The culture war is coming for your 401(k)

“When do the human rights tribunals begin for . . . Larry Fink?” Jason Isaac asks the standing-room-only audience at the Texas Public Policy Foundation’s annual summit.

Isaac, who’s the director of the conservative think tank’s Life:Powered initiative, which evangelizes that greater access to fossil fuels will solve world poverty, is holding court during a panel titled “ESG = Everyone’s Suffering Guaranteed” and singling out the chairman and CEO of $10 trillion asset manager, BlackRock. For years, Fink and his company have encouraged businesses to embrace a “sense of purpose” beyond making money for shareholders, and to consider how climate change could affect their potential for growth, in the belief it’ll help BlackRock’s millions of customers accumulate wealth for retirement. But to Isaac, “the policies they’re pushing are pushing us back into poverty, and crushing the least among us more than anyone else.” Heads nod approvingly at the prospect of Fink being punished as an “enemy of the state.”

The session, held in early March in a conference center in Austin, showcases how Texas is leading the conservative pushback against environmental, social, and governance (ESG) investing, the progressive investment philosophy that has risen to prominence in the last decade. As the most influential ESG proponent in finance, BlackRock bears the brunt of these Texans’ ire. Isaac shares the story of how he excoriated several BlackRock executives who visited his offices, taking them to task for backing the UN’s recommendation to phase out fossil fuels. That won’t mitigate climate change, he recalls warning them, “but does everything to increase the cost of energy. And expensive energy hurts the poor.” After the panel, Isaac tells me that his goal is to defeat “this cartel that is colluding to influence companies outside of the democratic process.”

Isaac helped draft the 2021 Texas law that led the state to create a list of financial companies—mostly European banks but also BlackRock—that boycott “certain” energy businesses. Any governmental entity, including state pension funds, must divest from them if they don’t change their policies. The law never mentions ESG, but it puts banks and asset managers that consider those principles in any of their financial products on notice. Isaac and his fellow panelist, Republican state Senator Bryan Hughes—who’s been called the Ted Lasso of the statehouse for his always smiling demeanor—aren’t done. They preview what they call a “fiduciary duty bill” that Hughes introduces later in March. The bill would prohibit officials managing public pension funds from investing “with a purpose of furthering social, political, or ideological interests.” The broader scope of the legislation reflects their intent to hunt down every aspect of how the financial industry has been promoting ideals beyond maximizing shareholder value—and eliminate them.

If Texas were a sovereign nation, it’d be the world’s ninth-largest economy. How $330 billion gets invested—the value of the funds impacted by Isaac and Hughes’s law—is at stake in just this one state. But the counterrevolution that started in the Lone Star State has given rise to a nationwide rebellion against the entire environmental, social, and governance movement. Isaac’s 2021 bill was quickly copied and became the law in West Virginia, Indiana, Oklahoma, and Louisiana; by the start of the 2023 legislative session, there were at least 125 anti-ESG bills percolating in 40 states. The anti-ESG forces take credit for forcing the divestiture of $5 billion in eight states, but they don’t need to defund the major asset managers to win. Merely the specter of being dragged into these fights, of being labeled “woke,” is scaring both investors and companies back to where conservatives want them.

“If they’re gonna mess with money that belongs to Texas retirees,” Hughes says, prompting whoops from the audience, “we’re gonna teach them some manners.”

The culture war has come to Americans’ 401(k)s, and with it a fight for the soul of corporate America. ESG is a broad set of considerations used by investors and executives to assess the sustainability and social impact of a company with the goal that this positions it to generate better long-term value. ESG standards are oracular, but at least according to 2019 guidelines published by Nasdaq, they consist of 30 distinct metrics—10 each for environmental, social, and governance—that include such things as emissions, gender pay ratio, board diversity, and data privacy.

