Is the end of wokeness near? Most college professors would say no. But signs of wokeness’s retreat in the U.S. corporate sector are unmistakable. One recent settlement in particular may hasten the end of ESG (Environmental, Social, and Governance) investing or relegate it to the fringe investment product that it should be.
Last month, the asset manager Vanguard agreed to pay $29.5 million in fines as part of a settlement in a lawsuit over ESG investing. It must also stop putting ESG before customers’ returns. The suit, brought by 13 Republican attorneys general, targeted the “Big Three” asset managers—Vanguard, BlackRock, and State Street—for their ESG practices, which the states alleged harmed consumers.
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ESG funds were already falling out of fashion before the settlement. Vanguard’s fines and renewed commitment to passive investment could accelerate its end.
According to the plaintiffs, ESG investing by the three asset managers made coal more expensive. Customers bore these greater costs in the form of higher electricity prices. Texas Attorney General (and Senate candidate) Ken Paxton, who led the suit, claimed the three asset managers bought significant holdings in publicly traded coal producers. They then allegedly “collectively announced in 2021 their commitment to weaponize their shares to pressure the coal companies to accommodate ‘green energy’ goals,” including reducing coal production “by more than half by 2030.”
ESG funds invest so as to fulfill “environmental, social, and governance” mandates, which set targets related to causes like climate, fair-labor practices, or diversity. That could entail avoiding investments in, say, fossil-fuel companies, or investing in them in order to exert influence.
ESG funds were riding high just five years ago. Their net inflows more than doubled between 2020 and 2021. As of January 2026, ESG funds had $629 billion assets under management, up 1.9 percent from the year before.
But there were already signs of gloom amid the boom. ESG funds had a $935 million net outflow last January. In fact, money has been flowing out of ESG funds at a greater rate since 2022.
Did ESG investing send energy prices higher? It’s hard to make a direct link from the data. In the past several years, ESG has become a big force in markets, especially in pension funds and in 401(k) offerings, such that it could plausibly move energy prices. But energy markets have seen many other changes—for example, the Biden administration running down the U.S. Strategic Petroleum Reserve in 2022, after Russia launched its war in Ukraine.
The lawsuit alleges in particular that ESG investing raised coal prices. Any influence there is particularly hard to discern, because many energy sources are easily substitutable, and thus developments in the oil market may have an even bigger impact on coal.
The intent of ESG investing, however, is to increase the cost of capital for fossil-fuel producers. All else held equal, ESG investing should eventually increase costs—even if only mixed evidence exists so far to suggest that this has happened.
Driving up the cost of coal has economy-wide implications. People who choose to invest in ESG funds may be willing to take lower returns because they want their investments to reflect their values (though asset managers often promoted their funds as producing higher returns, too). But those costs become harder to justify when the broader public has to bear them. It should therefore come as no surprise that the ESG craze is passing.
While ESG is down, it’s not out. It’s still popular in Europe. A large Dutch pension fund recently fired BlackRock for its lack of commitment to climate goals. But even Dutch pensions and consumers won’t tolerate lower returns and higher energy prices forever.
Photo by: Marli Miller/UCG/Universal Images Group via Getty Images