A nascent Republican primary for president is proving that the leadership and direction of the GOP remains unsettled. But whoever that future leader of the party is, ESG investing will be on the chopping block.
Vivek Ramaswamy, a 37-year-old former biotech executive and asset manager was the third Republican candidate to enter the race for president. He joins former President Donald Trump and former U.S. Ambassador to the United Nations Nikki Haley in the race. Pershing Square Capital Management CEO Bill Ackman made a self-described “bold and early call” that Ramaswamy will win the election. “I think the country is ready for his message,” Ackman tweeted. “He is young, smart, talented and will attract the center to the right to win. He speaks hard truths which many believe but fear to say.”
What’s that message and hard truth? “Get woke, go broke.”Ramaswamy is positioned as a culture warrior. He wants to fight against “the poison of wokeism.” In particular, Ramaswamy focuses his ire on those using environmental, social, and governance factors in investing and financial decisions. His investment firm, Strive Asset Management, aims to be the opposite of the largest asset managers like BlackRockBLK
that have ESG products. The firm has a product of index funds meant to separate business from politics as well as proxy services to fight back against ESG goals of corporations.
The Anti-ESG Agenda Is The GOP Establishment Agenda
There are two challenges for an underdog like Ramaswamy in 2024. First, Republican voters likely don’t know or understand ESG investing.It was a sentiment shared to Ramaswamy on a recent trip to Iowa by Senator Chuck Grassley (R-Iowa) and former Governor Terry Branstad (R-Iowa). The Hawkeye State is the first state to vote in the Republican primary. In a FINRA and University of Chicago poll of retail investors last year, only 24% could define ESG investing and only 21% knew what the letters “E-S-G” represented.
Secondly, Ramaswamy isn’t an anti-ESG novelty to the GOP. The New Yorker called Ramaswamy the “The C.E.O. of Anti-Woke, Inc.” But if Ramaswamy is the CEO of being anti-woke, Governor Ron DeSantis (R-Fla.) is the governor, Haley is the ambassador, and Trump is the king. Even Governor Chris Sununu (R-N.H.), a potential presidential candidate openly critical of Trump, says he’s ready to oppose ESG investing.
There’s a real debate in the presidential primary about whether Trump is the future of the party. Republican voters are roughly split about whether they want Trump or someone else as their party’s nominee. The leading alternative right now is DeSantis, someone seen as the next iteration of Trumpism rather than a repudiation of it. He just wrote a book that called for “crippling the ESG movement.”
There’s a secondary debate about policy. The party is divided on America’s role defending Ukraine, reforming entitlement programs like Social Security and Medicare, and how to negotiate raising the debt ceiling.
But within all of these intra-party debates, being anti-woke and anti-ESG is embraced.
It’s a perfect storm for the ESG backlash. The high gas prices last year and war in Ukraine had ESG funds underperform the market and energy stocks in particular. This came off the back of a broader trend towards stakeholder capitalism that invited a backlash from a more working-class and anti-institutionalist Republican Party.
Even if retail investors and voters don’t know much about what ESG investing or even “wokeness” is, the GOP donor class cares a whole lot. It’s the donor class from both parties that has outsized influence on policy priorities. Republican voters didn’t care much about corporate tax reform, yet that was the top partisan legislative achievement during the Trump years. Republican lawmakers, at both the state and federal level, have gotten the memo that anti-ESG is a top priority among those who care and give. In a Republican administration and/or Republican Congress, the regulatory and legislative agenda will fight back against ESG.
Laying The Seeds For An Anti-ESG Washington, D.C.
It’s no surprise then that the effort is already underway to curtail ESG investing. Congress this week is trying to overturn a recent Department of Labor rule allowing fiduciaries to consider ESG factors in retirement investments. President Joe Biden will issue his first veto of any ESG disapproval resolution that passes. There aren’t enough votes to override Biden’s veto.
Yet the policy platforms, bills, and oversight hearings of today preview the laws and regulations of a Republican-controlled Washington, D.C. as soon as 2025. Additionally, Republican state officials will continue to be the testing ground of anti-ESG developments that could be elevated to the federal level.
The House Financial Services Committee in February launched a Republican ESG Working Group to “combat the threat to our capital markets posed by [ESG].” A comprehensive legislative package on ESG could include curtailing a proposed climate disclosure rule from the Securities and Exchange Commission, empowering index fund investors on shareholder votes, increasing oversight of proxy advisory firms, and preventing ESG investing in the $800+ billion retirement plan for civilian federal workers.
Just as the Biden Administration is flexing its executive powers and using federal investments to push once-failed legislative priorities, a Republican White House could push its powers for anti-ESG ends. This could mean reversing the DOL’s ESG rule and the SEC’s climate disclosure requirement (if the courts don’t unwind them first). It could go even further by conducting antitrust investigations of climate groups like Climate Action 100+ and its financial members for “colluding” to increase energy costs by forcing companies to end the production of fossil fuels.
The defenders of ESG investing say Republicans are politicizing an issue that is intrinsically about risk management. A few state and local Republicans are embracing some ESG elements. But nationally, this isn’t your father’s Republican Party. ESG investing strikes a nerve in most corners of today’s GOP. Whether its Ramaswamy, Trump, Haley, DeSantis, or someone else who ends up as the party’s nominee for president, the Republican fight against ESG is just beginning at the federal level.
