State legislative approaches opposing ESG investing
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This page presents an overview of state legislative approaches that oppose ESG investing. The term ESG investing refers to an asset management approach that considers factors besides the maximization of shareholder value. Specifically, it considers the environment, social issues, and governance practices. ESG investing is a form of stakeholder capitalism. Stakeholder capitalism argues that maximizing the risk-adjusted rate of return on a company's stock (known as shareholder capitalism) should not be the only goal of investing.
State legislatures have introduced all six major types of anti-ESG investing bills that Ballotpedia identified from policy advocacy groups. Click the links below for more information on each type of approach:
- Sole fiduciary approaches. This type of approach requires fiduciaries of public funds to only consider financial factors when executing their duties.
- Anti-boycott approaches. This type of approach prohibits state contracts with or public investment in companies that intentionally discriminate against certain companies or industries.
- Anti-discrimination and anti-ESG-scoring approaches. This type of approach restricts the use of social credit scoring by banks and financial institutions and prohibits discrimination on the basis of ESG factors.
- Consumer and investor protection approaches. This type of approach invokes or amends consumer protection and corporate liability laws to require ESG investment product transparency and make corporations responsible for failures in ESG decision-making.
- Public disclosure requirement approaches. This type of approach requires additional transparency surrounding the policies, investments, and considerations of state boards of investment and other government agencies.
- Federal mandate opposition approaches. This approach argues that state governments should oppose certain federal mandates allowing or requiring ESG considerations, especially as they relate to state investments.
The data, tables, and legislation in this article come from the Consumers' Research ESG legislation tracker.[1]
Click the following link for information on pro-ESG bills.
Model legislation
ESG reforms and legislative approaches |
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•Reform proposals • Legislative approaches supporting ESG • Legislative approaches opposing ESG • Areas of inquiry and disagreement |
Ballotpedia has identified five policy advocacy groups that have published model state legislation or reform proposals that, if passed, would have the effect of opposing or constraining ESG investing:
- The American Legislative Exchange Council
- Consumers Defense
- The Foundation for Government Accountability
- The Reason Foundation
- ESG Hurts, a project of Heritage Action
The model legislation includes six major types of reform proposals opposing ESG investing that have helped guide the state pushback against ESG. To read more about all reform approaches related to ESG, click here.
Recently enacted anti-ESG legislation
This section contains a selection of the most recently enacted legislation that opposes ESG investing in the states.
Sole fiduciary approaches
- See also: Fiduciary duty
This approach requires fiduciaries of public funds to only consider financial factors when executing their duties.
Specifically, it requires public fund managers, who have a legal and ethical (fiduciary) duty to act in the best interests of investors, to seek financial returns based only on financial factors like company balance sheets and fundamentals. Supporters of this approach argue that investment managers should not be able to use other people's money to invest in companies based on a political or ideological basis and that ESG investing strategies are not, in their view, in the best interests of investors.
The table below lists legislation opposing ESG through sole fiduciary approaches between 2020 and 2024. Click the column headers to sort the table by that field.[1]
Types of sole fiduciary approaches enacted in the states
Ballotpedia has identified the following eight key definitions, requirements, and prohibitions commonly found in state legislation promoting the sole fiduciary approach:
- Prohibit state agencies and local governments responsible for investing public money from considering ESG criteria and other non-financial factors
- Define financial or pecuniary factors to ensure they are not based on ideological, political, or social reasoning
- Create a prudent person rule requiring fiduciaries to manage funds for the exclusive purpose of providing benefits to enrollees and beneficiaries and defraying reasonable expenses (but not explicitly prohibiting ESG considerations)
- Require individuals or entities voting in shareholder meetings on behalf of public retirement systems to vote only in the financial interest of system participants
- Prohibit individuals from proxy voting on behalf of state investments if they are not part of the state investment oversight entity and refuse to act solely on financial factors
- Vest full responsibility for proxy votes in the state treasurer or other elected officials
- Require proxy advisors to act as fiduciaries
- Prohibit public investment managers, fiduciaries, or government entities overseeing pension funds from following the recommendations of proxy advisors unless suggestions align with a state's responsibility to consider only pecuniary factors
- Allow or require attorneys general to prosecute people and entities who consider non-pecuniary factors in public investments
Prohibit state agencies and local governments responsible for investing public money from considering ESG criteria and other non-financial factors
This legislative approach prohibits public investment managers from considering ESG scores and other non-financial factors in their investment decisions. The approach may specifically prohibit investments designed to promote environmental, ideological, social, or political interests or require public asset managers to make decisions based only on what the state considers to be material economic considerations. Legislation of this type might also establish that fiduciaries must act in a way that would be expected of a prudent person who aims to maximize investment returns based on what the state considers generally accepted investment strategizes and practices.
