Republicans take aim at corporate ratings system

Prominent GOP officials in Arizona are pushing back against a "responsible investing" business ratings system that many Republicans view as "woke capitalism."

Context: Environmental, social and corporate governance (ESG) ratings measure a company's commitment to environmental issues like combating climate change, social issues like diversity and corporate governance issues like business ethics.

Why it matters: People who want to invest in companies that share their values or who believe those values are financially prudent can use ESG ratings to guide their decisions.

• Microsoft, for example, consistently ranks as having one of the top ESG scores, while Exxon-Mobil holds the 89th spot in one ratings service but ranked as the top oil and gas company.

Yes, but: Republicans view the growing use of ESG ratings as the sacrificing of profit-based financial decisions in favor of progressive policies.

Driving the news: Arizona Attorney General Mark Brnovich and Treasurer Kimberly Yee have both taken recent steps to push back on the use of ESGs.

What's happening: Yee is threatening to bar state investments in Chicago-based financing company Morningstar Inc.

• She says its subsidiary Sustainalytics' ESG rating system violates a state law that prohibits public entities from investing in companies that support the boycott, divestment and sanctions (BDS) movement against Israel.
• Sustainalytics uses companies' involvements in controversies in the Israel-Palestinian conflict as part of companies' ESG score.
• Yee also announced an update last Tuesday to her office's investment policy statement prohibiting the use of ESG ratings to guide state treasury investment decisions.
• Sustainalytics also rates companies based on involvement in human rights abuses, including in China, Myanmar and Russia.

What they're saying: "[Sustainalytics] is taking active steps where they're creating an environment where people could then take their information to use to support the boycott of Israel," deputy treasurer Mark Swenson tells Axios.

Meanwhile: Brnovich is one of several Republican AGs who are challenging proposed federal disclosure rules regarding ESG ratings.

• They are questioning whether an investment company is pursuing a "climate agenda" to the detriment of its clients' financial interests and whether Morningstar and Sustainalytics are "furthering the BDS movement."

The other side: A Morningstar spokesperson tells Axios that the company "does not support the anti-Israel BDS campaign."

• The financial company has not yet responded to Yee's letter.