Centerline: How The Free Market-Right Is Working For A Return To Normalcy

On January 18, 2024 an organization called Centerline Liberties (Centerline) issued a press release titled “Center-Right Taxpayer Advocacy Leaders Unveil Free-market, Pro-growth Investment Principles Related to ESG.” Despite my rather deep involvement in the “ESG Culture Wars,” I was surprised to see this group of center-right organizations and individuals wade into the debate with a nuanced approach. On first glance, simply seeing the word “center-right” it would be fair to assume that this is just a more intelligent objection to ESG than what is coming out of more conservative corners of the Republican party such as think tanks like the Heartland Institute and the Heritage Foundation, some Republican members of the House of Representatives, and red state governors and legislatures. I have written about the efforts of Congressman Jim Jordan, Governor Ron DeSantis, and red state anti-ESG legislation. (Stay tuned for more on Heartland and Heritage.)

What Centerline is doing is refreshing and sensible. Its press release announces that “nine center-right taxpayer advocacy leaders announced a set of investment principles to Members of Congress meant to drive economic growth, innovation, and progress related to ESG. The principles were unveiled in a January 18, 2024 letter to the Chairman [Patrick McHenry (R-NC)} and Ranking Member [Maxine Waters (D-CA)} of the U.S. House Committee on Financial Services to discourage “bans or mandates targeting the investment decisions of individuals, pension funds, or businesses.”

The letter opens: “We, the undersigned organizations, write to Congress concernin”g a noticeable increase in heavy-handed policy and rulemaking focused on environmental and social considerations, sometimes referred to as ‘ESG,’ which has resulted in market distortions and reduced economic freedom. These politically motivated actions, driven by extreme positions in both parties, carry outsized ramifications for taxpayers, families, and businesses in a time of intense change and grave economic uncertainty.“ Here are the individuals who signed this letter. Not a single fellow liberal in the bunch!

Pete Sepp, President, National Taxpayers Union

David Williams, President, Taxpayer Protection Alliance

Devin Hartman, Director, R Street Institute

James Dozier, President, Centerline

Chris Barnard, President, American Conservation Coalition

Nick Loris, Vice President, C3 Solutions

Thomas Kingsley, Director, American Action Forum

Carlos Curbelo, former Member of Congress

John Szoka CEO Conservative Energy Network

While the letter calls on ESG extremism on both sides (largely exclusions and divestments of fossil fuel companies on the left and anything ESG more broadly on the right), my reading is that their target is more the right, which makes sense given it’s where their strongest policy relationships exist. It makes strategic sense as well given the astonishing amount of time and energy being expended in red states to pass anti-ESG legislation in many forms.

For those of you who want to keep track of all the crazy fun, Pleiades Strategy provides an online tracking tool of anti-ESG legislation in 28 red states. The “progress” has been remarkable in terms of the growth in activity, but much less so in terms of bills passed as business and investor groups have pushed back, like in Wyoming. In 2021, 28 bills were introduced in 13 red states. In 2024 there are currently 154 bills, 58 being carryovers from 2023 and 96 introduced this year already. Only 42 have been passed in 18 states.

The bills vary in terms of how draconian they are in terms of inhibiting how free markets are working in those states. Seventy of these bills are dead and more are likely to join them in their coffins. There are 11 South Carolina bills that have not moved at all since early 2023. None of them crossed over before the required deadline, but technically the legislature could revive them if they wanted to.” There are also nine bills in Arizona that almost certainly wouldn’t survive if they make it to the Democratic governor’s desk. In short, what a lot of performative wasted time, energy, and taxpayer dollars to either accomplish nothing or to make!things worse for red state citizens, as I will show.

In some cases, the legislation which is passed is accompanied with fiery anti-ESG rhetoric but in substance it’s hardly an ESG Dragon Slayer. A good example of this is Florida House Bill 3, “An act relating to government and corporate activism.” Gov. Ron DeSantis’s lectern at the signing ceremony read “Government Of Laws, Not Woke Politics.” Now, there’s some florid rhetoric to fire up the base to let them know their Guvnor is protecting them from, channeling Mike Pence, pernicious progressives liberals intent on destroying America As It Should Be!

