Through Dec. 1, 2021, there were 890 authorized federal judicial posts and 78 vacancies. Seventy-four of those vacancies were for Article III judgeships. This report is limited to Article III courts, where appointees are confirmed to lifetime judgeships.
In the past month, no new judges have been confirmed.
In the past month, 11 new judges have been nominated.
By Dec. 1, 316 days in office, President Joe Biden (D) had nominated 62 judges to Article III judgeships. For historical comparison*:
President Donald Trump (R) had nominated 60 individuals, 35 of which were ultimately confirmed to their positions.
President Barack Obama (D) had nominated 29 individuals, 27 of which were confirmed.
President George W. Bush (R) had nominated 104 individuals, 51 of which were confirmed.
*Note: These nomination figures include unsuccessful nominations.
The following data visualizations track the number of Article III judicial nominations by president by days in office during the Biden, Trump, Obama, and W. Bush administrations (2001-present).
The first tracker is limited to successful nominations, where the nominee was ultimately confirmed to their respective court:
The second tracker counts all Article III nominations, including unsuccessful nominations (for example, the nomination was withdrawn or the U.S. Senate did not vote on the nomination), renominations of individuals to the same court, and recess appointments. A recess appointment is when the president appoints a federal official while the Senate is in recess.
The data contained in these charts is compiled by Ballotpedia staff from publicly available information provided by the Federal Judicial Center. The comparison by days shown between the presidents is not reflective of the larger states of the federal judiciary during their respective administrations and is intended solely to track nominations by president by day.
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., and around the world
SEC preps businesses for new ESG disclosure standards
In a speech last month, SEC Commissioner Caroline Crenshaw provided companies under the SEC’s jurisdiction with significant insight as to what they should expect from the SEC’s proposal for new disclosure standards and how they should start planning to meet those expectations. Among other things, Commissioner Crenshaw suggested that the SEC will tacitly, if not overtly change the definition of materiality:
“In March of this year, the Commission sought public comment on climate change disclosure. We received hundreds of responses; many of which also addressed disclosures concerning other ESG risks. An overwhelming number of comment letters state that investors view ESG information as material to financial performance and that investors need consistent and reliable disclosures of ESG information to inform their investment decisions. According to commenters, ESG related information helps investors assess the long-term sustainability or value of an investment. And this makes sense if you think about the position investors are in today.”
Commissioner Crenshaw also discussed the types of issues that might confront companies and how they should work to incorporate their ESG disclosures into their financial statements and internal accounting practices:
“With ESG now front and center, the reliability of corporate ESG risk disclosures, and their potential impact on and connectivity to financial statements, is critical. As you know, corporate internal controls play a crucial role in ensuring such risk disclosures are consistent and reliable. The term “internal accounting controls” refers to an organization’s plan, methods, and procedures related to safeguarding a company’s assets and ensuring the reliability of corporate financial records. These controls broadly include systems designed to ensure transactions are authorized and recorded in a way that maintains accountability for assets and allows for financial statement preparation in conformity with GAAP. They also include procedures that control access to assets and the systems designed to test the effectiveness of internal controls. The concept of accounting controls is intentionally broad, because a company’s system for tracking its assets and recording transactions – regardless of their form – is vital to accurate financial reporting. And it is vital to identifying risks to the financial statements so leadership can manage them and prepare GAAP-compliant financial statements and disclosures accordingly. At the end of the day, management is responsible for establishing and maintaining an effective system of internal controls that reasonably safeguards corporate assets from risk. So as you think about and discuss ESG risks during this conference, I encourage you to think about them in the context of your internal accounting controls and audit functions.”
Finally, Crenshaw addressed climate change and the related matters that should draw companies’ attention:
“I would like to hear how public companies are assessing whether and how climate change risk impacts revenues and expenses, both now and in the foreseeable future. In particular, I am interested in understanding how companies are evaluating whether climate risk impacts their business. Some issues that I would think companies are considering as part of this process include whether assets are at risk of depreciating more quickly or becoming “stranded” in response to climate change; whether supply chain or transportation networks are at greater risk of being impacted by extreme weather events; or whether existing revenue streams depend on the status quo, such that new regulations pertaining to deforestation or carbon emission could potentially reduce income. No matter where public companies come out on these topics – or how they assess climate risk – I would like to understand the underlying internal accounting controls that guide decision making. On a related note, if climate change presents risks to a company, or at least requires disclosure, I’m interested in understanding how that company evaluates climate change risk. For example, do companies rely on third party service providers, and if so, do they evaluate the controls that the service providers have in place over information and disclose to investors the identity of the service provider, in the same way you disclose your auditors and underwriters?”
