainable operations.
Masters, a venture capitalist who has worked for the tech entrepreneur Peter Thiel and has the endorsement of Donald Trump — and
"That's my pledge to you," he said. "We'll try to figure out how to do it."
Masters, who has been running behind Kelly in both polls and fundraising, may be one of the few candidates talking about ESG out on the campaign trail. Most candidates hoping to win a seat in Congress on Nov. 8 are instead concentrating, at least publicly, on inflation, the economy, crime and abortion.
But that doesn't mean Masters is the only political aspirant who has set his sights on the likes of BlackRock — which had $10 trillion in assets under management, including ESG funds, by the end of last year. At least two legislative proposals aimed at curtailing ESG have been put forward by sitting congressional Republicans. Should the GOP take control of at least the House in the midterms, as many
Probably not, said Bryan McGannon, the director of policy and programs at US SIF, a nonprofit trade group and lobby for the industry. He said the presence of President Joe Biden in the White House and the need to have 60 votes in the Senate will continue to present a high barrier to any anti-ESG legislation Republicans might put forward.
McGannon added that any bills that GOP lawmakers introduce after the midterms are likely to be similar in effect and purpose to two proposals now making the rounds.
One of those,
McGannon said he sees the proposals as "messaging bills." Their sponsors most likely see them as more of a way to stake out their position on ESG rather than as legislation that stands a serious chance of adoption. Attempts to reach the bills' sponsors were unsuccessful.
McGannon predicted that Republicans will continue to air grievances about ESG but will have little power to make real changes.
"They will have hearings, and they will beat up on it," he said. "They will create a lot of noise. But none of their proposals will become law."
Republicans have a good chance of retaking the House of Representatives and at least decent odds of grabbing the Senate. Democrats' 220 seats in the U.S. House to Republicans' 212 — plus three vacancies — mean that Republicans need only six seats to regain control there. Meanwhile, staggered terms in the Senate mean that only one third of the seats in that chamber are up for election this year. Still, the Senate's current 50-50 split (50 Republicans to 48 Democrats who caucus with two independents) could easily tip in the GOP's favor in November.
Of more concern than legislation is the possibility that a GOP-controlled Congress could try to undermine the Security and Exchange Commission's efforts to improve ESG reporting and governance, said Andrew Poreda, a senior research analyst at Austin, Texas-based Sage Advisory Service's ESG and impact investing team. The
Poreda said there is some fear that Republicans might try to employ the appropriations process, which is used to allocate money in the federal budget toward specific agencies and purposes, to tie the SEC's hands on enforcing its ESG rules. A so-called "policy rider" — a policy change that is sometimes attached to large spending bills because it would be difficult to pass on its own — could be used to bar the SEC from putting federal funds approved by lawmakers to certain purposes. More likely, said Poreda, the GOP will use criticism and eventually litigation to stall the proposals.
"They could try to make this thing so politically toxic that the SEC keeps it in the proposal phase and never goes through with it," Poreda said. "It just sits on it and keeps it in the periphery."
The SEC has received thousands of comments on its proposed rules and is still working up draft versions of the final language. No target date has been set for formal adoption.
McGannon and Poreda agreed that the biggest threat to ESG in the interim is likely to come not from the federal government but individual states run by conservatives. Florida Gov. Ron DeSantis, whom many consider a leading candidate for the Republican presidential nomination in 2024, said in August that his state's pension fund would no longer take ESG considerations into account when trying to achieve the highest returns for retirees. Texas, West Virginia and Oklahoma have taken similar steps.
Last August,
More concerning than those rumblings, said McGannon, is a proposal being circulated by the American Legislative Exchange Council. ALEC, a right-leaning group that puts forward
McGannon said the proposal seems designed to lure fund managers into a trap with ESG. ALEC didn't immediatley respond to a request for comment.
"They aren't outlawing it," McGannon said. "They are daring you to do it."