ESG may seem to be an odd target for societal conflict, but where its adherents discern virtuous initiatives that help their companies do good, ESG’s critics see “woke capitalism.” That sobriquet can be as broad in its definition as ESG, but the belief is that companies impose these efforts on society in an authoritarian, and often superficial, fashion. Anti-ESG advocates argue that companies are using ESG to achieve through the back door what U.S. lawmakers could never accomplish through the front door, from abortion access to climate policy. To them, ESG is not only an assault on the economist Milton Friedman’s doctrine that a corporation’s only obligation is to its shareholders; this is an attempt to redefine and subvert capitalism itself.

To learn who the key players are in this fight, why they’re so hostile to those they see as the opposition, and where they’re headed next, Fast Company spent nearly three months speaking to more than 30 members of the movement (along with their pro-ESG counterparts). The anti-ESG cadre has been lampooned for using wokeness as a catchall for everything it hates, from M&M’s marketing to the Silicon Valley Bank rescue. But that stance misses how Vivek Ramaswamy has surfed the wave of anti-ESG sentiment to a (long-shot) bid for the 2024 Republican presidential nomination, as well as the level of resentment among those on the front lines, who represent a mélange of voices on the political right. On podcasts, in newsletters, and in the interviews for this story, several repeated the same grievance: After Trump’s victory in 2016, what did they get? Tech censorship, more media antagonism, students shouting them down, and a summer’s worth of property destruction. But being disrespected by corporate America—once a staunch ally—feels self-inflicted, like they fell asleep at the wheel. If conservatives are going to retake what they feel they’ve lost, the anti-ESG rally cry is: Why not start here?

This year, anti-ESG regulatory measures are currently outpacing pro-ESG ones. The top three asset managers—BlackRock, Vanguard, and State Street, which together have $20 trillion under management, equal to the U.S. gross domestic product—are retreating from their vocal pro-ESG positioning. (No company in the sights of the anti-ESG movement agreed to speak on the record, and BlackRock did not reply to multiple interview requests.) In 2020, the U.S. arm of the Global Sustainable Investment Alliance (GSIA) identified $17.1 trillion in assets under management that had been invested with environmental, social, and governance factors. When it released its next report, for 2022, that number dropped to $8.4 trillion. The role that the anti-ESG movement has played in that decline is impossible to quantify, but its mobilization at the top of the market has given it a significant tailwind.

This backlash could have a cascading effect: Less money invested in ESG eventually translates to fewer resources to address such challenges as climate change and gender pay disparities, in the same way that Isaac laments to me how ESG led to a 94% drop in private capital raised by North American oil and gas companies between 2015 and 2021. Those who dismiss the fight as the anti-woke mob’s latest shiny object might be surprised to learn how fast the political players and businesspeople in this story—the ones leading the charge—are learning from their mistakes and refining their attack.

“The anti-ESG folks are extremely well resourced and well organized, and they are tapping into every level of political and governmental authority,” says Karl Racine, Washington, D.C.’s former attorney general who now leads the law firm Hogan Lovells’s new practice focused on defending ESG initiatives. While in office, Racine fought Big Tech, the Catholic Church, and the Trump Organization. How do the anti-ESG forces stack up? Easy answer, he says: “They should be taken very, very seriously.”

In 2010, Justin Danhof was a cherubic young attorney fresh out of the University of Miami School of Law, where he’d been a member of the Federalist Society and the Christian Legal Society. He’d just taken a job at the Free Enterprise Project, revved up by watching progressive groups pressure businesses to adopt Obamacare before it had even become law. The group, which held small shares of stock in companies in order to file shareholder proposals criticizing corporate policies, was the pioneer of conservatives using this tactic.

Danhof was against, well, a lot: Pfizer, for advertising in news outlets with a perceived liberal bias; Walmart, for opposing religious freedom; United Airlines, for cutting ties with the NRA after the Parkland school shooting. At Apple’s 2019 shareholder meeting, he demanded that the company add a conservative board member, arguing that its focus on increasing only racial and gender diversity, as opposed to ideological diversity, was “a major risk factor.” After CEO Tim Cook reassured him, “We are open to people from all walks of life,” more than 98% of Apple’s shareholders rejected Danhof’s proposal.

