How the Right Is Waging War on Climate-Conscious Investing

The Atlantic

6 days ago

In January 2020, Larry Fink, the CEO of BlackRock—the world's largest asset-management firm—released his annual letter to corporate executives. The letters had become something of a tradition: part investor missive, part State of the Union, dispatched each year from the top of the financial world. This one struck a tone of alarm that would reverberate far beyond Wall Street.
'Climate change has become a defining factor in companies' long-term prospects,' Fink warned. 'We are on the edge of a fundamental reshaping of finance.' He said that BlackRock would be 'increasingly disposed to vote against management and board directors when companies are not making sufficient progress' on sustainability.
The message signaled the degree to which a once-obscure investing philosophy known as ESG—short for 'environmental, social, and governance'—had become a boardroom priority. For a moment, it looked like corporate America would weigh carbon emissions alongside profits. More major companies soon announced climate goals and promised new standards of accountability. BlackRock helped lead an effort to elect sustainability advocates to the board of ExxonMobil. A consensus seemed to be forming: Business could be a force for good, and markets might even help save the planet.
Now, just five years later, that consensus is crumbling. BP is pulling back on a commitment to invest in renewables—and is reportedly expanding plans for drilling. PepsiCo and Coca-Cola have scaled back their plastic-reduction pledges. Major banks, such as JPMorgan Chase and Wells Fargo, are hedging their climate bets and investing heavily in fossil-fuel companies. Asset-management firms that joined BlackRock in embracing ESG—including Vanguard and State Street—have also backed off. And Fink's 2025 letter to investors does not even mention the word climate.
James Surowiecki: The hottest trend in investing is mostly a sham
'This further exacerbates the problem of slow-walking climate action at a time when the temperature records are being broken and devastating weather events are accelerating,' Richard Brooks, the climate finance director for Stand.earth, an international environmental-advocacy organization that focuses in part on corporate contributions to climate change, told us.
This global retreat has been particularly acute in the United States, where political resistance to ESG has grown into an organized countermovement. The issue is now a fixture in partisan attack ads, Republican statehouse legislation, and right-wing media. The forces arrayed against ESG say they are just getting started.
In January, a group of present and former Republican state officials gathered at a posh resort in Sea Island, Georgia, together with conservative leaders, for a two-day lesson in how to dismantle corporate America's most ambitious response to climate change. At the Cloister, with its golf courses, tennis courts, and beaches, ESG was denounced as a sinister force undermining free markets and democracy.
'I would hope everyone here is pretty much committed to destroying ESG,' said Will Hild, the executive director of Consumers' Research, the organization that has led the fight. His group, he said, had spent $5 million running ads 'educating consumers' about the dangers of ESG.
Hild spread a similar message at other events this spring, according to transcripts of his remarks that we obtained. 'ESG is when they use their market share to push a far-left agenda, without ever having to go to voters, without any electoral accountability,' said Hild at a March meeting of state activists. 'This is not the free market operating. This is a cartel. This is a mafia.'
At its core, ESG investing means integrating nonfinancial factors—such as climate risk, carbon emissions, pollution, and corporate governance—into investment decisions, with the idea that these issues could materially affect long-term performance. Firms that offer ESG funds screen out companies that don't meet a set of criteria for climate protection, and pitch their products to investors as climate-friendly alternatives to conventional funds.
But in the eyes of its critics, ESG investing undermines democratic governance, imposes political priorities through the financial system, and breaches the independence of state financial officers to seek maximum return on investments. 'By applying arbitrary ESG financial metrics that serve no one except the companies that created them, elites are circumventing the ballot box to implement a radical ideological agenda,' Florida Governor Ron DeSantis said in 2023 when he introduced legislation prohibiting the use of ESG investment by Florida pension and other state funds.
That narrative has taken hold with a wide swath of Republican leaders. Donald Trump attacked ESG on the campaign trail last year, and in an April 8 executive order, the president said that state-level climate-emissions and ESG laws 'are fundamentally irreconcilable with my Administration's objective to unleash American energy. They should not stand.'
The roots of ESG can be traced to faith-based investing of the 18th century, when some religious denominations sought to avoid investment in corporations that promoted trading enslaved people. In the 20th century, the movement called 'socially responsible investing' gained momentum during the civil-rights era and, later, in connection with opposition to apartheid in South Africa.
