Sep 9, 2022 - Politics

Republicans take aim at corporate ratings system

Illustration of an elephant stomping on a four-star rating.
Illustration: Maura Losch/Axios

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.

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.

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.
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