At least 165 bills and resolutions against environmental, social and governance investment criteria were introduced in 37 states between January and June 2023, according to a new report, despite legislative analyses that pointed to billions of dollars in potential losses.

The policy debate over using ESG criteria to assess investment risks and opportunities struck statehouses nationwide. But the well-organized campaign to outlaw ESG-based investing ran into resistance from business groups worried about government overreach and bankers who warned they violate free market principles.

Lawmakers in some states got cold feet. So far, 83 — or just over half — of the anti-ESG initiatives have failed while 19 bills have become law and six resolutions were passed, said the June 22 report from Pleiades Strategy, a climate risk consulting firm. The North Carolina Legislature overrode a veto from the state's Democratic governor June 27, securing the 20th anti-ESG law so far this year. Most states have wrapped up their 2023 sessions, although a handful of states have year-round legislatures.

Two bills are awaiting action by governors, and 12 bills are pending, the report found. Another 42 will automatically be reintroduced in 2024, although that does not mean they will be acted on.

Frances Sawyer, the consulting firm's founder, said she started to track ESG legislation in Republican-leaning states in summer 2022 as corporate clients began to ask about the developments.

"A number of them were concerned about these bills and really wanting to understand how they were propagating through state legislatures," Sawyer said in an interview. The breadth of the financial agencies and programs targeted by the bills came to amaze her, Sawyer said.

State officials began taking action in 2022 against banks that consider ESG factors and manage public money. This later morphed into a broad campaign against asset managers of state pension funds that employed similar criteria. The latest target is insurance firms, which will be prohibited from considering ESG when setting rates in Texas starting in September.

A sweeping new anti-ESG law going into effect July 1 in Florida requires investment managers to certify to the state each year that they are making investments based only on financial factors, or they could face sanctions. Legal experts said it is the most restrictive law of its kind.

Divergent and ever-changing policies have become a growing challenge for financial firms that must fundraise across conservative and liberal states. Money managers today spend much of their time and energy just trying to adapt their pitches in a culturally divided market, said Josh Lichtenstein, a partner with the corporate law firm Ropes & Gray.

"I definitely hear clients talk about what the world will look like when you're no longer able to manage red-state money," Lichtenstein said. "It's never that they don't want to manage it anymore, but they say, 'what happens when it becomes untenable?'"

Republican lawmakers have criticized criteria like climate risks or board diversity as liberal diversions that hurt investors. Some state lawmakers have also said ESG metrics go beyond investment managers' fiduciary duty to provide the best financial returns for their clients.

The financial industry and liberal states said ESG-related factors are among a host of risks and opportunities that managers must weigh, especially when it comes to long-term investments such as pensions. They also reject the notion that ESG considerations hamper investors from serving their clients' interests first, as required by law.

While ESG fund investments plunged in 2022, they have since been on a rebound. Analysts with Economist Intelligence also expect sustainable finance to do well this year, and broad stock market indexes such as the S&P ESG 500 continue to slightly outperform the S&P 500.

The Pleiades Strategy study charts how Republican and libertarian groups, some with ties to the fossil fuel industry, fueled the 2023 campaign to propagate anti-ESG bills in conservative states. The report also documents opposition to such legislation that emerged in some of those states.

In Wyoming, the state's chief investment officer, Patrick Fleming, warned lawmakers in January that divesting from large money managers such as JPMorgan Chase & Co. would cost the state upward of $500 million. All three anti-ESG bills introduced this year in the GOP-controlled state failed, Pleiades Strategy reported.

In Texas, a bill quietly died after the director of a state retirement system told lawmakers that it would cost that system $6 billion over the next decade. As many as 12 anti-ESG bills were introduced in Texas in 2023, and just one has been signed into law, according to a Ropes & Gray tally.

"But that's not the end of the story," Lichtenstein said. "Things will carry over and other [bills] can be introduced."

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.