Democrats champion free markets as Republicans target Wall Street

The GOP’s war on corporate America’s environmental and social agenda is creating an unexpected set of Wall Street allies: Democrats defending free-market capitalism.

Leading progressives and longtime finance industry critics including Rep. Maxine Waters of California and Minnesota Attorney General Keith Ellison, both Democrats, are embracing the role as House Republicans escalate attacks on investing practices that take into account environmental, social and governance — or ESG — factors. The GOP campaign is pitting Republicans — historically the party that’s less eager for government regulation in finance — against big money managers and other Wall Street players, including BlackRock and JPMorgan Chase.

Republican lawmakers warn that the ESG push by firms and financial regulators is hurting investor returns and the fossil fuel industry.

Waters this month accused Republicans of being “anti-capitalist, anti-investor, anti-business and anti-American” as they launched hearings to discourage efforts that BlackRock CEO Larry Fink and other industry leaders say are critical to addressing climate change's long-term risks for investors. The House ramped up scrutiny as Republican state officials and presidential candidates take an even harsher approach, with Florida Gov. Ron DeSantis fighting with Disney and other major corporations over social issues.

“It is a change of events. It is strange,” Ellison, former co-chair of the Congressional Progressive Caucus, said in an interview. “It feels like people on the conservative end are arguing to try to dictate to private sector, profit-seeking firms what they can and can’t do.”

The response illustrates how the GOP’s escalating culture war with big business is straining its relationship with Wall Street and creating a new line of attack for Democrats ahead of the 2024 election. Rep. Brad Sherman (D-Calif.) said at a hearing this month that former President Ronald Reagan “would be ashamed" of his party's new approach.

“The party formerly of free markets has decided that they will use the power of government to pound on Disney, to pound on banks that … won’t invest in the carbon industry,” Rep. Jim Himes (D-Conn.) said in an interview. “We’re standing up for free markets against a Taliban-like attack on the private sector.”

House Republicans who are looking to discourage climate-focused investing argue they’re doing it to protect individual investors from getting poorer financial returns, rather than restricting choice. They say it’s about shielding public companies from pressure triggered by activists, blue-state pension funds and regulators. The fossil fuel industry is supporting the GOP's attempted crackdown on sustainable business.

Rep. Andy Barr (R-Ky.), one of the lead Republicans on the issue, said at a hearing this month that critics have responded to anti-ESG proposals “with hysterics, even invoking Trotsky, to conflate non-owner stakeholders, woke institutional investors and proxy advisory firms for bona fide shareholders.” Proxy advisory firms give guidance to investment managers on how they should vote on shareholder matters at public companies.

Barr sponsored a measure that Republicans pushed through Congress earlier this year, with the help of a few Democrats, that would have repealed a Biden Labor Department rule that permits retirement investing tied to environmental and social goals.

Biden vetoed the rollback as Democrats flexed free-market values.

"This bill would risk your retirement savings by making it illegal to consider risk factors MAGA House Republicans don't like," Biden said on Twitter at the time. "Your plan manager should be able to protect your hard-earned savings — whether Rep. Marjorie Taylor Greene likes it or not."

Democrats argue the Republican crusade against sustainable investing is an effort to protect the fossil fuel industry. The American Petroleum Institute, for example, supports a Barr bill that would require investment advisers and retirement plan sponsors to prioritize financial returns over ESG factors. Investor advocates have warned that anti-ESG legislation would insulate public companies from shareholder input and deprive investors of important information.

“One thing I’ve learned in 15 years in Washington is that very few players in the free market want a true free market with real competition,” Himes said. “They want protection, they want subsidy, they want tax breaks. So there’s not a lot of free marketers around here — or in the purportedly free market.”