House Oversight Committee holds ESG hearing

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In Washington, D.C.

House Oversight Committee holds ESG hearing

The House Oversight Committee on May 10 held a hearing on ESG, during which Republicans and Democrats took opposite perspectives on the issue. Chairman James Comer (R-Ky.) criticized ESG in his opening statement:

In his opening statement, Chairman Comer emphasized that asset managers and activist shareholders are partnering with liberal advocacy groups to push ESG priorities and a radical political agenda with Americans’ money. He stressed that ESG commitments are often at odds with their clients’ best interests, occur without their clients’ knowledge, and used to force businesses to comply to a far-left ideology. In addition, he highlighted the Biden Administration’s pursuit to advance ESG priorities over the economic, energy, and national security needs of the United States. He concluded that the Committee would continue to expose and investigate harmful ESG practices and hold unelected bureaucrats accountable for pushing their interests on the American people.

Among other things, Chairman Comer said that he intends to hold more oversight hearings to investigate ESG policy:

But today will not be the end of the Committee’s work.  

Asset managers should understand that they are stewards of money that is not theirs, and their failure to act in the best interests of their clients is a dereliction of duty. 

Proxy advisors should understand that they cannot intimidate and coerce companies to implement ESG policies without scrutiny.

While this is the first official hearing in what will be a series of oversight actions by this Committee to explore ESG, we’ve already held several hearings to investigate related issues, including misguided energy policy and progressivism in the military.

We must also continue our oversight of the Biden Administration’s government-wide efforts by unelected bureaucrats to dictate to the American people what they are allowed to say, spend their money on, or do with their hard-earned savings. 

Whether it’s the SEC and Federal Reserve; the EPA and Department of Energy; the Pentagon; the State Department, know this: we are watching.

On the other side of the aisle, Congressman Jamie Raskin (D-Md.) argued in favor of ESG and criticized House Republicans for opposing policies supporting the investment strategy.

Rep. Jamie Raskin (D-Md.) blasted the GOP attacks on “woke” ideology during a House Oversight Committee hearing Wednesday, arguing the term has a proud history and that it should guide companies in their business decisions.

“The word work comes from the Indo-European root ‘weg,’ which means to be strong and alert,” Raskin said at a hearing focused on environmental, social and governance (ESG) investing.

That word also evolved into the modern word vigilance.

“The whole point of being a fiduciary is to be vigilant, watchful and alert to opportunities and risks,” Raskin said in defending ESG investing. “And that’s what asset managers, corporate board members and executives do with other people’s money.”

The opposite of a woke investing strategy, Raskin argued, “is a negligent and inattentive investment strategy.”…

“We are witnessing a widespread, highly coordinated, politically motivated attack on investors and the hard-working people they serve,” Illinois state treasurer Michael Frerichs told the committee.

“ESG is about looking at a wider range of risks and value opportunities that can have a material financial impact on investment performance.”…

The attack on sustainable investing is personal for Raskin, who saw his wife Sarah Bloom Raskin’s nomination for the role of top cop at the Federal Reserve fall apart over allegations that her concerns around climate financial risks were an attempt to do policy by the backdoor….

In a 2020 New York Times op-ed, Bloom Raskin argued that the federal reserve should not subsidize fossil fuels, a technology whose impacts on climate change and diminishing position versus newer technologies made it inherently risky.

Fed governor questions importance of climate risks to financial system

Fed Governor Christopher Wall spoke on May 11 at an economic conference in Spain and said that, in his view, climate change does not pose what he called a “significantly unique or material” risk to the financial system:

Climate change does not pose such “significantly unique or material” financial stability risks that the Federal Reserve should treat it separately in its supervision of the financial system, Fed Governor Christopher Waller said on Thursday in a detailed rebuttal of demands for climate initiatives by the U.S. central bank.

“Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States,” Waller told an economic conference in Spain. “Risks are risks … My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment.”

The aim of Fed oversight and stress tests of bank balance sheets, he said, was “general resiliency, recognizing that we can’t predict, prioritize, and tailor specific policy around each and every shock that could occur.”

“In March we watched a bank run on Silicon Valley Bank” that heightened attention to the levels of uninsured deposits at some institutions, Waller said. “Those are the kinds of things I am staring at right now. I am not as worried about climate as I am about things like banks failing because of bank runs.”…

In his remarks on Thursday, Waller said science had “rigorously established” the climate is changing. But in assessing financial stability, U.S. central bankers needed to ask only if those changes would have a “near-term” impact, with potential losses large enough to affect the macroeconomy, he said.

Waller argued they won’t, noting that banks are already adept at hedging against weather-related losses, while more slow-moving changes – to coastal residential patterns as sea levels rise, for example – were analogous to population losses seen over the decades in cities like Detroit, locally important, but not systematically so.