ESG in theory and practice
Several weeks after COP26 summit agreements to divest from fossil fuels and push toward a zero-carbon future, Japan appears to be backtracking:
“Government officials have been quietly urging trading houses, refiners and utilities to slow down their move away from fossil fuels, and even encouraging new investments in oil-and-gas projects, according to people within the Japanese government and industry, who requested anonymity as the talks are private.
The officials are concerned about the long-term supply of traditional fuels as the world doubles down on renewable energy, the people said. The import-dependent nation wants to avoid a potential shortage of fuel this winter, as well as during future cold spells, after a deficit last year sparked fears of nationwide blackouts.
Japan joined almost 200 countries last month in a pledge to step up the fight against climate change, including phasing down coal power and tackling emissions. However, the moves by the officials show the struggle to turn those pledges into reality, especially for countries like Japan which relies on imports for nearly 90% of its energy needs, with prices spiking partly because of the world’s shift away from fossil fuel investments….
To achieve net-zero emissions by 2050, the world needs to stop developing new gas, oil and coal fields, the International Energy Agency said in May. Japanese officials are echoing concerns highlighted by Australia last month, which said Europe’s gas supply squeeze is proof that nations need to continue to add more production.
Japan’s trading houses, including Sumitomo Corp. and Marubeni Corp., are aggressively divesting from fossil fuels amid an uncertain future for the energy sources and pressure from shareholders. These companies, formally known as “Sogo Shosha,” have traditionally been among the biggest investors in oil and natural gas assets in order to bring the fuel to resource-poor Japan.”
In the States
Report argues New York City’s ESG tax hits hardest upstate
As part of its push to move toward sustainability (and thus to meet municipal bond investors’ ESG demands), New York City has pledged to go green and recently signed two contracts to make that possible. According to a recent note from the Empire Center for Public Policy, most of the costs of the project, but none of the benefits, will hit upstate:
“A pair of recently inked contracts to fuel more than one-third of New York City’s electricity grid with renewable energy will raise monthly electricity bills for upstate ratepayers up to 9.9 percent once the projects are on-line.
Both downstate (ConEdison) and upstate (National Grid) customers will bear the project costs equally based on load share, but upstate customers—who tend to have lower electricity bills—are expected to experience roughly double the percentage increase.
That’s according to a petition just filed by the New York State Energy Research and Development Authority (NYSERDA), which is now seeking to have the contracted projects approved by the Public Service Commission.
The projects seem headed for approval, since Governor Hochul signed off on them and her office issued a press release Tuesday trumpeting their expected contribution….”
The Empire State note also discussed recent refusals by the New York State Climate Action Council to be more transparent about who would pay for further plans to meet sustainability goals and how those goals would be met:
“In related news Tuesday, the New York State Climate Action Council (Council) held a virtual public meeting at which it discussed a strategy to continue dodging — in its long-awaited “draft scoping plan” to be issued later this month—the question of who will pay the hundreds of billions of dollars required to achieve the CLCPA’s climate goals.
A draft plan circulated in advance to the Council members (but not the public) prompted member concern regarding the need for an analysis of “energy affordability and impacts to consumer pricing.” But the “proposed resolution” to that concern was to point to the Council’s cost-benefit analysis. As we recently noted, however, that analysis makes no attempt to estimate ratepayer impact on the grounds that it’s currently unclear what specific policies will be adopted to achieve the law’s climate goals.”
In the spotlight
ESG and business schools, again
This week, The Financial Times has two stories about ESG at business schools and whether the latest increase is meeting current demand. One story deals with specifically with European Business Schools and the impressions they give with respect to ESG education:
“As environmental, social and governance standards become ever more important criteria by which business schools are judged, the Financial Times’s ranking team analysed how European institutions are faring compared with their global rivals, as well as assessing how students are funding their degrees, alumni seniority and favoured sectors of employment….
Executive MBA and MiM graduates who studied outside Europe rate their business schools’ delivery of environmental, social and governance topics more highly than those from European institutions. Only MBA graduates from European schools rate them higher on the subject than their peers elsewhere.
MBA and executive MBA programmes taught in Europe dedicate a larger part of their courses to ESG compared with schools in the rest of the world. The average proportion of core MBA teaching hours dedicated to ESG in Europe is 75 per cent higher than the rest of the world, where only 12 per cent of the degree is related to ESG topics.”
