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Published: Feb 17, 2023 8 min read

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Sam Island for Money

A battle between some Republican lawmakers and proponents of ESG investing is heating up.

Environmental, social and governance (ESG) investing is an approach that accounts for businesses’ environmental and social risks and has become very popular in recent years, especially among young investors worried about climate change and social justice issues. ESG-related assets under management are expected to grow globally to $33.9 trillion by 2026, according to a recent report from PricewaterhouseCoopers.

A big argument from those who are pro-ESG investing is that the strategy is not only better for the planet — it also doesn’t hurt long-term returns. While many investors suffered in 2022, sustainable funds did better than their non-sustainable counterparts, netting more than $3 billion, according to Morningstar. Advocates say investing this way helps lower certain risks, like the long-term impacts climate change will have on businesses.

But many critics aligned with the Republican party are pushing back on investment firms that use this approach, saying that it supports so-called “woke” politics that not everyone agrees with. And that pushback could result in fewer options in 401(k)s and state pensions, says Blaine Townsend, director of sustainable, responsible and impact investing at investment management firm Bailard.

"It will have a chilling effect,” Townsend says. “The markets in general function best when elected officials or politicians aren't using their bully pulpit to affect the way capital flows in the markets.”

The fight for and against ESG