In the states

States move to block BlackRock from buying utility companies

Several Republican state Attorneys General filed a motion with the Federal Energy Regulatory Commission (FERC) on May 10 to prevent BlackRock – one of the largest advocates of ESG investing – from using its financial position and prominence to impose ESG policies (like net carbon emission goals) on utility companies:

A group of Republican-led states have filed a motion with a federal regulator to block BlackRock, the largest asset manager in the world, from imposing sustainable investing practices on utility companies.

The states, led by Indiana Attorney General Todd Rokita (R), appealed to the Federal Energy Regulatory Commission (FERC) to keep BlackRock from laying down environmental, social and governmental (ESG) investing priorities on utility companies, continuing a GOP crusade against what it argues is “woke” investing.

The states, including Utah, Alabama, Alaska, Arkansas, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Ohio, South Carolina, South Dakota, Texas and West Virginia, filed the motion against the investment company on Wednesday, asking the FERC to not give it blanket authorization to buy more than $10 million in voting stakes in a utility company if it imposes ESG priorities.

“These elitists are trying to impose restrictions on energy companies and utilities that would never win approval at the ballot box,” Rokita said in a statement. “Their schemes could raise utility bills for regular Americans, including elderly Hoosiers on fixed incomes, and they could diminish the value of investment accounts.”

The move from the GOP-led states comes after BlackRock signed onto a number of climate-related goals, including the Climate Action 100+ and the Net Zero Asset Managers initiatives, which call for fossil fuel use to be slashed by 25 percent in 2030 and as far down as 2 percent by 2050.

In response to the filing from the Republican states, BlackRock said it was focused on providing the “best financial outcome” for clients.

Alabama Senate committee advances bill opposing ESG

The Alabama Senate Committee on Fiscal Responsibility and Economic Development overrode objections from the state’s bankers and Democrats and advanced an ESG bill that would prevent state entities from doing business with financial companies that boycott specific sectors of the economy:

Some Alabama companies don’t want to do business with other companies that aren’t meeting certain environmental, social and governance criteria.

And now some lawmakers in the state of Alabama are making it known that they don’t want to do business with those companies. It would prevent all governmental entities in the state from entering into contracts with such companies, with some exceptions.

The Alabama Senate committee on fiscal and responsibility and economic development ultimately approved the bill, SB261 by Sen. Dan Roberts, R-Mountain Brook, on a 10-3 vote along party lines.

The bill is essentially a boycott of a boycott.

The legislation sets out particular sectors that cannot be “economically boycotted” by other companies who hope to contract with the state.

The sectors include fossil fuels, timber, mining, agriculture and firearms and ammunition manufacturers.

It also precludes companies from boycotting companies who are not committed to meet environmental standards, particularly regulations to offset, reduce or eliminate greenhouse gas emissions. Or companies that doesn’t meet certain composition, compensation, or disclosure criteria. Or companies that don’t facilitate access to abortion, sex or gender change surgery, medications, treatment or therapy.

“We’re trying to ensure that Alabama’s tax dollars will not be used to subsidize private entities that boycott law-abiding businesses for reasons relating to arbitrary or subjective standards,” Roberts said. “I think we’re starting to see it on a national front … We’re trying to stop is a movement that’s going on in the United States that’s commonly referred to with environmental social governance.”

Three NYC pension plans sued over ESG

Three New York City pension plans were sued on May 11 by plan members who alleged that the administrators of the plans had caused them economic damage with their ESG practices.  Specifically, they alleged that the plans had lost value by selling fossil fuel stocks:

In a new attack against ESG investing, three New York City pension funds were sued for allegedly breaching their fiduciary duty by selling billions of dollars of fossil-fuel assets.

The plaintiffs, represented by Donald Trump’s former Labor Secretary Eugene Scalia, claim the retirement plans’ decision to divest roughly $4 billion in fossil fuel investments is “a misguided and ineffectual gesture to address climate change,” according to the complaint filed in New York state court. They said the plans have “a duty to act prudently in making investment decisions.”

The move to exclude fossil-fuel investments was made in 2021. Then last year, oil and gas stocks soared following Russia’s unprovoked invasion of Ukraine, with the MSCI World Energy Index rising more than 40%. New York City Comptroller Brad Lander, who oversees the pension plans, has been actively pressing asset managers to do more to address climate change.

“While we don’t comment on pending litigation, we take our fiduciary duty very seriously,” Lander’s office said in a statement. The vote by trustees to exclude fossil fuels from the three funds was made to protect beneficiaries from “the financial risks of investing in fossil-fuel reserves,” according to the statement.

The lawsuit, filed late Thursday, emerges as Republican politicians across the US criticize environmental, social and governance investing. They have launched probes into Wall Street’s ESG efforts and introduced anti-ESG bills, while states including Texas and Florida have restricted business with banks and investment firms that push to address climate change and workforce diversity.

The New York City Employees’ Retirement System, the Teachers’ Retirement System and the Board of Education Retirement System violated their obligations when they opted in 2021 to divest fossil-fuel holdings to “advance environmental goals unrelated to the financial health of the plans,” according to the suit. The choice was made without “regard for whether those assets would produce a superior return for the plans.”