The second piece made the case that in spite of European business schools’ dedication to ESG education, they are still failing the business community, which needs even more ESG capacity:
“Business is undergoing profound change. Urged on by regulatory reforms proposed by the European Commission, the continent’s executives are at the forefront of promoting purposeful, responsible and sustainable business. European business schools should be at the vanguard but risk being left behind.
Many schools have been slow to recognise the extent of reform required to their curricula. They have introduced electives on topics such as environmental, social and corporate governance and sustainable business but, for the most part, their core courses remain unchanged.
The recent final report from The British Academy Future of the Corporation programme highlights the extent to which business is embracing purposeful profit — making money by solving rather than exacerbating problems for people and planet. It argues that businesses should be supported and held to account, and sets out policies and practices.
Business school research and teaching should be the source of education for the coming generation of managers and entrepreneurs. But shareholder primacy remains at the heart of schools’ programmes, which are focused on economic theories, financial models and management studies. Courses start from the presumption that the purpose of a business is to maximise shareholder wealth and everything — accounting, finance, marketing, operations management, organisational behaviour and strategy — follows from that.”
From Dec. 6 to Dec. 8, the Supreme Court of the United States (SCOTUS) will hear arguments in the final week of the 2021-2022 term’s December sitting. The court is hearing arguments in person and providing audio livestreams of arguments.
This week, SCOTUS will hear arguments in five cases. Click the links below to learn more about these cases:
To date, the court has agreed to hear 50 cases this term. Four cases were dismissed, and one case wasremoved from the argument calendar. Nine cases have not yet been scheduled for argument.
The term wave election is frequently used to describe an election cycle in which one party makes significant electoral gains. With the 2022 Congressional elections approaching, the question of what qualifies as a wave election is once again gaining significance.
In a 2018 study, we examined the results of the 50 election cycles that occurred between 1918 and 2016—spanning from President Woodrow Wilson’s (D) second midterm in 1918 to Donald Trump’s (R) first presidential election in 2016. We defined wave elections as the 20 percent of elections in that period resulting in the greatest seat swings against the president’s party.
According to this definition, a U.S. House election cycle qualifies as a wave election if the president’s party loses at least 48 seats.
Between 1918 and 2016, 11 wave elections took place in the U.S. House. Six of these waves occurred during a president’s first midterm election. These six occurred under four Democratic presidents (Obama, Clinton, Johnson, and Truman) and two Republican presidents (Harding and Hoover). The president’s party lost an average of 58 seats in the U.S. House during these six elections.
As of Dec. 2, 2021, Democrats held 221 seats in the U.S. House. A wave election would result in them controlling no more than 173 seats in the chamber. Since the House grew to 435 seats in 1913, Democrats have held fewer than 173 seats twice: 131 during the 67th Congress (1921-1923) and 164 during the 71st Congress (1929-1931).
The 2018 U.S. House elections were the most recent first midterm election under President Donald Trump (R). Democrats won a majority in the chamber by gaining a net of 40 seats. The 2018 midterm election fell eight seats short of qualifying as a wave election.
Incumbent Reps. Carolyn Bourdeaux and Lucy McBath each won congressional districts in Georgia previously held by Republicans. McBath (6th District) is running for re-election in the newly drawn 7th District, which pits her against Bourdeaux in the Democratic primary.
Daily Koswrote that Bourdeaux currently represents about 57% of the new 7th District, while McBath represents 12%. Bourdeaux’s portion is also more Democratic than McBath’s based on 2020’s presidential election results.
McBath said the Republican-led Legislature redrew her district because “they would like nothing more than to stop me from speaking truth to power about the gun lobby and Republican Party in Congress.” McBath worked for Moms Demand Action for Gun Sense after her son was fatally shot in 2012. She defeated incumbent Rep. Karen Handel (R) 50.5% to 49.5% in 2018.
Bourdeaux, a professor of public policy and former director of the state’s Senate Budget and Evaluation Office, won the open 7th District race in 2020. Bourdeaux said, “I’m disappointed, of course. … I have a lot of respect for Lucy McBath.”
