Be Careful What You Wish For: ESG Investigations in Congress Will Backfire

With a slim majority in the U.S. House of Representatives in their pockets, Republican members of Congress can make good on their promise to hold public hearings on “woke” capitalism. The apparent aim is to lay the groundwork for new federal legislation that obstructs ESG (environment, social, governance) investing. However, undercutting the party’s chances for expanding its power in the 2024 presidential election cycle is the more likely result.

'Woke' capitalism, ESG and the 2017 tax cuts

The term “woke capitalism” is widely attributed to the pundit Ross Douthat, who used it in a 2018 opinion piece published in The New York Times.

Douthat lead off with a discussion of the Tax Cuts and Jobs Act of 2017, the signature piece of Trump-era legislation. He noted that corporations were steering the benefits of the tax cuts to their shareholders, instead of deploying them to benefit employees.

Corporations were “making a show of paying bonuses and raising wages after the passage of the corporate-friendly Republican tax bill,” he wrote, “but actually reserving most of the tax savings for big stock buybacks, enriching shareholders rather than employees in an economy where wage growth still disappoints.”

Having argued that the corporate response to the 2017 tax cuts was largely an empty gesture, Douthat leaped to his main point. He declared that corporate action on progressive issues was similarly performative. That includes corporate pushback against Trump era policies on climate change, gun control, immigration rights and LGBTQ rights, among others.

'Woke' capitalism and diversity

In Douthat’s hands, woke capitalism is simply a form of greenwashing that corporations deploy to curry favor with “the left” while distracting attention from their own failures in the area of social responsibility.

That’s one way to look at it. Another way is to acknowledge that the reality of broader demographic trends that are driving the corporate social responsibility movement.

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Writing for New York Magazine earlier this week, senior reporter Eric Levitz draws attention to an ongoing demographic shift. He notes that the capitalist class in the U.S. has diversified since its 19th-century beginnings as an “almost uniformly” white, male and socially conservative group.

The emergence of pension funds and mutual funds in the 20th century has further diversified the capitalist class, by providing union members, public sector employees and white-collar professionals with a stake in the action.

In short, the “woke capitalism” canard indicates that the Republican party is leveraging a matchup between its white, conservative base voters and the capitalist class.

“None of these constituencies are remotely as demographically or ideologically similar to the contemporary conservative base as the capitalist class of yore was to the right-wingers of the mid-20th century,” Levitz writes.

Reality favors the ‘woke’

Levitz also undercuts Douthat’s argument by noting that diversity in the capitalist class is just one powerful trend that is having an impact on corporate strategy. Another significant factor is urbanization, both domestically and in nations around the world.

“…consumer-facing brands do not amplify liberal cultural sentiments because they care more about virtue signaling than profit-making; they do so because young city dwellers are both culturally liberal and a major profit center,” Levitz emphasizes.

Climate change is yet another factor undermining Douthat’s position, as Levitz notes. Douthat can call climate action a form of corporate pandering if he chooses. However, the fact is that climate change is an actual risk, not an imaginary one. Corporations and pension funds respond to risks by taking action to protect themselves. The Republican party has only itself to blame for dropping the climate ball and leaving the field to Democrats.

Taking the ‘woke capitalism’ bait

The use of “woke capitalism” as a verbal battering ram against climate action and other Democratic policies has gathered much more force since 2018.

Stephan Conmy of the Corporate Governance Institute took note of the shift last summer, as Republican office holders, candidates and their allies took up the cry.

“In the mouths of American conservatives and right-wingers, shouting ‘woke capitalism’ means jeering at any challenge to old orthodoxies and power structures,” Conmy wrote, adding that “[woke capitalism] is now used as a rallying call by right-wing politicians and commentators to discredit any ESG proposals relating to climate change, workers’ rights and corporate governance.”

They can jeer all they want, but that won’t stop the demographic ground from moving under their feet. 

A strong turnout by young voters in the midterm elections enabled the Democrats to keep their majority in the Senate and carve out near-parity in the House, bucking decades of historic precedent. These climate action voters will be all the more motivated to turn out in 2024, if the Republican party insists on attacking corporations that invest in clean energy. 

House Republicans also stand a good chance of facing bipartisan pushback, as indicated by a recent survey undertaken by the communications firm ROKK Solutions in partnership with the Center for the Business of Sustainability at Penn State University.

The survey was designed to test the strength of bipartisan opposition to the anti-ESG movement. Respondents did express reluctance to approve of corporate speech on issues unrelated to their business, but bipartisan majorities agreed on the right of corporations to set their own investment agendas.

Asked if the government should set limits overall on ESG investing, 63 percent of respondents said it should not. Similarly, 68 percent said that the government should not revoke tax incentives on the basis of ESG actions. 

“An overwhelming majority of voters, including Republicans felt that the government should not hold oversight hearings,” emphasized Ron Bonjean, who is a Co-Founder and Partner at ROKK Solutions. 

In addition, the convergence of anti-ESG rhetoric with coded anti-Jewish code words and religious extremism may also not sit too well with young voters.

Despite the red flags, House Republicans seem determined to forge ahead. As former two-term President Barack Obama once famously said, “Please proceed.”

Image credit: David Mark via Pixabay