Define financial or pecuniary factors to ensure they are not based on ideological, political, or social reasoning
This approach narrowly defines financial factors in the context of investing as relating to company balance sheets, fundamentals, and other factors the government defnes as economically material. Supporters of this approach argue that some investment managers invest in companies based on political and ideological agreement or shared values and that an ESG investing strategy does not financially benefit investors.[2]
Create a prudent person rule requiring fiduciaries to manage funds for the exclusive purpose of providing benefits to enrollees and beneficiaries and defraying reasonable expenses (but not explicitly prohibiting ESG considerations)
This approach requires fiduciaries to manage funds for the exclusive purpose of providing benefits to enrollees and beneficiaries and defraying reasonable expenses with the care and diligence of a prudent person but does not explicitly prohibit ESG considerations.
- See also: Proxy voting
This approach legally requires asset managers for publicly managed funds and retirement systems to vote in shareholder meetings based on financial factors and expected returns for pensioners. This type of legislation prohibits proxy votes aimed at an environmental, social, political, or ideological purpose.
Prohibit individuals from proxy voting on behalf of state investments if they are not part of the state investment oversight entity and refuse to act solely on financial factors
This approach requires that only individuals who oversee public retirement systems (like pension board members or state treasurers in some states) should be able to vote on behalf of the state and its pensioners in corporate shareholder meetings unless a third-party representative (like a contracted asset manager) agrees to vote based only on financial factors and expected returns and not based on economic, social, or political considerations.
Vest full responsibility for proxy votes in the state treasurer or other elected officials
This approach vests full responsibility for all proxy votes in the elected state treasurer or relevant administrative board members so that they can be held accountable if they delegate proxy voting to a manager who considers non-financial factors in votes.
Require proxy advisors to act as fiduciaries
This approach requires public proxy advisors to make recommendations only in the best financial interests of the fund or plan beneficiaries and avoid considering non-financial factors in votes.
Prohibit public investment managers, fiduciaries, or government entities overseeing pension funds from following the recommendations of proxy advisors unless suggestions align with a state's responsibility to consider only pecuniary factors
This approach prohibits public investment managers, fiduciaries, and government entities overseeing pension funds from voting in line with proxy advisor recommendations in shareholder meetings unless the proxy advisor's recommendations only consider financial factors or otherwise align with a state's responsibility to consider only pecuniary factors and not factors related to ESG.
Allow or require attorneys general to prosecute people and entities who consider non-pecuniary factors in public investments
This approach allows or encourages attorneys general to prosecute public investment managers, third-party asset managers who contract with the state, or government entities overseeing pension funds that consider non-financial factors in their investing decisions if an attorney general views the decision as a breach of fiduciary responsibility.
Anti-boycott approaches
This approach prohibits the state from contracting with or investing public dollars in companies that intentionally discriminate against certain companies or industries.
Versions of this approach specifically prohibit public entities from investing in or contracting with companies that purposefully boycott, in the view of the state, companies in the fossil fuel, agricultural, mining, and timber industries or companies that fail to meet certain environmental or equity standards. This type of legislation may also prohibit states from contracting with or investing in companies that boycott companies that do business with any of the aforementioned types of businesses or companies that refuse to do business in or with certain countries.
