Attacks on ESG Taking Shape in Republican Fights for Congress

Shortly after assuming sole leadership of one of the world’s largest hedge funds, David McCormick hailed “sustainable investing” as “a strategic priority for” his Bridgewater Associates and its clients.

Less than two years later, as he prepared for his second bid to represent Pennsylvania in the US Senate, McCormick wrote that his firm had reluctantly provided “market-driven” services “with strict guardrails"—and only after facing “significant pressure from our biggest clients.”

“My greatest concern is that the ESG push will undermine our merit-driven, capitalist system by driving corporate leaders to lose sight of their commitment to their shareholders and customers and make decisions for political purposes, which would in turn diminish America’s dynamism and its security,” McCormick wrote in his book, Superpower in Peril.

McCormick, who is seeking the GOP nomination to challenge incumbent Sen. Bob Casey (D-Pa.), joined Republicans in key congressional races attacking ESG investing as part of their campaign message, signaling an increased regulatory threat to the embattled financial strategy if Republicans win back unified control of Congress and the White House.

While Democrats on Capitol Hill tout such strategies as purposeful investing that can help combat climate change or societal inequities, the issue has taken on a more political tone among GOP candidates.

ESG—which stands for environmental, social, and governance issues—is unlikely to alone sway voters next November, when elections will decide who holds the levers of power in Washington. But issues candidates highlight in their primaries often augur the bills and committee work they prioritize when they reach Washington.

“It’s going to be an issue, and it’s going to start in the Republican primaries,” said David McIntosh, a former Indiana Republican congressman who heads the conservative advocacy group Club for Growth.

‘Conspiracy-Theory Stuff’

The issue will particularly contrast “old-style Republicans” with “economic conservatives” during the primaries, McIntosh said, before serving as a contrast between the GOP and Biden administration policy that has favored flexibility with regards to ESG strategy.

“Hoosiers get it, and they understand that woke is an attack on our American way of life,” said Rep. Jim Banks (R), the front-runner for one of Indiana’s Senate seats. “They want their members of Congress to fight back against it.”

Carolyn Phippen, a former Senate staffer seeking the Republican nomination in Utah to replace retiring Sen. Mitt Romney (R), predicted her work as executive director of Freedom Front of Utah pressing Salt Lake City lawmakers to pass legislation barring government agencies from discriminating based on a person’s “social credit score” would help her get on the primary ballot against more seasoned officeholders.

One way to do so is by winning the support of convention delegates, who she said are more “conversant” than general primary voters on the political controversy of ESG scoring as statewide officials have targeted the practice.

“A-year-and-a-half ago, it’s an issue that to some people looked kind of like conspiracy-theory stuff,” Phippen said. “Now it’s clear as day that this is a reality and that the state has thought out some real solutions.”

‘Climate Cult’

Montana may offer a split like McIntosh predicted. Rep. Matt Rosendale (R-Mont.), who has accused the Biden administration of “risking retirement returns with ESG,” is pondering his second bid for Senate. He has also co-sponsored legislation that would prohibit retirement savings for federal employees and military personnel using the Thrift Savings Plan from being invested in mutual funds that make decisions based “primarily” on ESG criteria (H.R. 3612).

Reps. Matt Rosendale of Montana and Lauren Boebert of Colorado are making opposition to ESG investing a tenet in their re-election bids. Rosendale, who has accused the Biden administration of “risking retirement returns with ESG,” also is pondering his second bid for Senate. They’re seen here in the US House Chamber on Jan. 6, 2023.

Photographer: Al Drago/Bloomberg

If Rosendale runs, he’d face Tim Sheehy in the Republican primary. Sheehy is a government contractor who founded Bridger Aerospace, which specializes in fighting wildfires from the air. Sheehy pitched investors on his company’s opportunity to compete in a market that lacked “fundamentally-driven ESG businesses.”

“‘ESG, woke this, woke that,’ whatever people want to talk about, opinions vary,” Sheehy told SPAC Insider earlier this year. “We’re a company that is actually out there fighting climate change-related issues.” National Journal previously reported Sheehy’s private-sector remarks.

Sheehy spokesperson Katie Martin said Sheehy is “proud” of Bridger’s work.

“The fact is, virtually every business across the country is facing this ESG crap, and one of the reasons Tim is running for the U.S. Senate is to fight back and take a strong stand against federal overreach and this climate cult, job-killing agenda,” Martin said.

Bridger Aerospace this year scrubbed its home page of language touting its work “fighting on the front lines of climate change” while using “sustainable and environmentally safe firefighting methods.” The change was earlier noted by ABC News.

“It’s not uncommon for businesses to update their websites from time to time,” Martin said.

Legislative Signaling

Republicans forced votes in both chambers this year aimed at blocking the Labor Department from allowing employers to consider ESG factors when choosing workers’ retirement investments (H. J. Res. 30), creating an early litmus test for the issue.

The largely party-line votes won the support of vulnerable Democratic incumbents like Rep. Jared Golden (D-Maine); Senate aspirants Banks of Indiana and Alex Mooney (R-W.Va.); and nearly three dozen House Republicans in competitive re-election races.

