Environmental, social, and corporate governance (ESG)

• Key terms related to ESG
• Enacted ESG legislation
• Areas of inquiry and disagreement
• Opposition to ESG
• Federal ESG rules and regulations
• Public pension information by state
• Economy and Society: Ballotpedia's weekly ESG newsletter
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What is ESG investing?

ESG investing is an asset management approach that considers the environment, social issues, and corporate governance practices. It's a type of stakeholder investing, which argues shareholder returns should not be the only goal. Stakeholder investing contrasts with traditional approaches that exclusively consider financial factors like balance sheets, income statements, and valuations to maximize risk-adjusted returns (also known as shareholder investing).

ESG investing varies in practice, but supporters commonly consider the following types of factors:

• Environmental factors include corporate energy consumption, carbon emissions, climate-related risks, deforestation, and waste management.
• Social factors include human rights issues, equality in hiring, labor relations, community activity, and diversity, equity, and inclusion (DEI) initiatives.
• Governance factors include board diversity, executive compensation, corporate ownership structures, and transparency in tax practices.

Why does it matter?

ESG investing is part of a broader public policy debate about whether government money managers should consider factors besides financial indicators or focus exclusively on maximizing risk-adjusted returns, especially in public pensions. The discussion extends to policies governing the factors governments consider when awarding public contracts and policies prohibiting or requiring companies to consider non-financial factors when doing business. It also involves conversations about regulating specific ESG definitions, especially those used to rate or score companies.

What are the key arguments?

Opponents of ESG investing argue it promotes left-wing political preferences, reduces investment diversification (which increases portfolio risk), harms financial performance, and does not focus on the likely maximization of financial returns to investors. Supporters of ESG investing argue it will lead to acceptable or better financial returns in the long run, reduce investment risks related to climate change and legal liabilities, help the environment, and benefit more people and communities than a profit-only focus.

What's the background?

Academics like R. Edward Freeman argued in the 20th century that businesses should consider the interests of all stakeholders, not just shareholders, laying the theoretical foundation for ESG. The concept gained momentum in the early 2000s when the United Nations began promoting ESG investment approaches and facilitating initiatives between financial institutions, including the Principles for Responsible Investment. Over $30 trillion in assets were invested in ESG products as of 2023.

Dive deeper

This article contains the following sections:

• Background: What is ESG?
• Reform proposals related to ESG
• State legislative approaches opposing and supporting ESG investing
• Arguments about ESG investing
• Opposition to ESG and ESG investing
• Public pension information by state
• Influencers and organizations related to ESG
• Scholarly work related to ESG

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Background: What is ESG?

See also: Materiality (ESG)

Environmental, social, and corporate governance (ESG) is an investment philosophy that says that investors should consider how a company aligns with a set of views on climate change, social justice, and diversity, in addition to expected financial returns.

ESG requires an analysis of an organization's material factors. These are elements that the ESG philosophy believes are fundamental to a company's ESG strategy. Material factors that contribute to ESG may include "environmental issues like climate change and natural resource scarcity ... social issues like labor practices, product safety, and data security [and] governance matters that include board diversity, executive pay, and tax transparency," according to the global professional services firm PricewaterhouseCoopers. Through ESG analysis, companies aim to understand material factors in terms of risks and opportunities for their business model.

There are no standardized definitions used for ESG material factors or standardized criteria used to grade companies. Various investment firms, organizations, and finance companies produce their own ESG ratings, scores, and indexes.

Organizations and investors can apply ESG analysis in different ways, including but not limited to adding ESG into other financially-focused risk factors and assessments (sometimes referred to as integration), basing investment on a company’s values, and looking for social and economic effects from investment and divestment on an ethical basis.

For more information on key terms and definitions related to ESG that are important for understanding policy and reform discussions, click a term in the list below.

