Just when corporate America was getting a conscience, a certain — and increasingly extreme — faction of Republicans want to punish it for doing so.
Investors, corporations and credit rating agencies have begun to incorporate factors called ESG (Environment, Social and Governance) into how a credit agency might rate a municipal bond offering, corporate debt or assess companies held in government pension funds.
The credit rating agencies have driven the idea that is being adopted by myriad investors. ESG factors are used by investors who control $16.6 trillion in U.S. investments, according to Wall Street research cited by the Associated Press. Republicans are opposing the idea, likening it to their criticism of Critical Race Theory, wokeness or diversity initiatives, pushing the narrative that these ideas are simply taking away the American-ness of America.
But investors and Wall Street see it another way: The ESG measure assesses the true risk of business enterprises in a world where resources are growing scarce, like water, and use of things like fossil fuels have higher costs to the business enterprise or government entity. Proponents argue the factors have a real impact on a business’ bottom line.
“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” Larry Fink, CEO of investment firm BlackRock and a leading proponent of ESG said in a newsletter to clients.
Some Republican leaders who’ve gravitated to many baseless tropes and inflated them on unregulated and irresponsible social media argue the factors shouldn’t matter in rating a state’s debt for example. Utah’s Republican State Treasurer Marlo Oaks recently demanded S&P Global Ratings retract and amend its “moderately negative” rating that was supported by analysis saying: “long-term challenges regarding water supply, which could remain a constraint for its economy … given pervasive drought conditions in the western U.S.”
Oaks compared ESG to the GOP interpretations of Critical Race Theory, and he said he worried more that investors pushing ESG factors would somehow limit the ability of fossil fuel companies to gain access to capital by selling stock. But that’s the whole point of capitalism, getting someone to buy your product in the open and free market. Government shouldn’t be interfering.
ESG finally brings the real cost of certain business practices and industries in to the realm of reality and is fact-based. It accurately assesses the cost of external damage certain industries cause to others through environmental impacts and puts the cost on the polluter not the victim.
It’s important to note that not all Republicans buy into these extreme, emotionally charged ideas. But more and more we’re seeing the Republican Party be willfully branded with these ideas. That should lead voters to understand their vote for Republicans may no longer be vote for business, economic development and prosperity.
Indeed, Republican lawmakers in states facing bad environmental/debt ratings have started to impose regulations on those companies that would adopt ESG principles.
But ESG principles incorporated into business decisions and the risk factors of business and government debt have finally become cost factors rightly figured into our capitalist system of business.
The attacks on ESG analysis by Republicans are attacks on capitalism.