In fact, not a single one of Danhof’s resolutions ever passed. But that wasn’t necessarily the point. “They move the Overton window,” he tells me of his efforts, meaning that they’re designed to alter the range of political ideas that average people find acceptable. As ESG grew from $2.5 trillion at the decade’s start to $17.1 trillion by 2020, according to the U.S. arm of the GSIA, Danhof watched the Overton window move left. Progressive groups like As You Sow pushed for board diversity as part of ESG, and “it went from activist to mainstream” in half a decade, Danhof says, with the likes of Goldman Sachs and Nasdaq championing it.

For Hal Lambert, a career financial manager and Texas native who was the first conservative investor to create a way for others to shun corporations that offended their values, the concern began in 2016 with a decision by one company. “Target announced it was opening up its dressing rooms and restrooms to whatever gender you identified as,” he says in a measured tone that, alongside his impeccable blond coif, gives away that he’s a frequent Fox Business and CNBC guest. “I knew that was gonna be bad for the stock. So I sold mine.” (Target’s stock did fall from $83.50 to $68 a share in the month after the company supported its transgender employees and customers, but at the same time, Target was also dealing with class action lawsuits from its 2013 data breach and investor skepticism for its private-label strategy.)

As Lambert, an active Republican fundraiser, watched ESG “starting to happen,” he launched an exchange-traded fund (ETF), or basket of stocks, to reflect his thesis that companies that adopted these ideals would suffer. Lambert’s Point Bridge Capital introduced its fund in September 2017, with a ticker symbol that may have been an inevitability: MAGA. He went so far as to trademark the phrase “Politically Responsible Investing,” a strategy that allows people to “invest in companies that align with your Republican political beliefs.” MAGA, a bundle of 150 stocks picked from the S&P 500, is up 33% in the last five years versus the S&P’s 51% gain for the same period.

Over the past decade, conservatives have grown angrier, as a class of interlopers—these new “stakeholders” that include everyone from employees to consumers—felt empowered by CEOs like Fink to nudge executives to engage in social issues. Businesses then received ESG credit for supporting same-sex marriage, the MeToo movement, and immigrants’ rights. After all, Fink asserted that “profits and purpose are inextricably linked” in his now-famous 2018 letter to CEOs. A year later, the Business Roundtable formally endorsed companies balancing the interests of shareholders with those of employees and communities. After businesses vocally embraced the social justice movement that crescendoed following the murder of George Floyd in the spring of 2020, “the whole country woke up to what was going on in these corporations,” says Scott Shepard, who worked with Danhof at the Free Enterprise Project and is now its director.

Several people on each side of the ESG debate also point to 2021’s shareholder fight at ExxonMobil as a seminal moment. An activist with just 0.02% of Exxon’s shares convinced BlackRock and other firms with voting control to support its bid for three board seats to push the company to reduce emissions.

The world of anti-ESG at the time was a rather small club: mostly Danhof, Lambert, Isaac, some of Isaac’s oil friends who suddenly couldn’t get bank loans, and a few canceled corporate executives. In the ensuing couple of years as the anti-ESG movement has grown, progressive groups have sought to paint it as a shadowy conspiracy. But the truth is, it all seems to operate relatively out in the open. Lambert knows Isaac and all the Texas Republicans. “I started alerting politicians a number of years ago that [pro-ESG forces are] trying to defund our energy sector,” he says. Isaac tells me that he has spent time with Danhof. Dark money conservative funders such as Charles Koch, Leonard Leo, and Peter Thiel are involved in the effort to counter ESG, and Thiel has known Vivek Ramaswamy since Ramaswamy was at Yale Law School. But there is no puppet master.

So when Lambert decided, in 2021, not to publish his book-length takedown of wokeism, he knew whom to offer its killer title. “Unlike Vivek, I had a full-time job to do,” he says, chuckling. “I said he could have Woke, Inc.”