• Proxy voting
• Fiduciary duty
• Asset management company
• Applied business ethics
• Stakeholder model of the corporation (stakeholder capitalism)
• Shareholder model of the corporation
• Socially responsible investing
• Materiality (ESG)
• Sustainability (ESG)

Reform proposals and legislative approaches related to ESG

See also: Reform proposals related to environmental, social, and corporate governance (ESG), State legislative approaches opposing ESG investing, and State legislative approaches supporting ESG investing

This section lists reform proposals related to ESG from state legislation, model legislation, policy white papers, and other sources.

Ballotpedia has tracked six types of reform approaches that oppose ESG investing and five types of reform approaches that promote ESG investing. Click the list below to learn more about each reform proposal:

Reform proposals opposing ESG

• Sole fiduciary approaches. This approach argues that governments should require fiduciaries of public funds to only consider financial factors when executing their duties.
• Anti-boycott approaches. This approach argues that governments should prohibit public contracts with or investments in companies that intentionally discriminate against certain companies or industries.
• Anti-discrimination and anti-ESG-scoring approaches. This approach argues that governments should restrict the use of social credit scoring by banks and financial institutions.
• Consumer and investor protection approaches. This approach argues that governments should 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.
• Public disclosure requirement approaches. This approach argues that additional transparency is needed surrounding the ESG policies, investments, and considerations of state boards of investment and other government agencies.
• Sovereign 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. It also argues the federal government should move to prevent foreign governments from enforcing ESG rules on U.S. businesses.

Reform proposals supporting ESG

• Non-financial criteria consideration approaches. This approach argues that governments should require public fund managers to consider ESG data and other non-financial criteria in their investment strategies.
• Industry divestment approaches. This approach argues that governments should prohibit public investments in companies in certain industries that the government or agency believes are environmentally or socially harmful. Examples of such companies include oil producers, private prison businesses, gun manufacturers, and other types of industries.
• Corporate board diversity approaches. This approach argues that governments should require companies or publicly held companies to appoint a certain number of women, people of color, and people from other underrepresented groups to corporate boards of directors.
• Corporate disclosure approaches. This approach argues that corporations should be required to disclose certain types of ESG data, such as net emissions from business operations and climate-related risk calculations, to the government.
• ESG contract requirement approaches. This approach argues that government contracts should include ESG requirements, conditions, or other criteria or that companies should have to meet certain ESG standards as a pre-condition for doing business with the public entity.

To view a full list of state bills and laws supporting ESG, click here. To view a full list of state bills and laws approaches opposing ESG, click here.

Enacted legislation related to ESG investing

Ballotpedia has done a deep dive into the enacted legislation related to ESG investing based on the state trifecta status. 34 states have enacted 106 bills either opposing or supporting environmental, social, and corporate governance (ESG) investing between 2020 and 2024.

Overall, most Republican trifectas and states with divided governments have tended to enact legislation opposing ESG. Most Democratic trifectas have tended to enact legislation supporting ESG investing. 92% of all enacted ESG bills since 2020 have:

• opposed ESG in a Republican trifecta at the time of their enactment (55 bills),
• supported ESG in a Democratic trifecta at the time of their enactment (29 bills), or
• opposed ESG in a divided government at the time of their enactment (13 bills).

To learn more about those 92% of enacted bills, click the cards below:

• 
  Legislative approaches opposing ESG enacted in Republican trifecta states
  Read more
• 
  Legislative approaches supporting or opposing ESG enacted in divided government states
  Read more
• 
  Legislative approaches supporting ESG enacted in Democratic trifecta states
  Read more

To see a comprehensive list of bills related to ESG, click the links below:

• 
  State legislative approaches supporting ESG investing
  Read more
• 
  State legislative approaches opposing ESG investing
  Read more

Opposition to ESG investing

See also: Opposition to environmental, social, and corporate governance (ESG) investing

This section lists noteworthy opposition to ESG investing in state governments, the federal government, the media, think tanks, scholarly works, and the private sector. Click the links below for information about the various kinds of opposition to environmental, social, and corporate governance (ESG) and the ESG investing movement:

• State government activity opposing ESG investing

• Gubernatorial activity against ESG investing
• State financial officer activity against ESG investing
• State administrative board activity against ESG investing
• Attorney general activity against ESG investing
• State legislative activity against ESG investing

• Noteworthy legislative activity against ESG investing
• State legislative approaches opposing ESG investing

• State government litigation

• Federal government activity opposing ESG investing
• Intellectual and scholarly opposition to ESG and the ESG investing movement

• Books
• Editorials, op-eds, and columns
• Scholarly articles
• Think tank activity

• Notable media coverage of opposition to the ESG investing movement
• Asset Management Companies established in opposition to ESG and the ESG investing movement

Arguments about ESG investing

See also: Arguments about environmental, social, and corporate governance (ESG)

This section outlines the major types of arguments for, against, and about ESG investing. In many cases, arguments about ESG drive conversations about possible public policy reforms and ways to support or oppose ESG in the political sphere.

Opponents argue that ESG investments are "designed not to maximize financial returns but to impose a leftist social and economic agenda that cannot otherwise be implemented through the ballot box." They might also argue that focusing on ESG factors has harmed rates of return for beneficiaries of state public pension plans.

Supporters of ESG investing argue that in the long run, ESG investing will lead to acceptable financial returns and that corporations should prioritize activities and goals that they think will benefit society more than business growth. They might also argue that states should invest in companies that support ESG and boycott companies that do not pursue ESG priorities.

The debate over ESG can be broken up into the following three areas of disagreement:

1. Arguments about ESG's impact on businesses and investments
2. Arguments about ESG's impact on political and economic structures
3. Arguments about ESG's impact on society and the environment

Arguments about ESG's impact on businesses and investments

This section lists arguments about whether ESG is good or bad for businesses and investments.

Thesis: ESG undermines business and investment goals

• Argument: ESG hurts investment outcomes
  • Claim: ESG stocks cannot and do not match or outperform the market
  • Claim: ESG investing strategies reduce diversification and are thus riskier
  • Claim: ESG is less efficient than alternative investment strategies
  • Claim: ESG considerations distract from the interests of beneficiaries
  • Claim: ESG investing creates conflicts of interest
• Argument: ESG harms core business functions
  • Claim: ESG distracts from sound business decision-making
  • Claim: ESG creates unnecessary tension between management and employees
  • Claim: ESG strategies fail to recognize the only responsibility of corporations is to generate profits

Thesis: ESG enhances business and investment goals

• Argument: ESG enhances investment outcomes
  • Claim: ESG stocks can outperform the market in the long term
  • Claim: ESG doesn't harm investment returns
  • Claim: Investment strategies must consider environmental risks
• Argument: ESG improves core business functions
  • Claim: ESG boosts employee engagement, satisfaction, and productivity, which enhances overall business performance
  • Claim: ESG reduces risks that can hurt businesses
  • Claim: ESG ensures compliance with emerging government regulations
  • Claim: ESG practices can cut costs and improve supply chain prospects, contributing to profitability
  • Claim: ESG can foster stronger customer loyalty
  • Claim: ESG commitments promote innovation

Arguments about ESG's impact on political and economic structures

This section lists arguments about whether ESG is good or bad for political and economic structures.

Thesis: ESG threatens political and economic structures

• Argument: ESG detracts from the democratic process and consolidates power
  • Claim: ESG is corporatist
  • Claim: ESG turns companies into political instruments
  • Claim: ESG consolidates power in large investment funds
  • Claim: ESG establishes an unelected tax on businesses and consumers
  • Claim: ESG pursues governmental goals without the checks and balances of normal politics
• Argument: ESG harms local and national economies
  • Claim: ESG weakens state economies reliant on coal, oil, and gas
  • Claim: ESG weakens America's national security and increases dependence on foreign countries for energy
  • Claim: ESG regulations make businesses less competitive globally
  • Claim: ESG hurts farmers
  • Claim: ESG drives up consumer prices

Thesis: ESG promotes healthier political and economic structures

• Argument: Stakeholder capitalism brings more voices into decision-making
  • Claim: ESG frameworks encourage inclusive governance and platform diverse perspectives

Arguments about ESG's impact on society and the environment

This section lists arguments about whether ESG is good or bad for society and the environment.

