Who loses in the anti-woke payback plan? Public retirees, taxpayers, and maybe the Republican Party.

HB1307, a bill that prohibits the state from investing in woke financial businesses, passed the Arkansas Senate today. The bill will have an expensive impact on the state’s retirement accounts, jeopardizing the livelihoods of Arkansas firefighters, police, and teachers — just so lawmakers can punish companies too progressive for the legislature’s taste. 

An Arleg bill entitled “An act concerning the regulation of environmental, social justice, and governance scores” is part of a national push to retaliate against financial institutions for supporting ESG standards. ESG stands for environmental, social, and governance practices, which are the standards financial institutions use to determine investments. Recently, many large companies have taken progressive stances on social issues and are increasingly public about those stances. But the banking industry in particular needed a social rebrand after the financial crisis of the mid-2000s. In an attempt to move away from perceptions of being morally bankrupt, banks began prioritizing investments based on forward-thinking standards, which ultimately became financial best practice for the industry. 

But deep in the heart of Texas, fossil fuel companies were not thrilled with the progression of investment standards. Global financial institutions’ prioritization of green energy meant less investment in traditional oil and gas. Fossil fuels took action; a powerful lobby force in Texas, the industry used its influence with lawmakers to pass legislation punishing financial institutions that refused oil and gas investment. By 2021, the Texas treasury divested its public retirement accounts from “woke” firms, namely titans in investment banking that provided the most flexible, cost-effective returns for public accounts. The result was costly; the divestment lost Texas between $300 million and $504 million in fees and interest rate increases within the first year of implementation.

Arkansas is headed in the same direction. Arleg is posed to effect the same outcome for our public retirement accounts, which are also tied up in some of the world’s most well known financial institutions that practice ESG standards. If HB1307 becomes law, Arkansas will be forced to withdraw funds from banned accounts and place them with smaller companies that do not adhere to ESG standards. Smaller companies, however, charge higher fees and rates, costing states like Texas millions of dollars in lost revenue. 

Sen. Jimmy Hickey (R-Texarkana) pointed this out during his speech on the Senate floor. His colleague, Sen. Blake Johnson (R-Corning), noted that Arkansas guarantees retirement funds to public employees, meaning the state is required to pay out pensions in full regardless of their rate of return. As a result, Arkansas taxpayers will foot the bill for whatever potential losses the state incurs from its divestment. This is neither good banking nor good policy. It’s punitive, and either retirees or taxpayers will be punished for the legislature’s anti-woke posturing. 

Sen. sponsor Ricky Hill via Arkansas Dem-Gaz / Staci Vandagriff

Moreover, the retaliation move puts the GOP’s breakup with Wall Street on full display. Over time investment companies have evolved away from conservative social stances towards more progressive ones because as Americans progress socially, so do financial institutions.

Thus the market’s intuition is to freely respond to supply and demand. Consumers are younger, more socially tolerant, and as diverse as ever, and the market has shape-shifted to address these demands. True fiscal conservatism would support these changes, allowing the market do what it needs, which is the definition of the French term Laissez-faire — the economic philosophy of minimum governmental interference. The free market economy is a key function US capitalism and a core pillar of the Republican Party

So what happens when conservatives abandon a core principle to get political payback? Identity crisis. Today’s GOP is experiencing an ethos earthquake, with some members hanging on to traditional values like fiscal conservatism, while others abandon party principles to win political fights. The Arkansas supermajority has embraced the latter and has become a body of big government mandates, business prohibitions, and economic intervention. The Arkansas GOP has abandoned its identity to win a perceived culture war

Again, power and control are at the heart of this change, and the shift has fractured the Arkansas caucus. Only three Republicans voted against the bill: Sen. Jonathan Dismang (R-Searcy), a champion of fiscal conservative values, and Senators English and Hickey. Members who voted for the bill are ones consistently guided by resentment, not conservatism.

In his address to the body, Sen. Clarke Tucker (D-Little Rock) stated, “We are costing the AR taxpayers their money, and for what reason? To make a point.” So far, the Arleg GOP’s retaliation on “wokeism” has been pointed and specific, targeting limited groups of Arkansans. HB1307 is an audacious next step, one that risks public retirement security and the allegiance of true conservative voters.

Arleg’s obsession with the culture wars is going to cost us. Literally.