“We are hungry for purpose and meaning at a point in our national history when the things that used to fill that void—faith, patriotism, hard work, family—have disappeared from modern American life,” says Ramaswamy, calmly pacing the ballroom stage during the Texas Policy Summit’s closing-day breakfast keynote. “We instead replace that void with wokeism, transgenderism, climatism, and COVID-ism.”

A decent-size crowd has gathered at 8 a.m. on a Friday to hear from the newest 2024 presidential candidate on the 10th day of his campaign. Not even the previous night’s storms—tornadoes and softball-size hail, on the heels of last week’s 90-degree highs—could prevent folks from coming to hear Ramaswamy spread the anti-woke word. The 37-year-old Indian American has parlayed being young, provocative, telegenic, successful—and anti-ESG—into his bid for national office.

As he gets into his stump speech, he relays the story that led him here. He was CEO of a biotech company called Roivant Sciences, which had a $7 billion valuation and was working on drugs for everything from psoriasis to prostate cancer, when his employees asked him to support Black Lives Matter in the wake of George Floyd’s murder. He declined (“I listened and didn’t say much in response”), three board members quit, and Ramaswamy decided to leave rather than say something he didn’t believe.

“I chose to step down,” he tells the audience, “to focus not on prostate cancer, but to focus on a different kind of cancer . . . a cultural cancer in America.”

He published Woke, Inc., which became a bestseller, then turned to entrepreneurial opportunities in what’s known in right-wing circles as the “parallel economy,” businesses designed to serve individuals who disagree with the policies of such companies as YouTube, Starbucks, and PayPal. (Their alternatives are, respectively, Rumble, Black Rifle Coffee, and a payment processor actually named Parallel Economy.) Ramaswamy teamed up with Anson Frericks, who was then president of Anheuser-Busch’s sales and distribution arm, to kick around ideas. The two had attended the same Jesuit high school in Cincinnati, where they were mock-trial teammates. “We’ve been debating for, I dunno, 20 years,” Frericks tells me, jocularly adding, “and I guess advocating for people to vote for us.” (Ramaswamy’s team agreed to an interview with Fast Company, but it never happened amid the campaign.)

Frericks explains that he shared Ramaswamy’s frustration watching large mainstream brands try to manifest a social purpose beyond their products, emulating progressive pioneers like Toms Shoes and Warby Parker. He tells me a story about buying Oreos for his kids and how the package displayed a large seal boasting that the company uses 100% sustainably sourced cocoa. Frericks says he asked a friend who works on the Oreo brand, “‘Do people really care about this?’ He was like, ‘No, people just care that the cookie tastes good. But we’re being forced to adopt all these causes.’”

They explored opportunities for creating an anti-woke Nike (the company had supported Colin Kaepernick’s protests), or better yet, an anti-woke Coca-Cola (someone had leaked its internal diversity course, which told employees to “try to be less white”). Ultimately, the duo, who had both spent time early in their careers in finance, saw their best opportunity in starting an alternative asset management firm, at precisely the moment ESG experienced a banner 2021. In addition to record inflows, one-third of all shareholders that year voted to support ESG proposals at annual meetings, per the Sustainable Investments Institute.

Ramaswamy and Frericks took a minute to settle on Strive as the name of the brand, but their ambitions were always clear: They code-named the company “Whitestone.”’

Ramaswamy left Strive’s board when he announced his presidential run. Frericks cites the decision as proof that they’re embodying the firm’s “profits, not politics” mission—unlike their competition. “Larry Fink and [JPMorgan Chase CEO] Jamie Dimon, they’re using other people’s money to act like they’re president,” he notes. Yet, Ramaswamy has become the face of the anti-ESG movement and is campaigning in part on the ideas baked into Strive. “Frankly,” Frericks replies, “we think it’s an opportunity for us to get more of our message out there.”

