• ESG policies burden farmers with excessive costs, stifle innovation, and disrupt supply chains, jeopardizing their livelihoods and food production
  • These initiatives often prioritize environmental goals over economic viability, shrinking farmland and driving up food prices for everyone
  • States like North Carolina can counteract ESG’s harmful effects by restricting ESG-based activities through the denial of state contracts and supporting federal reforms

In recent years, Environmental, Social, and Governance (ESG) investing has become a buzzword in financial and policy circles. While proponents claim that ESG frameworks promote “environmentally sustainable” practices and long-term societal benefits, the reality for America’s farmers is far less rosy. ESG policies, particularly those driven by climate-focused regulations, are eroding profitability, increasing costs, and stifling innovation in agriculture.

Far from supporting a sector vital to the nation’s food supply and economic stability, ESG-driven agendas are undermining farmers’ ability to thrive. Here’s why.

What Is ESG, and How Does It Influence Policy?

ESG investing prioritizes companies and projects that adhere to specific environmental, social, and governance criteria. In theory, these criteria incentivize businesses to adopt what they may deem as environmentally sustainable practices (the definition of “sustainable” can change depending on the rating agency), support diversity, and improve governance structures. However, the metrics for success often prioritize environmental and social goals over economic viability, and companies not living up to these goals are less likely to receive investment funds.

When applied to agriculture, ESG principles drive restrictive policies and financial practices that penalize farmers for operating in ways that have sustained the sector for generations. These include requirements to reduce emissions, adopt renewable energy, and avoid certain farming practices deemed environmentally harmful. The real-world application of these goals burdens farmers with excessive costs and compliance requirements, often with little respect for the unique challenges of agriculture.

Skyrocketing Costs for Farmers

The net incomes of farmers are already heavily influenced by unpredictable factors like weather, pest infestations, and market fluctuations. ESG policies exacerbate these challenges by introducing new costs without corresponding benefits.

One example is the push for farms to reduce greenhouse gas emissions through carbon taxes or incentives to adopt green technology. While large corporations might be able to absorb these costs, family farms — already struggling to make ends meet — cannot. The equipment upgrades, energy transitions, and compliance monitoring required by ESG frameworks often demand significant upfront investments and can increase operating costs by 34 percent. For small and midsize farmers, these costs can be prohibitive.

Take fertilizer, for instance. ESG policies often target fertilizer usage because of its role in greenhouse gas emissions and water pollution. However, fertilizer is critical to maintaining high yields and affordable food prices. Reducing its use without viable alternatives reduces crop productivity, driving up food prices for consumers and slashing profits for farmers.

Restricting Innovation and Efficiency and Constraining Supply Chains

ESG mandates often promote “one-size-fits-all” solutions, ignoring the diversity and complexity of agriculture. Farmers are innovators by necessity, adapting techniques to their specific soil, climate, and crop conditions. ESG-driven restrictions can stifle this ingenuity.

For example, many ESG frameworks pressure banks and investors to avoid financing projects associated with high-carbon activities, such as livestock farming. This diverts capital away from farms, particularly those raising cattle, which ESG activists target for their methane emissions. Without access to capital, farmers can’t modernize operations, invest in sustainable practices, or scale their businesses. Ironically, the lack of funding for modernization undermines the very sustainability goals ESG proponents claim to support.

Furthermore, ESG policies tend to push renewable energy projects, like solar farms, at the expense of agricultural land. Across the country, fertile farmland is being converted into solar farms, shrinking the amount of land available for food production. American Farmland Trust predicts that in the next few decades, 83 percent of solar projects will happen on agricultural land. This shift not only reduces the U.S. food supply, but also raises costs for remaining farmers by increasing competition for arable land.

ESG policies don’t just burden farmers directly; they also disrupt agricultural supply chains. For example, transportation and logistics systems integral to moving food from farm to table are under pressure to meet ESG proponents’ carbon-reduction targets. Placing restrictions on diesel trucks or facing higher costs for “clean” fuel alternatives increases the cost of moving goods, and these costs are passed back to farmers and consumers.

Lessons from Europe

The pitfalls of ESG-driven policies in agriculture are not hypothetical. Europe provides a cautionary tale. In the Netherlands, for example, aggressive climate policies aimed at reducing nitrogen emissions have driven many farmers to the brink of bankruptcy. Government mandates have forced reductions in livestock numbers and fertilizer use, leading to lower food production and higher prices. Similar policies in other European countries have sparked protests, with farmers warning of food shortages and economic collapse.

These examples should serve as a warning for U.S. policymakers. If ESG-driven regulations are implemented without considering their real-world consequences, America’s farmers could face the same dire outcomes, jeopardizing the nation’s food security.

The Broader Economic Consequences

When farmers struggle, the entire economy feels the impact. Agriculture is not just a cornerstone of rural communities, it also supports a vast network of industries from manufacturing to retail. ESG policies that harm farmers have ripple effects throughout this ecosystem, driving up food prices, reducing employment, and shrinking economic activity.

Food prices are already high due to factors like inflation, supply chain disruptions, and geopolitical instability. Adding ESG-driven restrictions to this mix risks pushing prices even higher, disproportionately hurting low-income families. The irony is that policies intended to promote social welfare could worsen economic inequality by making basic necessities unaffordable.

What Can North Carolina Do?

North Carolina has already taken steps to try to limit ESG investments, such as preventing public pensions from investments that are considered ideological over maximizing financial returns. House Bill 750 in 2023 banned ESG criteria from being used in state investment decisions. 

Specifically to help farmers, North Carolina can deny new contracts between state entities and banks, asset managers, and other financial institutions that use ESG criteria to discriminate against certain industries, such as fossil fuels, firearms, or agriculture. This approach has already been implemented in states like Texas, where laws prevent government entities from working with financial firms that boycott energy companies.

To limit ESG’s impact, federal reforms are also necessary. North Carolina can work with other states to lobby Congress and federal regulators to clarify fiduciary standards, restrict ESG disclosure mandates, and prevent federal agencies from implementing rules that favor ESG criteria. This effort can be aided immensely by North Carolina’s congressional delegation.

ESG proponents may believe they are paving the way for a greener future, but their policies risk destroying the livelihoods of the very people who feed the world. Truly supporting sustainability means we must ensure that our farmers have the resources and freedom to innovate, grow, and thrive. Anything less is a recipe for disaster.

States have the authority and responsibility to push back against ESG’s overreach, defending free-market principles, protecting taxpayers, and ensuring economic stability. By enacting legislation, restricting state contracts, promoting transparency, and standing up for targeted industries, states can limit ESG’s influence and ensure a fair, competitive marketplace for farmers everywhere.