The term ESG was formally coined in a 2004 report by the United Nations Global Compact titled 'Who Cares Wins,' which argued that better corporate integration of environmental, social, and governance factors could lead to more-sustainable markets and better outcomes around the globe. ESG investing grew in the 2010s as the public grew more concerned about diversity, the environment, and executive pay. Major asset managers such as BlackRock, Vanguard, and State Street began offering ESG products, and companies competed to establish metrics to track compliance. As the world's largest asset manager, BlackRock played an especially influential role.
Because there was no single established metric for meeting climate goals, critics on the left complained that ESG encouraged greenwashing, in which companies claim to be making environmental progress without making an actual commitment. But even critics were forced to concede that ESG brought about increased transparency. In 2018, 34 percent of publicly traded global companies disclosed greenhouse-gas-emission details. By 2023, that share had risen to 63 percent, an increase generally attributable to ESG efforts, according to R. Paul Herman, the founder and CEO of HIP Investor Inc.
Although many asset managers noted the difficulties of measuring greenhouse-gas emissions, they embraced ESG as part of their long-term management strategy—and trillions of dollars flowed to them. According to Bloomberg Intelligence, global ESG-fund assets reached around $30 trillion in 2022. The analytics firm forecast in February 2024 that global ESG assets would surpass $40 trillion by 2030.
Expectations for ESG have now fallen off dramatically—and Hild and his three colleagues at Consumers' Research can claim much of the credit. At seminars such as the one at Sea Island, Hild and his allies armed a network of Republican state attorneys general, state treasurers, and comptrollers with legal and political ammunition.
The key funders of such efforts include fossil-fuel-industry executives and Leonard Leo, who is best known for his leadership of the Federalist Society. In recent years, Leo has moved beyond his focus on transforming America's courts, vowing in videotaped remarks in 2023 to take on 'wokeism in the corporate environment, in the educational environment,' biased media, and 'entertainment that is really corrupting our youth.'
Beginning in 2021, Leo and his team injected cash into a long-dormant organization that they would use to fight ESG: Consumers' Research. A spokesperson for Leo told us that 'woke companies are defrauding their consumers and poisoning our culture, and Leonard Leo is proud to support Will Hild and Consumers' Research as they crush liberal dominance in those woke companies and hold them accountable.'
The organization found a receptive audience among Republican state officials eager for a road map to combatting ESG. The group emphasized using leverage that states possess through their management of pension funds to punish investment firms that had signed on to boycott oil and gas companies.
Zoë Schlanger: The climate can't afford another Trump presidency
Republican attorneys general from a few fossil-fuel-dependent states, such as Texas and West Virginia, began in 2021 to investigate whether investments tied to ESG guidelines violated state laws. They sent letters of inquiry to major firms such as BlackRock and Vanguard, questioning whether their ESG practices were legally compatible with states' fiduciary obligations, especially concerning pension funds.
That same year, Texas enacted Senate Bill 13, which requires state pension systems and other state endowments to divest from financial institutions seen as hostile to the oil and gas industry. Under that law, the state attorney general's office placed more than 370 investment firms on a blacklist—including BlackRock and several divisions of major banks such as Goldman Sachs and JPMorgan.
The following year, the offensive intensified. A coalition of 19 Republican attorneys general sent a joint letter to Fink, the BlackRock CEO, accusing the company of putting climate goals ahead of financial returns and pressuring corporations to align with international climate treaties such as the Paris Agreement.
'BlackRock appears to use the hard-earned money of our states' citizens to circumvent the best possible return on investment,' the letter warned. It cited proxy-voting strategies and coordination with groups such as the Net Zero Asset Managers Initiative as potential legal overreach.
Since 2022, 23 Republican state attorneys general have opened investigations into ESG-focused investment firms. Several of those officials had help from an Arizona-based private firm, Fusion Law, which received $4.5 million from Consumers' Research in its first two years of existence. One of the firm's founders, Paul Watkins, is a former Arizona civil-litigation chief in the state's attorney general's office—and was also a legal fellow at Consumers' Research.
'Paul Watkins and Fusion Law have been essential in helping to unravel and document the inner workings of ESG,' Hild told us. The firm has had contracts to work on ESG-related issues with attorneys general in Tennessee and Utah. Watkins has been a featured speaker at Consumers' Research events, including the gathering in January.
Recently, state-level investigators began probing the question of whether environmental groups, asset managers, and shareholder-advocacy organizations were engaged in collusion, using ESG to restrain trade in fossil-fuel companies, in violation of antitrust laws.
The opposition of red-state officials has chilled discussion of sustainable investments at institutional-investor meetings, according to participants, despite accusations of hypocrisy from Democratic officials in blue states. Brad Lander, New York City's comptroller, told us that Republicans are distorting investment decisions by putting their thumb on the scale against ESG.
