Environmental, Social, and Governance (ESG) funds remain a hot topic and lightning rod issue for lawmakers, stakeholders, and businesses in the U.S. Some progressive states are championing, and sometimes mandating, ESG investing through forced divestment. Some conservative states, meanwhile, have restricted ESG considerations for choosing not to invest in certain sectors, like fossil fuels.  ESG investing is not problematic if pursued voluntarily by firms prioritizing fiduciary responsibility or through individual investor choice. However, federal and state government overreach in the issue hurts stakeholders and businesses and restricts investment freedom. 

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ESG mandates are politically unpopular among voters. Recent polling from the National Taxpayers Union and Public Opinion Strategies found that voters do not support state governments mandating or outlawing ESG investing. 69% of respondents opposed banning companies with ESG policies from doing business with the state government, including 62% of Republican voters. 

One respondent––a Republican from Missouri––said, “I believe the state government should choose companies based on the quality of their work and not what their political views are.” The poll findings were consistent with these sentiments: over 80% of voters classified private companies’ reliability, quality, cost, and reputation as extremely or very important for state governments to consider when deciding to go into business with that company. On the other hand, only 37% of voters found the companies’ views on controversial political issues important for state governments to consider.   

Since 2021, lawmakers have introduced 373 pieces of legislation in 39 states aimed at prohibiting various entities, including pension boards and state governments, from considering ESG factors in their investment decisions. Anti-ESG bills often target industries such as firearms manufacturing and fossil fuels in an attempt to manipulate the market in their favor. 

This year, the number of passed anti-ESG laws dropped significantly. Only six bills were passed, compared to 23 in 2023. Perhaps policymakers are recognizing the financial and legal burdens these laws impose on states and their residents. 

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The implementation of anti-ESG laws has proven costly for states like Texas and Oklahoma, where residents have faced hundreds of millions of dollars in additional expenses due to lower competition and higher rates in financial lending. In many cases, the high costs and potential legal battles led to the weakening of proposed bills. Lawmakers often included “escape clauses” to make bills less harmful, allowing them to claim rhetorical victories, while avoiding the severe economic consequences. 

Anti-ESG policies are costly for businesses and shareholders and are also politically unpopular. Rather than restricting certain investment strategies, policymakers should embrace policies that unlock investor freedom and leave politics out of it.

Dan Selby is a senior at NYU and Summer Intern at C3 Solutions.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.