ESG data (which stands for Environmental, Social, and Governance) has recently become something that companies are sharing in their reports and disclosures. It is common for most companies to even have reports dedicated just to their ESG data, summing up how their business affects the environment, how their company handles diversity and inclusion, and how the company governs all of these topics. Many investors and stakeholders look for ESG data to decide whether or not the company would make a good investment. ESG funds look at non-traditional things when investing; like how climate change or how more progressive government policies might affect business. These ESG funds are portfolios of equities or bonds that have all passed stringent tests over how sustainable the business/government is that comprises them. The frequency of ESG investments have skyrocketed in the past few years, with big financial firms like Morgan Stanley and Morningstar saying that ESG based investments are in a better position that traditional funds.
So how does this upcoming midterm election effect ESG funds? Well, it shouldn't, but it does. As we all know, the US has been extremely polarized. Things that are not political seem to get pulled into politics, causing one side to advocate for it and the other side to repent it. This has unfortunately happened with ESG investing.
In this past year, Florida and Texas both started to push against ESG funds. GOP leaders within these states have said that they want nothing to do with liberal propaganda, especially within their state finances. Texas' comptroller Glenn Hegar banned Blackrock and other financial firms that have ESG funds from doing any business with the state. Hegar has said that these financial institutions are not investing in what is best for the people, but instead "a social and political agenda shrouded in secrecy". BlackRock was definitely not expecting an entire state to push back against their ESG funds, and they have since lost more than a billion dollars in commitments. Florida similarly banned any of their financial advisors from taking ESG data into account when investing. Ron DeSantis, the comptroller in Florida, has made similar statements to Hegar, saying that these funds are "utilized to impose an ideological agenda on the American people".
This political push back to ESG funds is dangerous. It forces financial institutions to pick between ESG issues and money. As history has showed, profit almost always wins. This midterm election could decide the fate of ESG trends. If more GOP leaders get elected into office, the pushback could grow. This would kill the momentum of the ESG movement and the distancing between financial institutions and fossil fuels.
As Democrats push for social equity, environmentalism, and a better future, it seems that Republicans want to do anything to stop these things from happening. These issues should not be polarized. Social equity, environmentalism, and a more progressive future should not be about political ideology, but instead about creating a better world to live in. A world that will not fall apart due to climate change.