Strive continues to emphasize its apolitical message, but in private events, team members have started to frame that the firm is not anti-ESG, it’s “post-ESG.” Simply put, Strive presents ESG as a fad that society has grown tired of. The firm emphasizes what it is for, not what it’s against. Strive doesn’t fixate on corporate activism run amok; it stresses national unity through depoliticization, echoing Ramaswamy’s campaign. Strive isn’t against green energy; it’s pro-U.S. energy, even solar, wind, and geothermal. Sure, Exxon is the largest holding in its flagship energy fund, which happens to be named DRLL (pronounced “drill”), but any company could be included so long as it rejects “shortsighted political agendas” such as net-zero or diversity commitments.

Last year, when Ramaswamy was still executive chairman, he crisscrossed the country to meet with officials and fund managers from South Carolina to Alaska to share this perspective. States later divested almost $1 billion from BlackRock.

Democrats and progressive watchdog groups have decried Ramaswamy’s tour as a conflict of interest: Was it ethical for Strive executives to advise states to withdraw funds from BlackRock—then compete for that money for its own financial products? When Strive won its first state client, the Indiana Public Retirement System, last November, it only reinforced the idea that Ramaswamy used his conservative-world celebrity to meet with state officials, then set in motion divestments that could flow to Strive. In March, Indiana media discovered that the state had agreed to pay Ramaswamy $4,000 an hour for his consulting services, leading the Indiana House finance committee’s top Democrat, Greg Porter, to wonder if Strive’s “hysteria over ESG” was “a pretense to grift public retirement systems.”

Strive also launched Strive Advisory earlier this year to help investors vote on shareholder issues. The advisory business, sometimes called shareholder or proxy services, gives both the financial and political arms of the anti-ESG movement yet another way to blunt ESG’s gains. Generally speaking, this financial industry backwater serves the goal of making sure that the ultimate shareholders—workers saving for retirement—aren’t snookered by company management into okaying, for example, big executive pay raises. The two major players, Glass Lewis and Institutional Shareholder Services (ISS), control more than 90% of the business and have supported ESG initiatives.

In January, Strive Advisory started to engage with companies and state pension-fund managers to offer a different point of view. Just two weeks after it launched, 21 Republican state attorneys general sent Glass Lewis and ISS a letter—addressed to “woke companies attempting to force shareholders to adopt a left-wing agenda”—warning that their voting recommendations on climate and diversity issues might be breaking state laws. Two months later, in Texas, state senator Hughes’s “fiduciary duty” bill also targeted these firms. “Far too much power is concentrated in the hands of ‘shareholder services,’” Elon Musk noted on Twitter. “ISS and Glass Lewis effectively control the stock market.”

Strive may be focused on profits, but critics ask why would anyone switch pension investments if they’re delivering satisfactory rates of return? Especially when you consider that Strive’s funds tend to have higher fees: Energy fund DRLL, for example, charges customers 0.41% compared with State Street’s 0.1% for a nearly identical fund. DRLL was up 7.5% in its first eight months compared with its rival’s 7.8% over the same period. “What investor in their right mind would pay four times the fees?” asks Andrew Behar, CEO of the pro-ESG shareholder activist firm As You Sow.

Still, almost one year in, Strive appears to be working as designed. It has poached top talent from State Street, Fidelity, Citi, Bank of America, Goldman Sachs, and JPMorgan Chase. Strive’s chief investment officer came from the California Public Employees Retirement System (CalPERS), the nation’s largest public pension fund, known for both its progressive activism and making tons of money. Strive’s head of corporate governance is none other than Justin Danhof, the conservative activist who had an epiphany that “depoliticizing capital markets,” he says, “is a better result than an anti-ESG future.”

Half of Strive’s eight investment funds are up since they launched into this sluggish market, with its U.S. semiconductor one up more than 20%. The firm has approximately $600 million under management, with more than half of it in DRLL, enough for Frericks in February to claim that Strive was on a faster trajectory to $1 billion than any ETF startup in history. As Danhof tells me, “You don’t win hearts and minds by being against something.”

When one of the most anticipated letters in corporate America, Larry Fink’s annual message to CEOs, finally appeared in mid-March 2023 (two months late), something was missing from the 9,000-word missive: the term “ESG.”

