The fight over environmental and social governance (ESG) policy has gotten so out of control that Texas is seemingly trying to emulate California. The Lone Star State –  a great economic success story – is now trying to engage in the concerning practice of micromanaging private businesses. 

This approach is incredibly surprising, when you consider that California and Texas have been almost polar opposites in recent years.

Whereas Texas has created a hospitable economic climate for families and businesses alike, California has followed a disastrous path of exceedingly high taxes and expansive regulations. 

Case in point, the Lone Star State doesn’t have a state income tax, while California’s top rate of 13.3% is the highest in the nation. More broadly, when it comes to economic freedom, Texas is ranked sixth in the nation, while California sits at 48th, according to the Cato Institute. 

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Not coincidentally, the Texas population grew by more than 473,000 last year – the biggest gain of any state. During the same period, California lost more than 75,000 residents and was one of just seven states to lose population. 

The contrasting philosophies of the two states couldn’t be much starker. Given the circumstances, one might think that California would steal the Texas playbook and copy it. That could theoretically help the Golden State reverse its outflow of population and begin to get out of its current fiscal disaster – it is now looking at a $68 billion deficit with nothing but more red ink on the horizon. 

Surprisingly, it seems the exact opposite is happening. Texas Republicans have begun implementing California-style anti ESG restrictions on businesses in the next culture war front. Some of these efforts look like they were lifted right out of the California playbook. 

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Indeed, several years ago, California lawmakers forced its largest pension funds – which manage the retirement savings of teachers and state employees – to divest of tobacco investments. While the elected officials making these decisions might have scored political points by doing so, their actions cost retirees $4.3 billion, according to a report. 

Unfortunately, that’s the road Texas is heading down. It’s now blocking certain financial institutions from participating in municipal bond markets in an attempt to push back on ESG policies. 

No matter what you think about ESG, this will cost taxpayers millions of dollars, as it will reduce competition and raise the interest costs that taxpayers must shoulder. An analysis from economists at Penn Wharton suggests it could cost Texas residents as much as $532 million in higher interest rates over just an eight-month period.

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Unfortunately for taxpayers, the arms race picked up speed in 2023. Last year, California passed onerous climate disclosure rules that will force enormous regulatory costs on businesses operating in the state. And because most large companies have a presence in California, these costs will be passed down to consumers across the country. 

Not to be outdone, Texas passed a law that will regulate insurance companies’ usage of ESG factors when they underwrite policies. That means when it comes to crafting insurance policies, the wisdom of politicians and bureaucrats could supplant that of private insurance and reinsurance companies – a model that sounds very Californian. 

It would be bad enough if this ESG war was limited to our two largest states, but of course, others have joined the fray with red states lining up behind Texas while blue states team up with California. Stuck in the middle, as usual, are taxpayers who have to foot the bill for this back-and-forth battle. 

This puts us on a concerning trajectory – one that needs a course correction from both Republicans and Democrats. 

Simply put, all politicians should stop using taxpayers as their pawns as they duke it out in the culture war. And Texas politicians in particular should know better than to mess with their own state. 

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