House Judiciary Committee report alleges organizations colluded to force ESG policies

ESG developments this week

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.

In Washington, D.C.

House Judiciary Committee report alleges organizations colluded to force ESG policies 

The House Judiciary Committee released an interim report on June 11 alleging that several organizations, investors, and asset managers colluded to force American corporations to adopt ESG policies. The report specifically referred to Ceres, Climate Action 100+, the Net Zero Asset Managers Initiative, the California Public Employees’ Retirement System (CalPERS), and the Big Three asset managers (BlackRock, State Street, and Vanguard), among others in its allegations.

The Judiciary Committee followed up its report with a hearing on ESG and related matters the following day.

According to the New York Post:

[The report] accused business groups and advocacy organizations of “muzzling corporate free speech” and “handcuffing company leadership” through “ever-escalating pressure tactics,” which included “taking out” directors at firms that are deemed “recalcitrant.”

The “collaborating” groups included climate Action 100+, the Net Zero Asset Managers initiative and the Glasgow Financial Alliance for Net Zero as well as the California Public Employees’ Retirement System (CalPERS) and the “Big Three” asset managers – Vanguard, BlackRock and State Street. …

In the Judiciary Committee’s report, the committee staff accuse President Biden’s administration of failing to “meaningfully investigate the climate cartel’s collusion, let alone bring enforcement actions against its apparent violations of longstanding US antitrust law.”

Ceres was previously the subject of a 24-page report by Consumers’ Research last July, which argued in favor of congressional investigations into the organization’s role in promoting ESG policies at American companies. The report also argued Ceres had a leading role in coordinating investor and asset manager support for ESG:

What consumers may not be familiar with is Ceres, a globe spanning pressure group that has worked to cajole and coordinate members of the finance industry into pushing harmful, anti-consumer “net zero” targets at every major public company in the country. This seemingly nebulous organization is set to be the center of a broad Congressional investigation regarding how Ceres helped create, and then leveraged, the investing environment where most Americans’ savings, retirements, and investments are managed by a small group of large asset managers and public pension fund managers. 

In the states

Business professor argues in support of Oklahoma’s anti-ESG law 

RealClearEnergy published an analysis last week by Paul Tice—an ESG opponent, business professor, and author—who argued against an April 2024 study by the Oklahoma Rural Association (ORA) regarding the effect of Oklahoma’s 2022 anti-ESG law (the Energy Discrimination Elimination Act). The ORA study argued that the law increased borrowing costs for municipalities in the state by 15.7%. Tice argued the ORA report was based on limited data and was “deeply flawed and highly misleading”:

Released in April 2024, the ORA study looks at municipal bond market trends from January 1, 2018 through March 1, 2024, which means that it captures only 10 months of actual post-EDEA data, given that the first release of the state’s list of banned financial institutions was in May 2023.

From this truncated data set, the study attempts to extrapolate the specific impact of the EDEA on state and local municipal borrowing costs by comparing government bond coupon rates in Oklahoma versus a group of surrounding states that have not passed an anti-ESG policy (Arkansas, Colorado, Kansas, and Missouri), with the anti-ESG state of Texas (since 2021) included as an additional reference point. Given the divergence in credit ratings, economic fundamentals and fiscal drivers across this arbitrary geographic peer group, this is a dubious apples-to-oranges comparison which yields little in the way of meaningful takeaways. Two of the states in the supposedly non-EDEA control group (Arkansas and Missouri) both passed anti-ESG laws in 2023, further corrupting the comparative analysis. …

Rather than relying on subjective data interpolation and forward projections, we have the benefit of market hindsight to gauge the actual impact of the EDEA on Oklahoma’s municipal bond market….Oklahoma has not seen an absolute or relative increase in municipal bond borrowing costs since the roll-out of the EDEA. To the contrary, the average YTW for Oklahoma state and local government issuers has actually tightened by 14 basis points since October 31, 2022. Almost all of the yield volatility over the past 19 months has been driven by movements in underlying interest rates, as seen by the lockstep trading between Oklahoma and its municipal peers and the U.S. Treasury Bond Index. From 2022-2023, the main driver of higher municipal bond yields in Oklahoma and every other state (anti-ESG or otherwise) was the shift in monetary policy and the increase in U.S. Treasury yields caused by 11 rate hikes (aggregating 5.25%) by the Federal Reserve.

On Wall Street and in the private sector

BlackRock adds new proxy advisor option

BlackRock, the world’s largest asset manager, announced June 11 that it would partner with a third proxy advisory service—Egan Jones—to give investors more counsel in voting the stock shares underlying the funds they own:

BlackRock announced Tuesday that it is partnering with a third proxy advisory firm to give its clients a wider range of investment counsel as a leading expert suggested the mammoth asset manager is trying to make up for allegations that it leans into ESG (environmental, social, governance) tenets more than its fiduciary responsibilities merit.

In a release obtained by Fox News Digital on Monday, BlackRock officials said the firm remains committed to providing its clients with choices that support their growing range of investment preferences via its Voting Choice program. …

But a top public policy expert who has long spoken out against the politicization of the financial services sector told Fox News Digital that BlackRock is not successfully affirming any kind of apolitical fiduciary stance by bringing Egan Jones into its advisory fold.  Dr. Kevin Roberts, president of the Heritage Foundation, said BlackRock’s move was tardy at best.

Shareholder pushback against ESG continues

The Wall Street Journal ran a front-page piece June 11 covering the ongoing battle over ESG and the pushback against environmentally and socially focused proposals in annual shareholder meetings. The article said:

Shareholders at dozens of big companies, from GE Aerospace to UPS, are voting on proposals opposing environmental and social initiatives this year. Investors backed by conservative groups are suing Target and other companies for their progressive stances. And companies are muting their focus on diversity, equity and inclusion initiatives as DEI programs come under legal and political threat. …

“We who would prefer corporate behavior without partisan influence have really started to get into the game after years of quiescence,” said Scott Shepard, general counsel at the National Center for Public Policy Research, or NCPPR, a conservative think tank that has proposed dozens of shareholder measures questioning corporate initiatives on climate, diversity and other subjects. 

Advocates for more progressive environmental, social and corporate-governance shareholder proposals call the newcomers politically motivated and cite research suggesting more established ESG measures improve long-term financial outcomes at companies.