The table below lists legislation opposing ESG through anti-boycott approaches between 2020 and 2024. Click the column headers to sort the table by that field.[1]
Types of anti-boycott approaches enacted in the states
Ballotpedia has identified the following eight key definitions, requirements, and prohibitions commonly found in state legislation promoting the anti-boycott approach:
- Require businesses that contract with the state to certify that they will not boycott mining, fossil fuel, and other types of companies or discriminate against companies based on ESG scores
- Prohibit state investments in or with companies that boycott mining, fossil fuel, and other types of companies
- Define ordinary business purpose to exclude the pursuit of social, political, and ideological interests
- Define economic boycott as a refusal of services without an ordinary business purpose
- Prohibit private companies from boycotting disfavored industries or businesses
- Prohibit state contracts with or investments in companies that boycott certain countries
- Require an investment board to identify companies that violate anti-boycott rules
- Allow or require state treasurers to keep a list of companies that boycott fossil fuel and other types of businesses and condition state contracts on an agreement to not boycott certain industries
Require businesses that contract with the state to certify that they will not boycott mining, fossil fuel, and other types of companies or discriminate against companies based on ESG scores
This legislative approach requires all businesses that contract with the state (including investment funds like BlackRock) to certify that the company is willing to invest in and do business with fossil fuel companies, mining companies, and other companies related to energy, agriculture, and other industries.
Prohibit state investments in or with companies that boycott mining, fossil fuel, and other types of companies
This legislative approach prohibits public investments in businesses that refuse to invest in or do business with fossil fuel companies and other companies related to energy and other industries.
Define ordinary business purpose to exclude the pursuit of social, political, and ideological interests
This approach defines an ordinary business purpose as it relates to state investments to exclude social, political, and ideological goals. Examples of ordinary business purposes, according to this reform, include (1) conducting business, (2) generating profits, and (3) reducing financial risks.
Define economic boycott as a refusal of services without an ordinary business purpose
This approach defines an economic boycott as a refusal to do business with a company (or type of company) without an ordinary business purpose.
Prohibit private companies from boycotting disfavored industries or businesses
This approach prohibits boycotts or coordination between companies to deny goods or services to certain businesses or industries without an ordinary business purpose.
Prohibit state contracts with or investments in companies that boycott certain countries
This approach prohibits states from doing business with or investing in companies that boycott certain foreign countries.
Require an investment board to identify companies that violate anti-boycott rules
This approach requires state investment boards to identify companies that boycott fossil fuel or other types of companies and divest from the boycotters in keeping with state law.
Allow or require state treasurers to keep a list of companies that boycott fossil fuel and other types of businesses and condition state contracts on an agreement to not boycott certain industries
This legislative approach gives state treasurers the power to condition state banking contracts on an agreement stating that the contractor is willing to do business with or invest in fossil fuel companies and other related companies in the energy industry.
Anti-discrimination and anti-ESG-scoring approaches
This type of approach restricts or prohibits governments, banks, or other private businesses from using social credit or personal ESG metrics (like how much an individual spends on gas for their car) in determining individual eligibility for certain financial or other services. This type of legislation may prohibit discrimination based on ESG scores, ban the creation of ESG scores or criteria, or require disclosure about how ESG scores and metrics are used or collected.
The table below lists legislation opposing ESG through anti-discrimination and anti-ESG-scoring approaches between 2020 and 2024. Click the column headers to sort the table by that field.[1]
Types of anti-discrimination and anti-ESG-scoring approaches enacted in the states
Ballotpedia has identified the following two key requirements and prohibitions commonly found in state legislation promoting the anti-discrimination and anti-ESG-scoring approach:
- Prohibit the use or creation of social credit or ESG scores by state agencies, local governments, or private businesses
- Prohibit discrimination based on ESG and social credit scores by state agencies, local governments, or private businesses
Prohibit the use or creation of social credit or ESG scores by state agencies, local governments, or private businesses
This legislative approach prohibits state agencies, local governments, and private businesses (most often financial institutions) from developing or implementing a social credit or ESG scoring to determine eligibility for public or private services.
Prohibit discrimination based on ESG and social credit scores by state agencies, local governments, or private businesses
This legislative approach prohibits state agencies, local governments, and private businesses (most often financial institutions) from determining eligibility for public or private services based on a social credit scoring system that considers factors like political affiliations or social media statuses.
Consumer and investor protection approaches
This type of legislative approach requires governments to invoke or amend consumer protection and corporate liability laws to require ESG investment product transparency and make corporations responsible for failures in ESG decision-making.
The table below lists legislation opposing ESG through consumer and investor protection approaches between 2020 and 2024. Click the column headers to sort the table by that field.[1]
Types of consumer and investor protection approaches enacted in the states
Ballotpedia has not tracked any legislation enacting consumer and investor protections opposing ESG in the states.