But once you’ve enjoyed the bombastic fun and read the substance of the bill it’s just fine. I have written about it approvingly in the hardly-ESG-friendly The Wall Street Journal. The bill states that investment decisions can be based only on “pecuniary factors,” defined as a factor that the CFO or another party authorized to invest on his behalf “prudently determines is expected to have a material effect on the risk or returns of an investment based on appropriate investment horizons consistent with applicable investment objectives and funding policy.” Since ESG factors can be material, and this is heavily industry dependent, they are, by definition, “pecuniary.” Second, it requires that this investing “does not include the consideration of the furtherance of any social, political, or ideological interests.” Pretty clear to me this includes these interests on both the left and the right side of the political spectrum. I’m totally good with that too.

But when the legislation truly embodies the ideological, economically irrational, non-free market extreme of anti-ESG sentiment, the results can be devastating to the state’s own economic self-interest and its citizens. A good example of this is in the Lone Star state which, along with Arizona, is the only truly red state (Florida only makes it to orange, perhaps because of the sensible nature of House Bill 3) based on my color spectrum analysis. The Texas Association of Business Chambers of Commerce Fund (TABCCF) recently released the report, “The Potential Economic and Tax Revenue Impact of Texas’ Fair Access Laws.” According to the TABCCF study, during 2022-2023, the Texas anti-ESG legislation resulted in an estimated:

• $668.7 million lost in economic activity.
• $180.7 million in decreased annual earnings.
• 3,034 fewer full-time, permanent jobs.
• $37.1 million in losses to State and local tax revenue.

The study asserts: “These findings illustrate that when government attempts to mandate values, no matter what kind to businesses, the market loses.”

The Progressive Policy Institute (PPI) cites this Texas study in warning Arkansas about similar legislation it is considering. Digging an even deeper economic hole in Texas, the PPI notes that Aaron Kinsey, the CEO of an oil and gas company and the Chair of the Texas State Board of Education (SBOE) announced that the Texas Permanent School Fund Corporation plans to divest approximately $8.5 billion of assets BlackRock currently manages for them. Ah, how these red states love to bash BlackRock, cutting off their nose to spite their face! The PPI notes that this “move that will undoubtedly further increase costs while reducing returns for Texas schools.”

Adding drama to the growing deficit, this decision “allegedly came without a formal board vote,” something not welcomed by Kinsey’s fellow board member Republican Pat Hardy, who said that she was unaware of any decision to divest from BlackRock. “We just can’t divest from them overnight. They’re very good moneymakers for us.” She also noted “They’ve been really good. They’ve been one of our main investment people for, gosh, 15 years.” Nice to see some economic rationality challenging ideological idiocy. Finally, and ya gotta love this, Hardy said that while she knew Kinsey supported divesting the funds, “I think we should just let it rest because every company you try to invest in has that ESG.” Sensible ESG ain’t goin’ away any time soon.

And that is why the work of Centerline and other free-market conservatives is so important. It is advocating for seven free-market, pro-growth investment principles related to ESG:

· Reject the creep of Big Government interventions; Promote limited-government and pro-growth policies that eliminate red tape and reduce tax burdens.

· Protect pensions and investments from politicization. Do not ban nor mandate certain types of investment decisions that are outside the realm of maximizing return on investments by individuals or entities in the free market.

· Ensure fiduciaries uphold the Duty of Care and Loyalty at all times and act in the interests of their clients.

· Remove the shackles of government and allow businesses, pension funds, and individuals to responsibly plan for future uncertainties in a time of rising prices and increased debt.

· Encourage business-friendly environments with free and informed capital. Do not interfere with the free flow of capital.

· Allow businesses to voluntarily adopt sustainable practices or address the social considerations of their workforce free from government mandates.

· Keep the government out of boardrooms and reject politically motivated efforts to steer government business away from or towards certain companies based on narrow political agendas.

I’m 100 percent on every single one of these. And I can’t understand why any true conservative or free-market inclined progressive would object to these principles.

Thus, I’m extremely pleased to see the center-right pushing for a return to traditional conservative values in an effort to restore some economic rationality in red states. For their own good. Hats off to them! I asked James Dozier, the President of Centerline Liberties how this group plans to enact its agenda. He told me:

“Across America, we are beginning to see the true costs to taxpayers and pension funds stemming from anti-free market laws. Just as policymakers must make the most informed decisions possible to benefit their constituents, Centerline will continue to make the conservative case against extreme economic boycotts and bans proposed by either party. We believe that once state and federal leaders see the economic impact data, they will agree there is no upside in fighting culture war issues with taxpayer and pension fund dollars.”

I couldn’t have said it better myself.