'These are people who once upon a time believed in free markets,' Lander, a Democrat, told us. 'I'm not telling anyone how to invest. I just don't want them to tell me.'
Evidence suggests that the Republican push has been costly to taxpayers. A study by the University of Pennsylvania's Wharton School of Business found that the Texas law banning municipalities from doing business with banks that have ESG policies reduced the competition for borrowing—and generated a potential cost of up to $532 million in extra interest per year.
Nonetheless, the anti-ESG movement is spreading: What began largely as a state-level attack has now blossomed on Capitol Hill. In mid-2023, House Republicans, led by Judiciary Committee Chair Jim Jordan, launched a wide-ranging probe into ESG practices. More than 60 entities, including environmental groups, corporations, and financial institutions, were asked to provide information on alleged coordination aimed at limiting fossil-fuel investment.
The committee's interim staff report, released last year, accused ESG advocates of forming a 'climate cartel' that sought to 'impose left-wing environmental, social, and governance goals' through coordinated pressure campaigns. The report alleged that such efforts amounted to collusion in restraint of trade.
During his inquiry, Jordan issued waves of subpoenas targeting organizations such as Ceres, BlackRock, Vanguard, State Street, and the shareholder-advocacy nonprofit As You Sow. Targets of the inquiry were required to turn over more than 100,000 pages of email and other communications as the committee investigated allegations of antitrust violations and collusion in recommending sustainable-investment options. 'The investigation was abusive, and it was chilling,' said Danielle Fugere, the president and chief counsel of As You Sow, who testified for more than eight hours before Jordan's panel last year.
'You cannot defy the reality of climate change and the scientific imperative of acting,' said Mindy Lubber, the president and CEO of the pro-sustainability nonprofit group Ceres, which has been active in prodding companies into taking part in ESG measures. But, she said, 'everybody is afraid of the bull's-eyes on their backs.'
Annie Lowrey: If you're worried about the climate, move your money
Jordan's inquiry is continuing this year, with a focus on possible antitrust violations by environmental organizations and asset managers and advisors.
The pressure is working as intended. After Jordan launched his inquiry, many high-profile firms exited the Climate Action 100+ initiative. Coalitions of financial institutions that once committed to sustainable investing have collapsed. Several U.S. banks—including JPMorgan, Bank of America, and Wells Fargo—withdrew from an influential bankers' climate coalition, citing legal risk and political pressure. BlackRock and Vanguard pulled out of the Net Zero Asset Managers Initiative, leading that group to halt operations.
'Our memberships in some of these organizations have caused confusion regarding BlackRock's practices and subjected us to legal inquiries from various public officials,' the company said in a letter to clients. 'BlackRock's active portfolio managers continue to assess material climate-related risks, alongside other investment risks, in delivering for clients.' The company, which declined our request to interview Fink, referred us to other official statements including one noting that 'BlackRock's sustainable and transition investing platform is driven by the needs of our clients and our continued investment conviction that the energy transition is a mega force shaping economies and markets.'
Other asset managers issued similar statements, noting that they would still offer green-investment options. But interest in ESG funds has declined substantially.
U.S. investment funds specializing in climate experienced net inflows of $70 billion in 2021—but by 2023, the tide had reversed, with money flowing out of the funds faster than it was coming in. Last year, net outflows amounted to $19.6 billion, with the trend continuing into the first quarter of 2025, according to Morningstar Analytics. Proxy initiatives from shareholders interested in sustainable investing have also declined, another casualty of the war against ESG.
'This has been a silent spring,' William Patterson, a former director for investment for the AFL-CIO who tracks climate-related shareholder action, told us. 'Investor initiatives on climate, which attained broad shareholder support in the past, are barely present' at investor meetings this year. Meanwhile, the number of anti-ESG proxy proposals more than quadrupled from 2021 to 2024. As of February, a fifth of all shareholder proposals submitted were filed by anti-ESG groups.
Despite the precipitous decline of ESG investing, its detractors are not ready to declare victory. Consumers' Research, for one, is committed to pressing on. 'ESG is in retreat, but it is not defeated yet,' Hild told us. 'We have a long way to go before people get rid of it.'
Proponents are not relenting either, and are looking forward to a moment when the political winds shift once more. 'What I hear, especially in the U.S., is twofold,' said Daniel Klier, the chief executive of the advisory firm South Pole. 'One message is 'Keep your head down,' but also that climate change will not go away—and we need to prepare for the decades to come and not just in the next four years.'