Here We Go Again: Red States Continue to Focus on ESG
Summary
On 29 July 2025, 26 state financial officers (mostly from red states, plus Pennsylvania) via the State Financial Officers Foundation (SFOF) sent a letter to 25 large asset managers asserting that consideration of ESG — especially long-term climate risks — dilutes traditional fiduciary duty. The letter urges managers to avoid using ownership positions to influence company behaviour beyond short-term, material financial considerations and to revert to older understandings of fiduciary duty.
Authors Robert Eccles and Daniel F.C. Crowley counter that ESG, at its core, should help investors identify materially relevant long-term risks (including climate change, AI, geopolitics, demographic change, inflation and tariffs). They argue that ignoring such risks may itself breach fiduciary duty and that states redefining fiduciary duty to exclude long-term considerations undermines investor freedom and free-market principles. The piece warns that politicising ESG harms efficient capital allocation and investor choice.
Key Points
- 26 state financial officers sent a letter demanding asset managers avoid ideological investing and restrict engagement to short-term, material financial issues.
- SFOF frames ESG consideration — especially climate risk — as ideological and inconsistent with fiduciary duty.
- The authors argue ESG should be understood narrowly as identifying material long-term risks to value, not as political activism.
- Asset managers typically assess uncertain future risk factors (climate, AI, geopolitics) to inform long-term investment decisions rather than adopting deterministic or ideological stances.
- Legal scholarship suggests fiduciary duty is not a single, fixed duty; states can set mandates for assets under their control but cannot erase other investors’ rights in a free market.
- Authors warn that ignoring ESG risks may itself be a breach of fiduciary duty and that politicising ESG harms market efficiency and investor freedom.
Why should I read this?
Because if you work in asset management, public finance, corporate governance or you care about how capital gets allocated, this matters — and fast. The note from 26 state financial officers signals renewed, coordinated pressure to limit how managers consider long-term risks. Read this to know what regulators and large public investors are pushing, and what that could mean for voting, stewardship and investment mandates.
Context and relevance
This piece sits at the intersection of public finance, regulatory politics and investment practice. It reflects an ongoing campaign by some state officials to recast ESG as ideological rather than risk-management. That effort has practical consequences: procurement and custody rules, requests for separately managed accounts, proxy voting pressure, and potential litigation or state-level restrictions on asset managers’ stewardship activities.
For investors and corporate leaders, the article highlights two trends: (1) continued politicisation of ESG in certain states, and (2) the counterargument from governance scholars and practitioners that materially assessing long-term risks is part of a fiduciary’s duty. The outcome will shape stewardship, disclosure and the scope of permissible investment practices across public and private portfolios.
Author’s take
Punchy and clear: the authors defend investor freedom to consider material long-term risks and to engage as shareholders. They emphasise that a narrow, short-term-only view of fiduciary duty is both unrealistic and potentially harmful to beneficiaries’ long-term returns.
