Right-wing politicians playing ‘armchair financial advisor’ are putting Americans’ retirements at risk

As a matter of principle, hard-working Americans should be free to invest their money as they see fit. Whether they are investing individually or doing so through a pension fund or retirement plan, investors and their financial advisors should have access to the tools they need to make informed decisions that maximize returns over the long-term.

However, just as they held our economy hostage over the debt ceiling, extreme right-wing politicians are now playing “armchair financial advisor” and imposing their radical ideology on our bank accounts, pension funds and retirement plans.

Over the past year, extreme politicians have launched an unprecedented assault on responsible investing strategies. In state houses across the country, many of which concluded their legislative sessions in June, lawmakers have introduced dozens of bills seeking to ban everyday Americans, financial professionals and public pension fund managers from considering so-called “environmental, social, and governance” (ESG) risk factors in their investment decisions, in addition to traditional financial factors. The House Financial Services Committee recently followed suit, last week wrapping up a month-long slate of hearings aimed to bring the same right-wing attacks on ESG from the states to our nation’s capital. 

In each case, they claim to be fighting a boogeyman they call “woke capitalism” and falsely characterize the use of these factors as something more than what they are—basic information about investment risks.

Investors and financial professionals increasingly seek information about these risk factors — which can include everything from labor practices, executive pay and board compensation to risks posed by climate change. And, for many Americans, having access to information about these increasingly important risks has proven to be helpful in achieving their financial goals, whether those goals are to maximize returns over the short, medium, or long term or to avoid investments in companies that may face litigation or may not be adapting to a changing economy.

The state-level laws banning responsible investment strategies are attacks on Americans’ personal freedom and threaten investment performance. And they could cost states and local governments millions of dollars each year. For example, a recent meta study by NYU’s Stern Business School, which combined the results of 245 individual studies on ESG and financial performance, found a positive relationship between ESG and financial performance in 58 percent of the analyzed studies. (By comparison, only 8 percent of studies showed a negative relationship.)

Despite this evidence, some extremist lawmakers are determined to ban investors from considering companies’ environmental and social records in their investment decisions. In Florida, one of the first states to pass a law targeting the consideration of environmental and social factors in investment recommendations, pushed this ban on responsible investing through even after Florida’s business leaders, legislators, and public officials warned that this type of legislation could hurt investors’ bottom line. The evidence of these consequences is clear — a January analysis estimated that the Florida law could cost the state's taxpayers more than $300 million in long-term public investments, including public programs and state pensions.

A bill similar to the Florida law was introduced in Kansas, which the state’s Division of the Budget found would cost $3.6 billion over ten years and decrease pension system returns. That legislation was met with so much backlash that a Kansas lawmaker was forced to scale back the toughest version of the bill.

In Indiana, after state researchers reported that an anti-ESG bill would cost its pension system $6.7 billion over ten years, lawmakers were also forced to rewrite the bill before it could pass. Similar pushback stalled efforts in North Dakota after the state's bankers spoke up against the politicians telling them how to do their jobs.

These state legislative actions amount to pure government overreach by extreme politicians — and the American people aren’t having it, with poll after poll showing these proposals are overwhelmingly unpopular.

According to a March survey, a majority of voters (54 percent) believe financial managers should be allowed to consider environmental and social responsibility factors in investment decisions. In a separate poll, Americans, both Republicans and Democrats, say they overwhelmingly support increasing access to investment information, with 87 percent —saying they are in favor of companies reporting their climate-related risks.

As some state legislatures reconvene later this year, and as extremist politicians at the federal level try to reverse the Biden administration's efforts to support responsible investing, lawmakers in Washington and across the country need to stand together in defense of Americans’ freedom to invest.

While right-wing activists were successful in passing legislation in a handful of states like Florida, Texas and Louisiana and generating noise in the media, the majority of anti-ESG legislation introduced in 2023 did not become law. As businesses, investors and taxpayers alike sounded the alarm on the severe impact these bills would have on their states, many of these bills were defeated.

Following this playbook, hard-working Americans can lock arms and put a stop to this harmful overreach once and for all, urging lawmakers to empower Americans with the information they need to make their own informed decisions about how to save and invest their money — and build a strong, fair, and sustainable economy in the process.

This isn’t “woke capitalism.” It’s just responsible investing.

Alexandra Thorton is senior director of financial regulation at the Center for American Progress.