Unions are using the politicized investment framework to advance their agenda at the expense of workers, their own members, and even taxpayers.
Unions are using the politicized investment framework to advance their agenda at the expense of workers, their own members, and even taxpayers.
H ouse Republicans have declared July “ESG month,” planning hearings and bills to push back against politicized environmental, social, and governance investing. Yet so far, lawmakers have almost exclusively focused on environmental issues. Republicans should also pay attention to the “S” in ESG, which labor unions are using to advance their agenda at the expense of workers, their own members, and even taxpayers — a problem that President Biden has significantly worsened.
The 2023 proxy season, which started in January and ended in June, shows the union campaign in action. Union funds and their allies, such as the New York City Employees’ Retirement System and like-minded investment managers, introduced many ESG-focused shareholder proposals designed to accelerate unionization. Consider Apple, which was targeted by five New York City pension funds, multiple investment managers, and the SEIU Master Trust Pension Plan, among others.
In January, in response to a shareholder proposal, Apple agreed to a third-party assessment of its collective-bargaining policies. Unions hope the assessment will put pressure on Apple to accept unionization. New York City comptroller Brad Lander called the campaign “an example of ‘ESG done right,’” while the chairman of the Teachers’ Retirement System board applauded the effort to “make it easier for workers to organize.” Starbucks shareholders approved a similar proposal in March, while other measures were filed at Amazon, Walmart, and CVS.
At other companies, unions and their allies demand a promise of neutrality in unionization drives, a policy known as “noninterference.” It ensures that workers only hear from unions, depriving them of vital information and dramatically increasing the chances of unionization. Delta Air Lines, Chipotle Mexican Grill, DoorDash, Netflix, and Tesla faced noninterference proposals this year. Other frequent union-backed proposals seek pay and DEI audits, which unions use to sow negative media stories about companies.
Whatever form it takes, this campaign bears the hallmark tactic of union organizing efforts. The combination of new corporate policies and negative public-relations campaigns strong-arms companies into accepting unionization with little to no resistance. When companies stay neutral, they also raise the likelihood that unions will use card check, ending private voting for workers and increasing the likelihood of union intimidation and coercion.
Union allies have backed ESG proposals for years, but in the past six months, union pension funds have been freed to join this campaign, making its success more likely. The 2023 proxy season was the first since the Biden administration’s repeal of two Trump rules that protected private-sector retirees — including those in private-sector-union pensions — from having their retirement funds used for politicized shareholder activism or investment.
Until January, these funds were required to evaluate investments based solely on financial considerations. They were also prohibited from subordinating beneficiaries’ interests to nonfinancial objectives. (These regulations did not apply to state and local public-pension funds.) In a bipartisan vote in the spring, Congress passed a bill that would stop Biden’s Department of Labor from repealing these rules but failed to overturn the president’s veto.
The unions’ campaign is just getting started. As they step up their activism, more companies may bow to their demands, following the example of Apple in January. Yet workers and retirees are being forced to fund a political agenda that may contradict their personal values and even lower their investment returns. Sanjai Bhagat, professor of finance at the University of Colorado, has found that “the evidence suggests strongly that investor returns have been significantly negative for funds that focus on ESG issues.” He also argues that companies that unionize could lose 5 to 10 percent of shareholder value, largely because a “company cannot be as flexible once it is unionized.”
In other words, by pushing politics and unionization through investing, unions are losing their members money. Some union pension funds are known to be famously mismanaged, and by taking away safeguards for private pension funds, President Biden has worsened this crisis. Taxpayers should be worried, too. Since 2021, the Biden administration has budgeted up to $91 billion in bailouts to union pension plans, and now that unions can fully pursue ESG, taxpayers can expect to cover even more red ink.
Unions’ rapidly growing use and abuse of ESG must be stopped. State-level efforts to curtail politicized investing with state dollars are well under way, but the federal government is heading in the wrong direction. The Trump-era rule, with its singular focus on investor protections, can’t return soon enough. While legislation is unlikely to pass with Joe Biden in office, Republicans should make it a centerpiece of their agenda for 2025. And they should make clear to Americans that ESG is about more than the environment; it’s a threat to workers, investors, and taxpayers, too.