Public disclosure and ESG study approaches
This type of approach requires additional transparency surrounding the policies, investments, and considerations of state boards of investment and other government agencies (such as state treasury departments) or third parties acting on behalf of government agencies that might be responsible for picking, managing, or proxy voting state investments.
The table below lists legislation opposing ESG through public disclosure and ESG study approaches between 2020 and 2024. Click the column headers to sort the table by that field.[1]
Types of public disclosure and ESG study approaches enacted in the states
Ballotpedia has identified the following three key requirements commonly found in state legislation promoting the disclosure requirement approach:
- Require tabulation and annual reporting of proxy votes on behalf of state funds to relevant oversight entity
- Resolve to study or oppose ESG in state policy
- Require disclosure of public investment funds that do not seek the pure financial gain of plan participants
Require tabulation and annual reporting of proxy votes on behalf of state funds to relevant oversight entity
This approach requires public investment managers, fiduciaries, or other individuals or entities voting on behalf of a state in corporate shareholder meetings to track and report every vote to the person or oversight board responsible for overseeing public investments.
Resolve to study or oppose ESG in state policy
This approach resolves to study or generally oppose the negative, in the state's view, effects of ESG.
Require disclosure of public investment funds that do not seek the pure financial gain of plan participants
This approach requires state boards of investment and other government agencies (such as state treasury departments) to regularly report on the state's investment portfolio and any public funds that do not seek the pure financial gain of plan participants.
Federal mandate opposition approaches
This approach argues that state governments should oppose certain federal mandates allowing or requiring ESG considerations, especially as they relate to state investments.
The table below lists legislation opposing ESG through federal mandate opposition approaches between 2020 and 2024. Click the column headers to sort the table by that field.[1]
Types of federal mandate opposition approaches enacted in the states
Ballotpedia has identified the following three key requirements or clauses commonly found in state legislation promoting the federal mandate opposition approach:
- Allow or require state attorneys general to prohibit the adoption of federal ESG standards
- Ask the federal government to oppose ESG
- Allow the legislature or a specific legislative committee to review and oppose federal ESG mandates
Allow or require state attorneys general to prohibit the adoption of federal ESG standards
This legislative approach allows the attorney general of a state to prohibit state agencies from complying with federal executive ESG investing standards that he or she believes are unconstitutional.
Ask the federal government to oppose ESG
This legislative approach requests that federal officials, such as officials in the state's congressional delegation and administrative officials, oppose ESG in federal policy.
Allow the legislature or a specific legislative committee to review and oppose federal ESG mandates
This legislative approach allows the state legislature or a specific legislative committee to review and oppose federal executive orders related to ESG.
See also
- Enacted state ESG legislation by trifecta status, 2020-2024
- Reform proposals related to environmental, social, and corporate governance (ESG)
- State legislative approaches opposing ESG investing
- Environmental, social, and corporate governance (ESG)
- Opposition to environmental, social, and corporate governance (ESG) investing
External links
- Consumers' Research, "ANTI-ESG ACTIONS AND LEGISLATION TRACKER"
- Pleiades Strategy, "Live Anti-ESG Bill Tracker"
- Ropes & Gray, "Navigating State Regulation of ESG"
- Debevoise & Plimpton, "State-Level ESG Investment Developments Tracker"
- Kramer Levin, "ESG Regulatory and Policy Tracker"
- K&L Gates, "2023 ESG STATE LEGISLATION WRAP UP"
Footnotes
- ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.24 1.25 1.26 1.27 1.28 1.29 1.30 1.31 1.32 1.33 1.34 1.35 1.36 1.37 1.38 1.39 1.40 1.41 1.42 1.43 1.44 1.45 1.46 1.47 1.48 1.49 1.50 1.51 1.52 1.53 1.54 1.55 1.56 1.57 1.58 1.59 1.60 1.61 1.62 1.63 1.64 1.65 1.66 1.67 Consumers' Research, "ESG LEGISLATION TRACKER," accessed December 14, 2023
- ↑ Cato Institute, "Policymakers’ ESG Concerns Should Not Override the Market’s Allocation of Resources," October 26, 2022
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