Why are Kentucky conservatives taking aim at ‘woke’ capitalism, ESG investing?

Daniel Cameron’s new role as CEO of an organization battling wokeness in the corporate space is not new to the former gubernatorial candidate or Kentucky’s Republican Party.

Conservative lawmakers in Kentucky and nationwide have been taking aim at investments falling under the umbrella of ESG — an acronym for environmental, social and governance — for years and Cameron is no stranger.

While he was state attorney general Cameron was in fact sued by the Kentucky Bankers Association in 2022 after joining an anti-ESG crusade against multiple national banks. The suit was dismissed in late 2023.

But what actually is ESG investing?

To the public, ESG investing might look like companies or financial institutions using their funds to become more environmentally sustainable or perhaps emphasize diversity. They also might decide not to work with other companies that share the same values.

“It’s somewhat based on what’s called stakeholder theory,” said Ben Foster, an accounting professor at the University of Louisville.

The theory holds that to be profitable, a company should meet the needs of its stakeholders, which can be “impacted by the company or can impact the company,” Foster said.

From the perspective of the 1792 Exchange — the not-for-profit organization that Cameron was named the CEO of Jan. 3 — engaging in ESG investing might not be in the interest of shareholders, Foster said.

“Our goal has always been to help corporations move back toward neutral on ideological issues so they can better serve their shareholders and customers,” 1792 Exchange founder Nathan Estruth said in the news release announcing Cameron’s hire.

Cameron could not be reached for comment.

The 1792 Exchange website provides ratings based on how likely a company will deny services “based on viewpoints or beliefs.” Companies varying from Apple to Home Depot are “High Risk.” Whereas AAA and apparel company Allbirds are considered “Low Risk.”

The anti-ESG movement is political and has “no foundation in finance,” said Bryan McGannon, the managing director for a sustainability-focused finance membership organization called US SIF: Sustainable Investment Forum.

“It ultimately is a set of special interests that don’t want to have these issues considered,” McGannon said. “Whether it’s environmental issues or social issues.”

Fighting ESG investment has become “one of the animating things in the conservative movement right now,” said Scott Jennings, a Kentucky Republican strategist and CNN political commentator. Over the next several years conservatives will continue to pursue similar fronts.

“Just the idea that for-profit corporations are making decisions that are not in the best interest of workers and shareholders and investors, but instead, are in service to these ideological crusades,” Jennings said. “It’s become a real flash point.”

Cameron is a “natural fit” to head an anti-ESG organization, Jennings said. Being a visible figure in the Republican battle against the investment philosophy could also help his future political aspirations.

“Being at the forefront of this fight and remaining in a high-profile position where he can focus on issues that matter to Republicans will certainly benefit him as well, politically,” Jennings said.

Cameron served four years as Kentucky’s attorney general before losing to Democratic incumbent Andy Beshear in November’s governor’s race.

Kentucky Republicans have certainly invested time in the fight. In 2022, the state’s GOP-controlled legislature passed a law requiring the state government to keep a list of financial companies that “boycott” energy companies.

The state’s treasury maintains the list and, as of Friday, still included the same 11 financial institutions — which includes several large banks — that Allison Ball, the then-treasurer and now state auditor, said in January 2023 engaged in “energy company boycotts” based off publicly available statements.

Ball was critical of ESG investing during her time as treasurer. Mark Metcalf, the newly elected state treasurer, told the Herald-Leader during his campaign that he would stand up to “liberal activist money managers who have adopted ESG investment strategies for management of state pension funds.”

State lawmakers passed a bill in last year’s legislative session that limited the state’s investment fund managers to limit their investment decisions to just those that deal only with financial risk or return of investment. Conservative groups hailed it as a blow to ESG policies.

Over the summer, Rep. Andy Barr introduced legislation that would limit the ability of retirement funds to invest in ESG options. Nationwide, Republican lawmakers in 37 states introduced at least 165 different pieces of legislation targeting ESG investments in 2023, showed a report from Pleiades Strategy, a climate-focused research and advisory firm.

Anti-ESG legislation comes with a real cost, McGannon said. A fight is brewing in Oklahoma as the managers of the state’s pension fund have said complying with the state’s new anti-ESG law could cost the fund at least $10 million.

Additionally, local governments who may have to boycott working with certain banks for municipal projects could see their borrowing costs rise.

“Because they have less competition in the marketplace because they’ve arbitrarily taken competitors out of the market for those bonds because of these ESG rules,” McGannon said.

“So these are real consequences for not only retirees but municipal governments and it’s going to cost taxpayers money.”