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'Lawyer up': Republican rhetoric over ESG escalates

Five U.S. senators recently warned 51 U.S. law firms that certain ESG policies could run afoul of antitrust regulations.

Legal books on a shelf with courtroom gavel in front

Image via Shutterstock/RawF8

Republican party leaders have become pen pals with their ESG enemies this year. 

And they’ve recently leveled up from correspondence with ESG ratings firms and asset managers to sending letters to major American law firms warning of punishment for their role in perceived ESG transgressions.

The upshot of the Republican senators’ call to action: Because ESG is part of a collusive effort to restrict fossil fuels, we will (if/when Congressional power allows) pursue ESG efforts deemed to be "institutionalized antitrust violations." See you in court. 

The question is how this next chapter of penpalmanship will affect progress in sustainable finance and business.  

Back in May, former Vice President Mike Pence laid the groundwork for his Republican colleagues’ ESG attacks via a warning in the Wall Street Journal’s opinion section: The radical left is on a conquest of corporate America, and ESG is its trojan horse, Pence proclaimed. 

Pence offered a key talking point that Republican letter writers have reiterated since, as they did verbatim in the recent letter to 51 big law firms: "The progressive left is using it [ESG] to advance goals it could never hope to achieve at the ballot box." 

Much blue and red ink has been spilled since, telling large financial institutions to either stay the course and increase ambition to reach net zero; or get off that path now or lose current and future opportunities to manage Red America’s money. 

As BlackRock CEO Larry Fink, a man mired in these exchanges, put it, "I’m now being attacked equally by the left and the right, so I’m doing something right, I hope."

I’m now being attacked equally by the left and the right, so I’m doing something right, I hope.

Most sustainable finance leaders I’ve spoken with share the opinion that the Republican letter writing has been more noise than substance. And that net-zero targets from companies, countries and financial institutions won't be sidetracked just because they might be perceived as "woke." 

But given Senate Republicans' letter earlier this month to the law firms, some corporate counsels may understandably be feeling a bit risk-averse about their company’s own ESG commitments. 

Does this new round of outreach-cum-threats signal something more substantive for sustainable finance’s growth and maturity, or is it more noise?

Lawyering up

A letter sent to BlackRock last summer by Republican state attorneys general, which asserted that the world’s largest asset manager is "boycotting" the fossil fuel industry via its ESG practices, wasn’t without some consequence. 

While the boycotting claim is patently false, it is true that BlackRock lost $1 billion (as of October) due to Republican state treasurers pulling funds from the asset manager. 

For an investor with $10 trillion under management, that billion seems to pale in comparison to what is likely to be the largest investment opportunity in a generation — the transition to a renewably powered economy. 

The Republican party has spent the last few years freeing itself of the free market ideology that once animated it. Given that this trend isn’t poised to stop, coupled with the fact that we live in a two-party system that transfers power regularly (if not always willingly), legal counsel and the companies they advise may feel shaken by the Republican lawmakers’ claims. 

As the letter to law firms states, "Businesses would certainly be wise to lawyer up before undertaking ESG initiatives," and that "Congress will increasingly use its oversight powers to scrutinize the institutionalized antitrust violations being committed in the name of ESG."

A theoretical threat at this point, but who knows who will hold power come 2024?

A case for quiet quitting?

In a brilliant response letter to the Republican senator letter writers, Oxford University Professor Bob Eccles lays out the potential path forward. 

In his analysis of Strive Asset Management’s U.S. Energy ETF (DRLL) — something of a celebrated anti-woke ETF offered in response to BlackRock’s purported woke-equivalent fund — Eccles found that, of the top 10 holding in the wittily named "drill" fund: "Every single one of these companies has sustainability featured on the home page of its corporate website, discusses ESG, and even discusses … the U.N.’s 17 Sustainable Development Goals (SDGs) which are about making the world a better place."

Something tells me Arkansas Sen. Tom Cotton is not on a mission to take down Exxon and ConocoPhillips. Which points to the case that these letters, again, represent little more than political posturing, with real consequences not intended to be applied evenly and dispassionately. 

But what if you’re a consumer facing-brand such as Walmart, headquartered in Cotton’s home state of Arkansas? Is Project Gigaton, a program lauded in corporate sustainability for leadership on Scope 3 emissions reductions, woke and therefore worthy of future Republican-led scrutiny for ESG transgressions? 

And if you’re Walmart’s corporate counsel, should you follow the Cotton et al letter’s advice that, "To the extent that your firm continues to advise clients regarding participation in ESG initiatives, both you and those clients should take care to preserve relevant documents in anticipation of those investigations"?

Given the outcome of the 2022 Senate races, these thinly veiled threats may be on the backburner for now. But, again, who knows what’s in store for 2024? Let’s hope we don’t see quit quitting on climate commitments in the meantime.

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