Anti-discrimination and anti-ESG-scoring reform approaches opposing environmental, social, and corporate governance (ESG)
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The term environmental, social, and corporate governance (ESG) can refer to an investment approach or an approach to corporate decision-making that conforms a company to ideas and goals that ESG investors generally accept. The ESG investment approach involves considering the extent to which corporations conform to certain environmental, social, and corporate governance standards (such as net carbon emission or corporate board diversity goals) and avoiding investments in or otherwise withholding funding from companies that do not meet the standard.
In the context of public policy, ESG refers to the use of non-financial ESG investing criteria in the regulation and management of public funds, including public pensions.
Opponents of ESG investing argue that it reduces investment diversification (which increases portfolio risk), harms financial performance, and contrasts with an investment approach that focuses on the likely maximization of financial returns to the investor. To learn more about the opposition to ESG investing, click here.[1][2][3]
Supporters of ESG investing argue that in the long run, ESG investing will lead to acceptable financial returns. ESG advocates also say that ESG and profit are not mutually exclusive and argue that corporations can and should improve communities and the environment through the adoption of ESG philosophies and approaches.[4][5]
This page outlines the Anti-discrimination and anti-ESG-scoring approaches to opposing ESG investing.
Anti-discrimination and anti-ESG-scoring approaches
This type of approach argues that restrictions and prohibitions should exist to prevent banks and governments from using social credit or personal ESG metrics (like how much an individual spends on gas for their car) in determining individual eligibility for certain financial or other services. Proponents of this reform might also argue that such scoring systems should be prohibited altogether or support mandated transparency around how such scores are used.
Ballotpedia has identified the following three reform approaches opposing ESG discrimination and ESG scoring:
- Prohibit the use or creation of social credit or ESG scores by state agencies, local governments, or private businesses
- Prohibit discrimination based on ESG and social credit scores by state agencies, local governments, or private businesses
- Regulate ESG ratings to prohibit greenwashing
Reform: Prohibit the use or creation of social credit or ESG scores by state agencies, local governments, or private businesses
This approach argues that states should prohibit state agencies, local governments, and private businesses (most often financial institutions) from developing or implementing a social credit scoring system to determine eligibility for public or private services.
- Enacted legislation, including Utah House Bill 0281 (2023) and New Hampshire House Bill 1469 (2022), has prohibited the use or creation of social credit or ESG scores by state agencies, local governments, or private businesses. Learn more in Ballotpedia's ESG Legislation Tracker.
Reform: Prohibit discrimination based on ESG and social credit scores by state agencies, local governments, or private businesses
This approach argues that governments should prohibit government agencies and private businesses (most often financial institutions) from determining eligibility for public or private services based on a social credit scoring system that considers factors like political affiliations or social media statuses.
- The U.S. House Committee on Education and the Workforce on September 14, 2023, advanced the Retirement Proxy Protection Act (H.R. 5337), which proposed prohibiting non-pecuniary considerations in proxy voting decisions.[6]
- The U.S. House Committee on Education and the Workforce on September 14, 2023, advanced the No Discrimination In My Benefits Act (H.R. 5338), which proposed requiring fiduciaries to select investment service providers "without regard to race, color, religion, sex, or national origin,” according to the bill.[6]
Reform: Regulate ESG ratings to prohibit greenwashing
This approach argues that governments should restrict ESG ratings and investigate or punish companies that make exaggerated claims about their sustainable practices.[7]
See also
- Reform proposals related to environmental, social, and corporate governance (ESG)
- State legislative activity against ESG investing
- State legislative approaches opposing ESG investing
Footnotes
- ↑ NPR, "How ESG investing got tangled up in America's culture wars", September 12, 2022
- ↑ Wall Street Journal, "ESG and the ‘Long-Run Interests’ Dodge", September 29, 2022
- ↑ Wall Street Journal, "An ESG Champion Stumbles: The California Public Employees’ Retirement System posts a decade of lackluster returns.", September 22, 2022
- ↑ CNBC, "Lauren Taylor Wolfe says it’s just too risky for investors to ignore ESG amid recent pushback", September 23, 2022
- ↑ CNBC, "There’s an ESG backlash inside the executive ranks at top corporations", September 29, 2022
- ↑ 6.0 6.1 Cite error: Invalid
<ref>tag; no text was provided for refs namedbloom91423 - ↑ Cooley, "Climate and Sustainability Regulations: 2024 End-of-Year Review," January 6, 2025
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