News Analysis

The battle to protect ESG investing

by Stephen Conmy on Mar 10, 2023

Joe Biden is about to issue the first veto of his presidency, and it is in defence of ESG (environmental, social and governance) investing.

Biden wants to allow ESG options

With his first veto, Biden will protect a rule that allows pension fund fiduciaries to consider environmental, social, and governance factors when making investment decisions.

What’s wrong with that? Isn’t ESG good? Doesn’t ESG aim to protect the planet and workers and enhance good corporate governance?

In theory, yes; however, in America ESG is a hot political issue that has divided the two main political forces.

The battle over ‘woke capitalism’

Republicans sneer at ESG and call it ‘woke capitalism‘; they see ESG as promoting a liberal agenda and putting shackles on investing to secure the best returns.

In reality, Joe Biden’s veto will protect a rule that allows – but does not compel – investment managers and pension funds to consider environmental, social, and governance factors.

In the US, ESG has become an ideological battleground, with those on the right arguing that ESG investing could undermine retirement savings.

In 2020, President Trump made it harder for workplace retirement plans to consider climate risks explicitly.

During the Biden administration, that rule was replaced with one that allowed fiduciaries to consider ESG factors.

The Biden veto will ensure ESG considerations are included in company pension plans.

State governments under Republican control will still be able to prohibit public pension funds from doing so.

In Florida, for example, Ron DeSantis has banned state-run fund managers from considering ESG factors.

The battle over ESG investing and ‘woke capitalism’ will be a hot topic in the 2024 presidential campaign, and powerful forces on the right are gearing up to protect unfettered capitalism while more liberal forces want corporations to take more responsibility for their impact on the environment and ensure better governance.

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