On July 29, 2025, 26 members (from 20 red states and the purple state of Pennsylvania) of the State Financial Officers Foundation (SFOF) sent letters to the leaders of 25 large asset managers. The mission of SFOF is, “to drive fiscally sound public policy, by partnering with key stakeholders, and educating Americans on the role of responsible financial management in a free market economy.”

The letter begins, “As financial officers entrusted with safeguarding our states’ public funds, we write to express our deep concern about the erosion of traditional fiduciary duty in American capital markets.” And though it notes, “While some firms have recently taken encouraging steps, such as withdrawing from global climate coalitions and scaling back ESG rhetoric and proxy votes,” it goes on to list five steps firms must take in order to continue doing business with these states. This is part of the ongoing anti-ESG campaign conducted by red state attorneys general, treasurers, and auditors, and even some GOP members of the U.S. House of Representatives. As a result, red states have effectively defined ESG in ideological terms, then targeted asset managers for being overly ideological when they take account of material issues that can impact value creation.

Writing in the Harvard Business Review over two years ago, we said ESG should be returned to its “original and narrow intention — as a means for helping companies identify and communicate to investors the material long-term risks they face from ESG-related issues.” Instead, this recent letter shows that ESG has continued to get pulled into political messaging efforts between both parties rather than rightfully being considered as financially material long-term risk factors.

The essence of the letter is captured in this paragraph:

“Fiduciary duty has long been a critical safeguard that facilitated efficient capital allocation grounded in financial merit rather than political ideology. But that clarity is being diluted under the banner of so-called ‘long-term risk mitigation,’ where speculative assumptions about the future, like climate change catastrophe, are used to justify ideological conclusions today. This deterministic approach to investing is not consistent with the fiduciary’s role that recognizes uncertain and unknowable future outcomes and, hence, the construction of diversified portfolios.”

Let’s put aside the assumption that asset managers are using arguments about climate change to justify ideological positions. The more mundane reality is that asset managers are working hard to understand how companies are dealing with the very uncertain future of climate change so they can determine its relevance to long-term investment decisions. In essence, the argument is that asset managers should not think about the future. Rather, they should simply hold a diversified portfolio.

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