Nor did ESG appear in the voting guidelines that BlackRock released in January. This continues a trend in which Fink—who in January acknowledged that the anti-ESG crowd’s “attacks are now personal”—has been quietly backing away from the idea he helped promote. Last year, Fink declared, “Stakeholder capitalism is not about politics. It is not ‘woke.’ It is capitalism.” By contrast, Fink focused this year on “choice.” He promoted BlackRock’s proprietary, first-of-its-kind Voting Choice tool so that investors would no longer have to rely on what BlackRock thought was best for them. In other words, he was giving the anti-ESG forces exactly what they wanted. Last year, BlackRock’s support for U.S. ESG shareholder proposals also fell almost by half. Too many sought to “dictate the pace of companies’ energy transition plans,” the company stated, “with little regard to the disruption caused to their financial performance.”

It’s part of a wider trend. ISS, the proxy service, announced new “board-aligned proxy voting guidelines” in March to, as one of its executives explained, “satisfy many of the Red State pension funds and their legislatures.” Although a recent KPMG survey of U.S. CEOs revealed that 70% agree that ESG improves financial performance, 59% planned to “pause or reconsider” their ESG commitments. MSCI, a leading ESG rating and analytics firm, downgraded 31,000 funds this spring whose scores did not “meaningfully reflect” their true ESG value.

The significant correction bolsters conservative fund managers’ critique that ESG was not only a fad, but the product of a virtue bubble born out of the U.S.’s low interest rates after the 2008 financial crisis. In those halcyon days, companies could pursue gratuitous social causes without consequence, and financial firms could brand funds as ESG on tenuous reasoning. Now, a year into significant inflation, interest-rate hikes, and corporate austerity, investors are focused on making money. ESG only worked, argues the MAGA fund’s Lambert, “in a zero-interest-rate environment.”

Meanwhile, the fossil fuels are flowing. The West’s five largest oil companies annihilated their previous profit records in 2022, raking in nearly $200 billion. Exxon boosted its oil-drilling spending by 45%, and in March, President Biden, who entered office saying he’d reject new drilling on federal land, approved ConocoPhillips’s new 30-year, 600-million-barrel project in Alaska.

As You Sow CEO Behar, however, is defiant. He offers a pointed critique of Strive: The firm has politicized ESG and now offers itself as the solution to the problem it created. The average investor, company, and U.S. citizen, he says, sees through the anti-ESG effort. He’s loath to engage the idea that ESG might be losing ground.

For people who care about the underlying ideals of ESG, their current best hope may actually come from Republican circles. More than three dozen associations made up of bankers, insurance companies, and chambers of commerce—free-market trade groups—have spoken out against some of the proposed anti-ESG legislation based on the Texas law, saying it violates their principles of government interference in corporate affairs. Even Strive’s Danhof counseled the attendees of the National Conservatism Conference’s “Evil, Stupidity, or Grift?” panel last September that “there is no way to boycott your way out of this problem” of many American corporations being “now steadily aligned with the political left.” According to leaked audio obtained by Documented, a watchdog group, some conservatives fear that Democrats will steal the idea of these bills and pass laws to protect wind turbines.

Back in Texas, Isaac isn’t worried. Asked at the Texas Public Policy Foundation event if the anti-ESG initiative he helped kick-start is advancing toward its goal, he at first demurs, declaring it “an uphill battle, big time.” But then he can’t help himself from laying out a sophisticated game plan. He tells me there will need to be “a little cleanup done” to the anti-ESG bills that have rankled free-market absolutists. “If you’re going to boycott, divest, or sanction ranching, farming, or forestry, then expect that the state won’t do business with you,” he says, implying that any carbon-intensive or resource-extractive industry that progressives might target will be protected. Then “we are going to attack insurance,” he vows, because states license and regulate that industry. “You’re into ESG? Great, you won’t even get to operate here anymore. Go to Europe, make your money there. You’re done,” he adds. “That’s what we’re coming swinging with. We just gotta stop this woke political ideology.”