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Social investing isn’t ‘woke capitalism’

Corporations have an obligation not just to shareholders but to consumers, workers, and the planet.


Last year, Elon Musk called the practice of measuring corporate performance along social and environmental lines “the devil incarnate,” and maybe that’s all you need to know. But the backlash against social investing, driven by Republican states restricting where public pension funds can park their money, is serious and growing. At least 24 states have passed resolutions or legislation forbidding their pension fund managers from making investment decisions based upon the environmental, social, or governance principles that many on the right deride as “woke capitalism.”

Massachusetts, like most Democratic states, is rowing in the opposite direction. The rising opposition to social investing is “absurd,” State Treasurer Deborah Goldberg said in an interview. “ESG is simply a label to describe what savvy investors have been doing all along.”


Some anti-ESG efforts target asset management companies such as BlackRock for declaring global warming a major concern. Ratings companies such as Morningstar or S&P Global are also in the crosshairs for including climate risks when evaluating a state’s credit worthiness. Last July, West Virginia restricted five major financial institutions from doing business with the state over their ESG policies. “I’ve been proud to fight the woke corporations, woke capitalism, and the ESG movement in this country,” said State Treasurer Riley Moore, who is now a candidate for Congress.

The numbers are as staggering as the rhetoric. Some $5 trillion in state and local public pension funds are at stake. Nearly 21 million workers and retirees participate in the plans. Although most of the ire directed at social investing involves supposed “boycotts” of fossil fuels, ESG principles also can include diversity in hiring, worker safety, transparency in corporate governance, and other concerns.

Social investing has become a popular bugbear among Republican presidential hopefuls. In a speech in Houston in May, former vice president Mike Pence took aim at ESG regulations “that allow left-wing radicals to destroy American energy producers from within.” Governor Ron DeSantis of Florida has been flogging “woke corporate elites” for months, pledging to blacklist companies trying to “inject an ideological agenda” from doing business in his state.


The campaign has many puppeteers, including the American Legislative Exchange Council, which writes model legislation on a variety of conservative causes for states to adopt. Last month The Washington Post also reported on an obscure organization called Consumer Research, funded by undisclosed “dark money,” that is working to derail corporate ESG goals.

You have to wonder how ALEC and other conservatives square their opposition to social investing with bedrock free-market principles such as competition and consumer choice. The ESG sector has grown precisely because of demand from investors. By denying climate risks in their pension portfolios, these Republican treasurers are putting blinkers on prudent fiscal management. A recent study by the Wharton School of Economics estimated that because Texas blacklisted several major banks over their ESG policies on fossil fuels and guns, the reduced competition will cost Texas municipalities between $300 million and $500 million more in interest payments.

Here in Massachusetts, Goldberg has so far avoided being targeted for the state’s quite robust commitment to ESG goals.

Last year the Pension Reserves Investment Management board, which she chairs, adopted new guidelines asking managers of its $92 billion pension funds to use their proxy voting power to pressure corporations into adopting net-zero carbon emissions goals. This allows Massachusetts to sidestep the loaded debate over outright fossil fuel divestment. (Maine is so far the only state that requires its public employee pension fund to divest from fossil fuel holdings.)


Goldberg also pushed for legislation requiring 20 percent of PRIM investment managers and vendors be women, minorities, or persons with disabilities; currently diverse managers oversee $9 billion in assets. And because what actually constitutes an ESG-friendly corporation can be murky, Goldberg cofounded a project at MIT to “reduce the noise” about ESG funds and more clearly evaluate how they perform relative to the market as a whole.

Massachusetts may not be especially vulnerable to attacks on social investing in its own portfolios, but the backlash is worrisome if it chills progress in the “stakeholder capitalism” movement: the idea promoted by the mainstream Business Roundtable in 2019 that corporations have an obligation not just to shareholders but to consumers, workers, and the planet.

Given the $165 billion in damages from severe weather events the National Oceanographic and Atmospheric Administration estimated in 2022 alone, it’s irresponsible not to consider climate vulnerability when investing a state’s pension funds. It’s the ESG opponents who are injecting the ideological agenda now.

Renée Loth’s column appears regularly in the Globe.