The House Committee on Oversight and Reform (the Committee) hosted a hearing entitled "ESG Part I: An Examination of Environmental, Social, and Governance Practices with Attorneys General." The hearing follows the public release of a letter signed by 21 Republican attorneys general addressed to various asset managers articulating "[their] concerns about the ongoing agreements between asset managers to use Americans' savings to push political goals during the upcoming proxy season."
Two of those signatories, Attorney General Steve Marshall of Alabama and Attorney General Sean Reyes of Utah, participated in the hearing. Attorney General Marshall's position is that ESG investors are forcing certain corporations to engage in politically driven practices at the expense of shareholders. Attorney General Reyes characterized ESG as promoting renewable energy while undermining American energy independence. He furthered described ESG considerations as usurping congressional authority to set federal policy. Attorney General Reyes called on Congress to respond to the proliferation of these practices by exercising its oversight authority. He specifically urged Congress to explore whether the Federal Energy Regulatory Commission (FERC) is doing enough to prevent asset managers from "improperly influencing the operations of [utility companies]."
Illinois State Treasurer Michael Frerichs, the Committee Democrats' witness, defended ESG commitments as appropriate business considerations that are in service of long-term profitability, not a threat. Frerichs further argued that ESG data is important to help investors make informed decisions in keeping with their fiduciary duties. He referenced the Illinois Sustainable Investment Act (PA 101-473) as an example of the appropriate use of ESG data in the assessment of risk.
Members of the Committee divided along largely partisan lines. Chairman Comer criticized ESG as part of a "well-coordinated campaign" defined by "policy goals" that "do not appeal to voters and have not been decided by elected officials." Committee Republicans suggested ESG-conscious investments were less profitable than those not driven by ESG considerations. Meanwhile, Ranking Member Raskin praised ESG as among those "[r]responsible investing principles" that "have been freely chosen by America's companies and employed by asset managers and pension fund managers for decades." Committee Democrats also cited data indicating the profitability of ESG-conscious investments and referenced figures illustrating the extent to which state efforts to curtail the use of ESG considerations harm taxpayers.
Committee Republicans expressed an interest in the legal obligations of asset managers to clients, potentially previewing future ESG-focused hearings. Finally, it is worth mentioning that several Committee Republicans provided insight as to how Republicans may channel their skepticism of ESG considerations into legislation. Specifically, Reps. Boebert and Kelly Armstrong (R-ND) asked the Republican attorneys general how Congress could impose guardrails on proxy advisory firms and corporations that require them to prioritize profit over ESG considerations.
Stay tuned as we will continue to monitor ESG-related developments on Capitol Hill. For more information about our ESG practice, see here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
