Capitalism thrives through adaptation and change. The anti-ESG movement wants to freeze it

The opinions expressed here by Trellis expert contributors are their own, not those of Trellis or its editors.

Two court decisions in recent months have changed the landscape of the political battle over ESG. In February, a federal court struck down Texas’ flagship anti-ESG statute as a violation of the First and Fourteenth Amendments (American Sustainable Business Council v. Hegar). In May, the Oklahoma Supreme Court invalidated the state’s Energy Discrimination Elimination Act on fiduciary grounds.

In other words, a law passed in the name of protecting pensioners from politicized investing was struck down because it harmed pensioners. The movement’s legal architecture is failing on its own stated principles. But the fight is far from over: Anti-ESG bills still outnumber pro-ESG bills in statehouses by roughly 2.5 to 1.

Defense doesn’t work

Sustainability executives have spent the past few years playing defense —  greenhushing, renaming funds, softening proxy language —  because the opposition had successfully framed itself as the defender of free-market capitalism. Here, I present the offensive strategy: a pro-market, conservative case for sustainability and social justice that relies on the power of markets and fiduciary duty, not on conviction and principle. 

The courts, it turns out, have been writing it for you.

The narrow path

The courts based their decisions on a narrow and old-fashioned idea: the right of capital owners and their fiduciaries to incorporate whatever considerations they deem material to the allocation of their own capital. Not a fund label. Not a ratings methodology. A property right.

The system of capitalism that the anti-ESG movement treats as eternal and immutable is, on inspection, a sediment of contested innovations. Limited liability was once denounced as a moral hazard severing ownership from accountability. The Securities Acts of 1933 and 1934 were called the end of free enterprise. Index funds were dismissed as “un-American” and “Bogle’s folly.” Even shareholder primacy, the supposed bedrock of modern capitalism, dates to Milton Friedman’s seminal  1970 column in The New York Times, not to scripture or Adam Smith.

Each of these innovations was tested, contested and eventually metabolized by the markets. Others failed and vanished; markets dispose of their failures efficiently. That process is not a flaw.  It’s capitalism’s essence. A system that can no longer admit new entrants and new preferences is not being conserved. It is being embalmed.

Responsible investing is simply the current iteration: products, frameworks and analytical claims offered to a market that will sort them. And it has been sorting them vigorously. Greenwashed funds have been pruned. Label inflation has been punished by investors and regulators. Anyone claiming that ESG operates beyond market discipline has not watched fund flows since 2022.  

The apparatus of “free market” protection

Nevertheless, roughly two-thirds of U.S. states have enacted legislation that restricts government dealings with firms over their postures toward favored industries. In 2025, statehouses saw 192 anti-ESG bills proposed against 76 in support. 

These laws compile lists of disfavored private actors, prohibit commerce with them and require loyalty attestations from the rest. We have a name for this. It’s called industrial policy, and it carries central planning’s signature feature: the costs land on people who never voted for them.

After the Texas law took effect, five of the largest municipal bond underwriters left the state. The lost competition cost Texas issuers an additional $300–$500 million in interest on $31.8 billion of borrowing in the first eight months alone. 

That is a tax, levied by legislators on their own school districts and water authorities, that subsidizes a political posture. Friedrich Hayek warned about the delusion that legislatures could outperform the market’s discovery process; the anti-ESG movement has spent the past five years proving him right.

Fear is understandable, but the strategy is self-defeating

In short, opponents argue that ESG smuggles political preferences into capital allocation, distorts fiduciary judgment and corrodes the system that produced American prosperity. Defending capitalism requires stopping it.

Their solution is to freeze capitalism’s current configuration in legislative amber. But stasis has never been how durable systems persist. Resilience comes from absorbing new entrants and retaining what works through market competition — precisely the capacity the anti-ESG project attacks. It attempts to assure capitalism’s permanence by disabling the adaptive mechanisms that sustain it.

The court in Oklahoma turned the movement’s flagship legal theory —  that pecuniary factors alone may guide fiduciaries — against it. Fiduciary duty cuts both ways: If a manager’s climate-risk analysis is material to returns, prohibiting that analysis is the breach.

The demographic arithmetic

Here’s the forward-looking argument: The largest intergenerational wealth transfer in history is underway. An estimated $124 trillion in U.S. household assets will change hands through 2048. The succeeding generation may not always favor sustainable strategies, but it’s clear that a growing cohort of capital owners will demand that they are on the menu. 

American gatekeepers can greet these new owners as they have every prior generation: Develop your tactics, and the market will grade them; some will compound, some fail and the system will grow more robust. Or they can greet them with statutes that limit choices by prohibition, blacklist chosen managers and pre-emptively adjudicate their analytical frameworks in state legislatures.

The conservative case

Freedom of contract, capital allocation by owners rather than by legislatures, skepticism of government lists of disfavored businesses, resilience through adaptation rather than mandate — these are conservative commitments, and every one of them sits on the responsible-investing side of this fight. The recent court decisions established no new principles; they applied old ones to laws that violated all three.

The anti-ESG movement believes it is defending the American way of life. But that has never been a fixed inheritance to be guarded. Rather, it is a process of open entry, honest testing and ruthless pruning that each generation is invited to join. Let the market decide. It was always going to anyway.