Understanding that integrating social and environmental considerations into business models can lead to positive returns has in recent years led to an explosion in environmental, social and governance (ESG) investing (although the corporate social responsibility concept has existed since the 1950s). Even more recent is the anti-ESG backlash, led by Republican politicians – often with ties to the fossil fuel industry – who want to limit ESG’s influence. 

As of January 2023, almost 50% of US states either have some type of anti-ESG restriction in place or have placed blacklisting ESG action high on their legislative agenda. As of October 2022, nine states had enacted some form of ESG legislation, while 16 others are in the process of formalising such laws. 

New York-based law firm Debevoise & Plimpton has been tracking both pro and anti-ESG developments since January 2020, when the ESG backlash started to gain traction. 

“Developments” recorded by the law firm include any activity either banning or supporting the consideration of sustainability in legislation, as well as public actions taken by state legislators such as penning open letters. Typically, developments are directed at state agencies, either banning them from doing business with financial institutions blacklisted for “boycotting” certain investments like fossil fuels or firearms, or prohibiting state or pension funds from making ESG investments.

Analysis of these developments (111 in total as of 10 January 2023) reveals how at the state level, anti-ESG developments have rapidly outpaced those in support of ESG measures over the past three years, demonstrating the widespread influence of the anti-ESG movement sweeping the US.

While most developments target either the broader ESG spectrum or the energy sector, a number also focus on “social” corporate practices; for example, prohibiting the boycott of firearms manufacturers. 

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Pro-ESG developments include requiring state retirement funds to decarbonise; for example, by setting net-zero targets, or divesting from the 200 largest public fossil fuel companies as determined by the carbon in their reserves.

Energy Monitor’s analysis finds that more than 50% of total ESG or anti-ESG developments include bills put forward to state legislatures; of these, more than half have failed or died in committee, while roughly one in three have already passed and one in ten are pending. 

The taxpayer’s anti-ESG burden 

To date, discussion of anti-ESG legislation in the US has mainly focused on its long-term impacts. Yet new research, published on 12 January by a coalition of non-profits, the Sunrise Project, As You Sow and Ceres, suggests that taxpayers risk losing out on hundreds of millions of dollars of public funding now thanks to these laws.

The study builds on research published by Wharton Business School professor Daniel Garrett and economist Ivan Ivanov in June 2022, which estimated that the increased cost to the public following anti-ESG legislation was as much as $532m in its first eight months since its enactment.

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This is in part due to potential losses caused by reduced competition with the five largest underwriters exiting the market, which the researchers say could lead to issuers facing higher offering-yields, as well as losing direct access to the distribution networks of the targeted banks.

Focusing on six states that have such measures in place, the coalition of NGOs estimates that ESG boycotts and blacklist legislation could lead to $264–708m in additional debt payments thanks to limited competition in the bond market. 

While the common charge anti-ESG legislators lay against ESG investment is that it promotes a particular ideology at the expense of financial considerations, this study adds to mounting evidence that the opposite is true: investments that resist adapting to changing conditions induced by climate change risk reaping none of the rewards, and all of the consequences, of the energy transition.