Conservative objections to ESG are fundamentally substantive and political in nature. The issue isn’t that ESG violates the tenets of shareholder-value maximization or accountability, but that it ignores several legitimate concerns—such as energy security—that should be reflected in risk-management frameworks, investment criteria, and firm behavior. Rather than continue with hopeless efforts to “ban” ESG under the pretense of value-neutral shareholder primacy, conservatives should develop their own investment frameworks.
States like West Virginia and Texas offer somewhat more constructive examples. West Virginia State Treasurer Riley Moore has consistently justified his efforts against ESG in terms of defending the people and economy of his state, rather than correcting imaginary infringements of shareholder prerogatives. Texas, meanwhile, has barred financial institutions that divest from firearms and fossil fuels from certain state business. These actions have raised municipal borrowing costs in Texas, but accepting the costs of achieving a larger policy goal is a perfectly valid political decision. It only becomes untenable if pursued on the specious grounds of “putting profits over politics.”
Nevertheless, even these efforts are entirely reactive and defensive. The goals for conservatives—or any serious political movement—should go beyond responding to perceived threats and involve the active mobilization of capital behind their own values and constituencies. This could include increasing old-fashioned “local-impact” investing, using state assets to support state businesses and other economic activities aligned with the growth of the regional economy. It could also include the development of alternative thematic investment criteria that address the financial and commercial aspects of conservative political concerns: for example, energy security, national security, supply-chain resiliency, productivity and innovation, family-friendliness, geographic diversity, enhancing a non-college workforce, and so on. Ramaswamy himself has recently become something of a China hawk, but an approach that strictly puts “profits over politics” offers little ground to resist offshoring every strategic sector if it saves a penny on the bottom line. It would be better to develop investment criteria that take into account these material political risks and promote capital allocation to secure supply chains.
“Conservatives should develop their own investment frameworks.”
There are in fact a number of funds that have begun to develop such criteria. Many asset managers would likely be pleased to offer products that incorporate concerns beyond the current ESG regime, if conservatives could be bothered to develop them. Moreover, the content of ESG frameworks has never been set in stone. Since the Russian invasion of Ukraine, in particular, a more realistic approach to fossil fuels has become a common topic of discussion among existing ESG providers, and some European ESG funds have added defense companies. A more constructive approach along these lines would give Republican states and others dissatisfied with today’s version of ESG an actual alternative to invest in, rather than simply shifting to another fund with a similar ESG program.
Issues beyond the content of ESG investment criteria could also be better addressed outside of a shareholder-primacy framework. In many cases, ESG has become both burdensome and a box-checking exercise. The proliferation of ESG ratings and providers has increased reporting costs and the resources devoted to tracking various metrics, even if voluntarily undertaken. At the same time, ESG reporting often reduces to simplistic binaries (e.g., does the company use coal energy or not?) that offer little real insight into firm behavior or investment risk factors. Yet despite such superficial metrics, there is still little standardization across ratings providers. Yet such serious questions get pushed to the wayside amid the hopeless quest to “ban” ESG.
A final possibility to consider is the gradual unraveling of shareholder primacy. Insofar as ESG is a product of shareholder primacy, a shift away from that corporate-governance paradigm would also entail a decline in the importance of ESG investing (though it wouldn’t eliminate political issues from the calculus of business and finance, just as the move toward shareholder primacy only altered how these issues were articulated). In response to recent controversies, BlackRock and other major asset managers have begun devolving voting power back to the investors in their funds. Should this change become widespread, it would mean that public-company shareholders would become more dispersed and harder to organize, as they were in the pre-Reagan era. It is hard to predict the ramifications of such a shift today, but it would likely strengthen the power and independence of corporate management. Ironically, a move to counter ESG by reasserting shareholder primacy may end up making management teams less accountable to shareholders.
Whatever the fate of ESG, the direction of the debates around it will reveal a great deal about whether the American right can still offer a positive vision or policy agenda. Republicans have now gone two election cycles without a party platform. The economic policies of the George W. Bush administration—unfunded tax cuts and slashing entitlements, which remain the priorities of think tanks like the American Enterprise Institute—are now so embarrassing that even Mitch McConnell doesn’t want to run on them.
Indeed, conservatives inattentiveness to ESG before it became a $30 trillion asset class demonstrates the profound rot within the right’s economic-policy apparatus. Today’s ESG was developed in the early 2000s—and hardly in secret. At that time, it would have been much easier to influence, or even kill, the current version of ESG before it became deeply entrenched across virtually every major asset manager and public corporation. But right-liberal donors and policy apparatchiks were evidently too busy cheerleading the housing bubble, celebrating the offshoring of strategic industries to geopolitical rivals, and building virtual shrines to Adam Smith to notice important developments in actually existing financial markets. If conservatives and libertarians are unhappy with what ESG has become, they should begin by addressing their own blind spots. Not only is ESG bound up with many of their preferred policies, like shareholder primacy, globalization, and financialization. But another reason why ESG became so narrowly tailored around left-liberal causes is that conservatives and libertarians were simply too incompetent to notice or alter its formation.
Only around 2020, when it became fashionable to criticize “woke capital,” did legacy right-liberal organizations begin to pay attention to ESG. The effect of their involvement has, not surprisingly, been to redirect substantive criticism of corporate and investor behavior back toward affirmations of 1980s neoliberal paradigms like financialization and shareholder primacy, developments that lie at the root of the problem in the first place. Rather than harnessing populist energy to rethink old failures and develop new agendas, establishment conservatism has, on this and other issues, preferred feckless complaining, media posturing, and shameless grifting.
Conservative critics are nevertheless correct that ESG as currently constructed is deeply flawed and in some ways harmful to American economic and national interests. To effectively address these issues, however, will require more than what movement conservatism has ever been able to offer: It will require abandoning the silly pretense that “the market” is a magical, perfect, self-regulating machine of 18th-century deism, operating independently of politics and society. It will require a willingness on the part of conservatives to articulate and promote their own substantive goals, rather than hide behind liberal proceduralism and neoliberal economics. And, finally, it will require the intellectual awareness and discipline to pragmatically incorporate these goals into constructive policy and corporate governance frameworks.
Or the right can simply continue being shocked—shocked!—to discover that liberal means, such as shareholder primacy, market fundamentalism, and the maximization of individual liberty, fail to produce conservative ends.