Maybe ESG Is Illegal Now

The way US federal law works is that there are only a few federal judges in the Fort Worth Division of the US District Court for the Northern District of Texas, and they are extremely conservative.1 The best-known is Judge Reed O’Connor, “who critics say has been a subject of ‘forum shopping’ by conservative plaintiffs seeking a sympathetic court in challenges to federal policies.” So if you have a novel, conservative legal theory, what you do is you file a lawsuit in the Fort Worth federal courthouse, and then you probably get assigned to Judge O’Connor, and he probably endorses your novel legal theory. Then maybe the other side appeals, to the US Court of Appeals for the Fifth Circuit and perhaps eventually to the US Supreme Court, but these days those courts are also quite receptive to novel, conservative legal theories, so your chances are good.

Environmental, social and governance (ESG) investing is quite controversial now, with a lot of conservative critics. And so Judge O’Connor was naturally asked to declare that it is a violation of fiduciary duty for an investment manager to consider ESG factors in making investment decisions, and last Friday he did that. Here is the opinion. It is hard to know how seriously to take this — it could be appealed, etc. — but in general the political winds do seem to be shifting against ESG, so it’s possible that this is right and ESG is now sort of illegal.