Republicans Are Making A Mistake By Waging War On ESG Investing

Congressional Republicans, joined by a handful of Democrats, recently voted to overturn a Department of Labor regulation that would allow retirement funds to consider climate change and other socially conscious factors when deciding how to invest. The resolution is likely to be vetoed by President Biden. Even so, this may be just the beginning of a new Republican strategy to declare war on so-called ESG investing principles, which Republicans view as wokism run amok in corporate America.

Environmental, social and governance (ESG) principles espouse a particular set of environmental and social practices, ones that have helped guide investment decisions in many private firms in recent years. These practices range from limiting carbon emissions to promoting diversity and inclusion within corporate hiring practices to reducing corruption and nepotism on corporate boards.

Although the principles have been around for some time, Republican opposition to these private-sector policies has been growing and has reached a fever pitch in recent weeks. Republicans now argue that the principles unfairly politicize how companies allocate resources at the expense of returns to shareholders.

The truth is that companies must make investment decisions on the basis of a variety of factors, including but not limited to returns on investment. For example, companies may prioritize innovation, employee satisfaction or customer experience. Promoting these values is sometimes consistent with maximizing shareholder profits, but by no means is this always the result.

Consider Patagonia, the outdoor-clothing company, which has been a vocal proponent of environmental sustainability and has made significant efforts to reduce its carbon footprint. Similarly, the Ben & Jerry’s ice cream company has supported causes such as marriage equality and racial justice. Ultimately, if companies want to attract a diverse pool of talent and investors, they must rely on a variety of strategies, including promoting causes that may matter deeply to the people they seek to attract.

While some companies prioritize ESG principles, others prioritize different values. For example, Chick-fil-A, the popular fast-food chain, espouses Christian values and has faced controversy over its donations to socially conservative organizations. The same goes for Hobby Lobby, which has opposed government mandates to require the provision of birth control as part of employee health insurance.

Most conservatives would not want to see these companies blocked from acting on their beliefs, because they recognize that companies should have the freedom to make decisions based on their own values even when those values are controversial. Recall how many Republicans rushed to the defense of bakers who opposed making cakes for gay weddings on religious grounds. The same respect should be afforded to companies whose values are expressed in the form of ESG principles.

Republicans are right that liberals are using ESG investing as a vehicle to advance left-wing priorities by channeling corporate wealth, influence and power toward their favored ends. The solution, however, is not to use the government to block such attempts at influence but rather to compete in the free market by offering an alternative ethical vision of their own.

What that vision looks like is not at all clear at the moment, given that a lot of conservative values feel dated. Socially conservative views are growing less popular over time, and free-market principles have limited reach as well, given the less-than-inspiring emphasis on making money.

Republicans should be—and I believe are—open to new ethical paradigms, ones that overlap with their traditional worldview while also having a 21st-century feel. One example might be the group American Conservation Coalition, which is a right-wing nonprofit focused on protecting the environment. Many libertarians have long advocated for marriage equality on the grounds that it represents respect for individual liberty. And classical liberals have a long history of promoting racial justice.

In other words, support for social causes is not by any means a purely left-wing phenomenon, but somehow that has been forgotten in recent years. One source of blame might be Milton Friedman, the famous libertarian economist, who wrote a widely read essay in 1970 about why the social responsibility of business is to make a profit.

Making a profit is a minimum expectation we should have of businesses, but it is only a bare minimum. We should also expect businesses to treat customers and employees ethically and to help shape the broader community that we are all a part of.

No one objects when the local pizza parlor sponsors the high school softball team, but suddenly it’s a problem when businesses take a stance on climate change. Given the connection to politics, this is understandable, but we must draw a line somewhere. No one would argue that businesses should make a profit at any cost, so when does the cost become too great?

This is a question whose answer depends on one’s values. Allowing companies the freedom to make decisions based on their own beliefs is a key tenet of free enterprise. The real issue is not whether ethical calculations are made by businesses but rather whether these calculations are made explicit.

Republicans don’t need to support ESG policies and the left-wing worldview associated with them. But they should work harder to offer an alternative. Rather than push back against efforts to make ethics more transparent in business, they should explain what ethical business practices look like from a conservative point of view. This will require some soul-searching, but I believe the time is ripe for Republicans to open up the philosophy books and figure out exactly what it is that they believe.