House Republicans are taking another step to push back against environmental, social and governance (ESG) investing by creating a new working group to focus solely on the issue. The formation of the task force comes as ESG investing has become increasingly popular in recent years, and amidst a growing number of bills that seek to limit or prohibit the use of ESG criteria in public pension plans.
Robert Armstrong, a financial analyst and ESG investing specialist, noted that the trend has been gaining momentum in recent years, with an increasing number of investors choosing to invest in ESG-aligned funds and strategies. He also pointed out that while there are many benefits to ESG investing, it is not without its challenges.
These challenges have become more apparent in the wake of the Covid-19 pandemic, as a recent study found that the appetite for ESG investing goes down when there is an economic shock. The study also showed that investors are less likely to invest in companies that have strong ESG policies when there is an economic downturn.
The pushback against ESG investing has also manifested itself in the form of legislation. In Indiana, for example, a bill was recently proposed that would mandate that the state's public pension system divest from firms or funds that use certain non-financial invest criteria—a move that would effectively ban ESG investing in the state's public pension funds.
On the other side of the debate, some argue that ESG investing is an important tool for supporting societal change and that it should be encouraged. Supporters of ESG investing point to the growing number of funds and ETFs that focus on ESG-aligned invest, including Calamos invest' recently launched SROI ETF, which is backed by NBA star Giannis Antetokounmpo.
Despite the growing popularity of ESG investing, it is still a relatively small part of the overall invest landscape. Buying an ESG fund is a lot like buying in an index fund, in that investors are paying a lot for the small part that is different.
In announcing the formation of their new task force, House Financial Services Committee Republicans claimed that ESG investing is "anti-business" and that it "discriminates against certain companies and sectors." They also argued that the use of ESG criteria in public pension funds could lead to higher costs and lower returns for pensioners.
The move by House Republicans is part of a larger effort to limit the use of ESG investing in public pension plans. Several states, including Wyoming, are considering bills that would prohibit state pensions from contracting with companies or invest managers that engage in ESG investing.
It remains to be seen if the House Republicans' efforts will be successful, but it is clear that the debate over ESG investing is far from over.