Republican Mike Braun of Indiana, the Senate sponsor of the bill who’s running for governor of his home state, said “one of the things you hear” in Indiana is concerns that prioritizing 401(k) investments based on ESG scores could undermine their portfolios.

“Most people there that have made it to retirement would rather the only variable be the best return on investment,” Braun said.

Rep. Mike Lawler (R-N.Y.), a freshman representing a Hudson Valley district that President Joe Biden carried by double digits in 2020, dedicated his time at one Financial Services subcommittee hearing to bemoan the poor performance of state and city pensions in his home state, where fund managers jettisoned fossil-fuel investments from their portfolios.

“Stop getting involved in politics. People are tired of it,” Lawler said. “And shareholders certainly want to know that there is a return on their investment.”

Rep. Zach Nunn (R-Iowa), a freshman who unseated a Democratic incumbent last year, introduced his own bill (H.R. 4656) that would prohibit “robo-voting” in order to prevent proxy advisers from directing retirement investments for political reasons. The bill won committee approval as part a larger package of bills in a party-line vote in July.

“They’ve given unprecedented power and control over my constituents’ 401(k)s and their future funding,” Nunn said at a subcommittee hearing this summer.

‘Threatening The American People’

House members in competitive congressional races have signed onto legislation aimed at curbing ESG investing practices. That’s especially true of Rep. Lauren Boebert (R-Colo.), whose re-election last year was the closest in the country

She has co-sponsored a handful of such measures. One would bar the creation or continuation of federal advisory committees on the basis of ESG factors (H.R. 1506). Another known as the “Stop TSP ESG Act” would prevent hedge funds that use ESG policies from directing government employees’ investments (H.R. 3406).

A mobile billboard criticizing House Republicans over anti-ESG investment positions crosses a street on Capitol Hill in Washington, D.C., on May 10, 2023. Pictured from left are Reps. Matt Gaetz of Florida, Marjorie Taylor Greene of Georgia, and Lauren Boebert of Colorado.

Photographer: Jemal Countess/Getty Images for Congressional Integrity Project

Boebert’s office declined to make her available for an interview but provided a statement in which she pledged to “keep fighting against the ESG movement.”

“If woke corporations want to bankrupt themselves, I won’t stand in their way,” Boebert said in the statement. “However, I have a problem when ESG policies start threatening the American people.”

The House Financial Services Committee’s ESG Working Group is targeting ratings agencies, shareholder proxy voting, large asset managers, and the Securities and Exchange Commission in an effort to curb the ESG movement.

Among the group’s ranks is Rep. Monica De La Cruz, a freshman Republican representing a competitive Texas district that stretches from San Antonio to the Mexican border.

“What I’m hearing from our small community banks is they are very worried about the continuous push on the climate and social and political agenda instead of sound governance and investor returns,” De La Cruz said in an interview.

Democratic Defense

Polling indicates countering ESG scoring is a priority for a minority of Americans, blunting any immediate political impact of rhetorical attacks out of Washington. Global Strategy Group, a firm that frequently works with the Democratic Party, found just 8 percent of American adults surveyed late last year thought Congress should prioritize probes of how US companies spend money on ESG issues.

Climate Power, which supports federal action to mitigate the effects of climate change, cited March research by the Democratic-aligned firm Data for Progress to urge the party to avoid the politically charged “ESG” label and refer to such business strategies as the “freedom to invest” or “responsible investing.”

Democrats on the Hill have mounted a defense of environmentally conscious investing using similar rhetoric. They stood up a Sustainable Investment Caucus aimed at rebutting Republican lawmakers’ arguments. While they’re slow to brand themselves as ESG defenders, it’s a political opportunity to tout their work to mitigate the effects of climate and aid constituents saving for retirement.

“Companies that do the right thing perform better over time,” said Rep. Seth Magaziner (D), a member of the caucus who won a competitive open House race last year after managing Rhode Island’s financial assets as general treasurer.

The “G” in the acronym—governance—often attracts the least amount of opposition from either side. In the name of corporate accountability, the Senate Banking Committee advanced bipartisan legislation giving regulators greater power to claw back compensation from heads of failed banks (S. 2190). The panel’s leaders are Sen. Sherrod Brown (D), who faces a competitive re-election race in Ohio next year, and Sen. Tim Scott (S.C.), who is seeking the Republican nomination for president.

Sen. Jon Tester (D-Mont.) said he hears from some constituents who only invest in companies concerned about the environment “because they see climate change as a big deal, and so do I.”

“If you’ve got a company that is aware of climate change, you’re probably not as risky as ones that aren’t,” Tester said.

But don’t confuse Tester for a full-throated supporter of ESG investing. As he runs for re-election in a state Donald Trump carried by double digits in 2020, Tester voted with Republicans earlier this year to prevent the Labor Department from explicitly allowing money managers to take into account environmental factors when making investing decisions, fearing it could harm retirees’ bottom line.

“It’s really their call,” Tester said. “Not the government’s call.”