Thesis: ESG is ineffective for advancing environmental and social goals

• Argument: ESG does not deliver on environmental promises
  • Claim: ESG investing does not prevent climate change but rather seeks to mitigate portfolio damage
  • Claim: ESG talk allows businesses to deflect responsibility for climate change, avoiding real solutions
• Argument: ESG causes social harm
  • Claim: ESG funds are favor Chinese companies with slave labor ties'
  • Claim: ESG approaches boycotting Israel harm Israeli children
• Argument: ESG misleads stakeholders
  • Claim: ESG commitments mislead regulators and customers by overstating corporate responsibility
  • Claim: ESG scores favor high-performing companies and fail to account for real environmental or social progress
  • Claim: ESG is a superficial marketing tactic rather than a substantive strategy for change

Thesis: ESG helps promote social and environmental responsibility

• Argument: ESG is good for the environment
  • Claim: ESG helps cut carbon emissions, directly contributing to climate goals
  • Claim: ESG commitments promote innovation that leads to more sustainable business models
  • Claim: Business-to-business ESG pressure encourages widespread environmental responsibility
• Argument: ESG commitments are good for society
  • Claim: ESG compels companies to solve problems facing society
  • Claim: Stakeholder capitalism benefits society by balancing shareholder interests with the public good
  • Claim: ESG compliance helps businesses recognize that societal health is directly connected to business success

Public pension information by state

See also: State public pension plans

Although ESG is an approach to investing, it has a strong connection to public policy through the management of public funds. States manage billions of dollars of funds in many cases (especially the funds in state pension plans) and often contract with asset management companies (AMCs) to direct their investment strategy. A state that considers ESG factors in its investment approach, for example, might contract with AMCs that avoid investments in industries related to fossil fuel production or that invest only in companies that meet certain corporate board diversity standards. States that do not consider ESG factors, on the other hand, might contract with AMCs that manage investments with the goal of maximizing financial performance, regardless of industry.

Click a state in the map below to get more information about its pension plans, including information about contributions, payments, and investments:

Influencers and organizations related to ESG

Several of the largest institutional asset management companies, including investment firms like BlackRock and State Street, advocate for an ESG investing approach. Other individuals and organizations, such as Vivek Ramaswamy, Stephen Soukup, and the State Financial Officers Foundation oppose ESG investing approaches.

This section lists a selection of influencers in the ESG policy space. To learn more about an influencer and their contributions to discussions related to ESG, click an organization or individual in the list below.

• R. Edward Freeman
• BlackRock
• Sustainability Accounting Standards Board (SASB)
• As You Sow
• The Great Reset (World Economic Forum)
• Free Enterprise Project
• Institutional Shareholder Services
• Vivek Ramaswamy
• Stephen Soukup
• Net Zero Asset Managers Initiative
• Climate Action 100+

Scholarly work related to ESG

This section lists a selection of scholarly works that contain reform proposals related to or arguments about ESG. To learn more about a book or article, click the list below.

• Woke, Inc. by Vivek Ramaswamy (2021)
• The Dictatorship of Woke Capital by Stephen Soukup (2021)

Economy and Society: Ballotpedia's weekly ESG newsletter

Economy and Society is a free weekly email newsletter that delivers news and information about the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics. To subscribe, click here. To read all previous editions, please see our archive. Below are the most recent editions:

• Economy and Society: March 18, 2025
• Economy and Society: March 11, 2025
• Economy and Society: March 4, 2025
• Economy and Society: February 25, 2025
• Economy and Society: February 18, 2025

See also

• Sustainability
• Materiality
• Arguments about environmental, social, and corporate governance (ESG)
• Opposition to environmental, social, and corporate governance (ESG) investing

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