How the ESG Backlash Has Hit One Small Firm

Research and consulting firm Responsible Alpha is dealing with the fallout from a September letter that state attorneys general — led by Tennessee’s Jonathan Skrmetti — sent to Net Zero signatories, claiming they had potentially violated antitrust laws.


Illustration by II

Conservative states have been rallying against huge managers such as BlackRock that use environmental and social factors to make some investments. Now, they’re coming after a small firm.

The target, Responsible Alpha — a research and consulting firm, will likely lose an outside investment as a result of the campaign.

According to Gabriel Thoumi, CEO and founder of Responsible Alpha, the investment would have created 10 new jobs. Now the firm is scrambling to determine what’s next. The move against the consulting firm could be a harbinger for small consulting and investment firms, which often lack the resources and legal fire power of larger shops.

In 2021, Republican-led states began to target BlackRock, claiming that the firm’s efforts in ESG — which include offering some funds that choose investments based on environmental, social, and governance factors and proxy voting choice — are unlawful. The attacks came from multiple angles: A Washington, D.C.-based “anti-woke” group purchased a Superbowl ad targeting the asset manager for its ESG funds.

Then, state treasurers, including West Virginia’s Riley Moore, began divesting from BlackRock’s funds. Others followed.

Some states have worked to prevent their public pension funds from investing with a list of asset managers that have certain ESG strategies. While the implementation of these rules has been tricky — some state pensions still partner with the blacklisted firms in other ways or have found ways around the laws — the reach of these anti-ESG efforts has been strong.


State attorneys general have also wielded their power by sending letters threatening to sue or enforce rules against organizations that have engaged in ESG practices.

The effort has, at least in part, worked: Asset managers, allocators, and service providers have become cautious in how they market — including the words they use — ESG and impact funds. They’re concerned that they, like BlackRock, could be targeted by conservative states.

Responsible Alpha, which employs about 25 people, six of whom work full-time, offers ESG consulting, assessments, reviews, and transition road maps to financial firms. Thoumi stressed that the firm is not prescriptive: Its clients define ESG or sustainability for their own firms. “We’re not selling them our vision,” Thoumi said. “We help them get to where they are going.”

Responsible Alpha, along with massive service providers including the big four accounting firms, S&P, Morningstar, and Bloomberg, signed onto the Net Zero Financial Service Providers Alliance in 2021. Signatories committed to supporting the goal of Net Zero greenhouse gas emissions by 2050.

It was that decision to sign onto the NZFSPA that tangled up Responsible Alpha with the attorneys general.

On September 13, state AGs led by Tennessee’s Jonathan Skrmetti, sent a letter to these signatories, claiming that they had potentially violated antitrust laws. Only a handful of the signatories are small like Responsible Alpha. Skremetti’s media representative did not return two calls and an email seeking comment.

“The substantial commitments you have made as NZFSPA signatories give us pause, as they do not appear consistent with our laws protecting consumers,” the letter said. “Although many of you are direct competitors with one another, you have collectively agreed to coordinate the ‘alignment’ of your products and services under the guise of a shared ideological vision.”

Although Thoumi first though the letter could be spam, his team is now reckoning with the very real fallout of the AGs’ request. Responsible Alpha was in the process of securing an investment by year end that could have allowed it to add ten members to its team. “That funder is probably going to pull out,” Thoumi said, noting that the funder is concerned about what the states could follow up with. “That is 10 jobs lost.”

The states that signed the letter are asking all of the firms targeted to provide a laundry list of communications and descriptions regarding their net zero effort by October 13.

For a firm the size of Responsible Alpha, the risk of receiving a letter like this is much greater than for a firm like BlackRock, or even one of the letter’s signatories like consulting firm Accenture. “The difference between Accenture and us, one we’re the smallest institution on that list,” Thoumi said. “The only thing we do is help institutions decide how they want to transition given the resources they have.”

Thoumi is also concerned about keeping Responsible Alpha’s current clients.

“I have to go to them to share what’s happening,” he said. “I’ll say, ‘if you want to end the relationship you can, think about what’s best for you.’ That’s a difficult conversation to have when they themselves are trying to handle the climate transition, trying to keep wildfires and hurricanes and fires from destroying our homes and our lives.”

Responsible Alpha is one of the smallest businesses to be targeted by state attorneys general for ESG practices so far, Thoumi said.

But it’s likely that the firm isn’t the last.