The Atlanta Journal-Constitution‘s Patricia Murphy and Greg Bluestein wrote in September that “Bourdeaux drew the wrath of progressive groups — and [Stacey] Abrams allies — for joining other moderates with a stand that threatened to derail a $3.5 trillion social policy plan.” Bourdeaux joined nine other Democrats in saying she wouldn’t vote for a budget resolution needed to pass President Joe Biden’s Build Back Better agenda unless the House first voted on an infrastructure bill the Senate passed. Bordeaux said in August, “I believe in fiscal responsibility and that we need to pay for the things that we need to invest in, and I’m willing to stand up and talk about fiscal responsibility.”
Ultimately, Bourdeaux withdrew from the effort and voted for the resolution. The House voted on the infrastructure bill and then the Build Back Better Act last month. Bourdeaux voted in favor of both.
In August, before the new district maps were drawn, Abrams endorsed McBath’s re-election bid, saying she “has not wavered on Georgia jobs and infrastructure, and she is a stalwart champion for our kids, for our democracy and more.”
Primaries are set to take place on May 24.
In other Georgia news, Abrams announced on Dec. 1 that she is running for governor again. Current Gov. Brian Kemp (R) defeated Abrams 50% to 49% in 2018.
This story appeared in a Dec. 2 edition of The Heart of the Primaries, Ballotpedia’s newsletter capturing stories related to conflicts within each major party. Click here to see more stories from that edition and to find out how to subscribe.
The Federal Register is a daily journal of federal government activity that includes presidential documents, proposed and final rules, and public notices. It is a common measure of an administration’s regulatory activity, accounting for both regulatory and deregulatory actions.
From Nov. 29 through Dec. 3, the Federal Register grew by 1,226 pages for a year-to-date total of 68,874 pages.
The Federal Register hit an all-time high of 95,894 pages in 2016.
This week’s Federal Register featured the following 458 documents:
357 notices
Five presidential documents
29 proposed rules
67 final rules
Three proposed rules, including a proposal to revise the methodology to determine Adverse Effect Wage Rates for temporary employment of workers in H-2A nonimmigrant status from the Employment and Training Administration, and five final rules, including an amendment to regulations governing conditions for the importation of sheep, goats, and other ruminants from the Animal and Plant Health Inspection Service were deemed significant under E.O. 12866—defined by the potential to have large impacts on the economy, environment, public health, or state or local governments. Significant actions may also conflict with presidential priorities or other agency rules. The Biden administration has issued 104 significant proposed rules, 132 significant final rules, and four significant notices as of Dec. 3.
Ballotpedia maintains page counts and other information about the Federal Register as part of its Administrative State Project. The project is a neutral, nonpartisan encyclopedic resource that defines and analyzes the administrative state, including its philosophical origins, legal and judicial precedents, and scholarly examinations of its consequences. The project also monitors and reports on measures of federal government activity.
In 2015, the U.S. Supreme Court ruled 5-4 that independent redistricting commissions created by voter initiative were constitutional in Arizona State Legislature v. Arizona Independent Redistricting Commission. State voters established that commission by approving a constitutional amendment in 2000—Proposition 106—to oversee the mapping of Arizona’s congressional and legislative districts. The Court ruled that “redistricting is a legislative function, to be performed in accordance with the state’s prescriptions for lawmaking, which may include the referendum and the governor’s veto.”
Article 1, Section 4, of the U.S. Constitution states, “the Times, Places and Manner of holding Elections for Senators and Representatives shall be prescribed in each State by the Legislature thereof.” The state legislature argued that the use of the word “legislature” in this context is literal; therefore, only a state legislature may draw congressional district lines. Meanwhile, the commission contended that the word “legislature” ought to be interpreted more broadly to mean “the legislative powers of the state,” including voter initiatives and referenda.
The Arizona Independent Redistricting Commission is responsible for both congressional and legislative redistricting and is composed of five members. Of these, four are selected by the majority and minority leaders of each chamber of the state legislature from a list of 25 candidates nominated by the state commission on appellate court appointments. These 25 nominees must be 10 Democrats, 10 Republicans and five unaffiliated individuals. The four commission members appointed by legislative leaders then select a fifth member, who must belong to a different political party than the other commissioners.
On June 29, 2015, the Supreme Court ruled 5-4 in favor of the redistricting commission. In the court’s majority opinion, Justice Ruth Bader Ginsburg wrote, “The people of Arizona turned to the initiative to curb the practice of gerrymandering and, thereby, to ensure that Members of Congress would have “an habitual recollection of their dependence on the people.” In so acting, Arizona voters sought to restore “the core principle of republican government,” namely, “that the voters should choose their representatives, not the other way around. The Elections Clause does not hinder that endeavor.” Justices Anthony Kennedy, Stephen Breyer, Elena Kagan, and Sonia Sotomayor joined Ginsburg in the court’s majority opinion.
Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas, and Samuel Alito dissented. In his dissent, Roberts argued that the word “legislature” in Article 1 of the United States Constitution ought to be interpreted narrowly to mean the “representative body which makes the laws of the people.” He wrote, “The people of Arizona have concerns about the process of congressional redistricting in their State. For better or worse, the Elections Clause of the Constitution does not allow them to address those concerns by displacing their legislature. But it does allow them to seek relief from Congress, which can make or alter the regulations prescribed by the legislature.”
At the time of the Court’s decision, six states had independent redistricting commissions—Alaska, Arizona, California, Idaho, Montana, and Washington. Since then, voters in two other states—Colorado and Michigan—passed initiatives creating independent redistricting commissions.
Two federal judges in recent days issued injunctions preventing the enforcement of the Biden administration’s coronavirus (COVID-19) vaccine mandates for healthcare workers and federal contractors in certain states.
U.S. District Judge Matthew Schelp of the United States District Court for the Eastern District of Missouri on Nov. 29 issued a preliminary injunction blocking the Biden administration from enforcing its vaccine requirement for healthcare workers at facilities that receive Medicaid or Medicare funds. The injunction applies to the 10 states that challenged the vaccine mandate in court: Alaska, Arkansas, Iowa, Kansas, Missouri, Nebraska, New Hampshire, North Dakota, South Dakota, and Wyoming.
Schelp argued that the Centers for Medicare and Medicaid Services (CMS), an executive branch agency housed within the U.S. Department of Health and Human Services, exceeded its authority when it issued the vaccine mandate. “CMS seeks to overtake an area of traditional state authority by imposing an unprecedented demand to federally dictate the private medical decisions of millions of Americans. Such action challenges traditional notions of federalism,” wrote Schelp in the order.
CMS issued a statement in response to the order claiming that unvaccinated healthcare workers threaten patient safety. “Staff in any health care setting who remain unvaccinated pose both direct and indirect threats to patient safety and population health. That is why it is critical for health care providers to ensure their staff are vaccinated against COVID-19.”
The following day, U.S. District Judge Gregory F. Van Tatenhove of theU.S. District Court for the Eastern District of Kentucky issued a preliminary injunction blocking the Biden administration from enforcing its coronavirus (COVID-19) vaccine mandate for federal contractors in three states that challenged the mandate: Kentucky, Ohio, and Tennessee.
Van Tatenhove argued that the mandate exceeded the Biden administration’s authority over federal procurement. “If a vaccination mandate has a close enough nexus to economy and efficiency in federal procurement, then the statute could be used to enact virtually any measure at the president’s whim under the guise of economy and efficiency,” wrote Van Tatenhove in the order.
The Biden administration had yet to respond to Van Tatenhove’s order as of Nov. 30.
In November 2021, the White House Office of Information and Regulatory Affairs (OIRA) reviewed 41 significant regulatory actions issued by federal agencies. OIRA approved three of these rules with no changes and approved the intent of 37 rules while recommending changes to their content.
OIRA reviewed 58 significant regulatory actions in November 2020, 46 significant regulatory actions in November 2019, 36 significant regulatory actions in November 2018, and 15 significant regulatory actions in November 2017. During the Obama administration from 2009-2016, OIRA reviewed an average of 47 significant regulatory actions each November.
OIRA has reviewed a total of 466 significant rules in 2021. The agency reviewed a total of 676 significant rules in 2020, 475 significant rules in 2019, 355 significant rules in 2018, and 237 significant rules in 2017.
As of Dec. 1, 2021, OIRA’s website listed 75 regulatory actions under review.
OIRA is responsible for reviewing and coordinating what it deems to be all significant regulatory actions made by federal agencies, with the exception of independent federal agencies. Significant regulatory actions include agency rules that have had or may have a large impact on the economy, environment, public health, or state and local governments and communities. These regulatory actions may also conflict with other regulations or with the priorities of the president.
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.
Multinational regulatory agency crack down on overstated environmental credentials
On November 23, the International Organization of Securities Commissions agreed to a framework that, in its view, ends what opponents refer to as greenwashing in ESG investments and brings transparency to ESG ratings providers. The effort to standardize the ESG ratings business follows the introduction, made earlier this month, of a global corporate ESG reporting standards organization, the International Sustainability Standards Board, which made its debut at the COP26 conference in Glasgow, Scotland, and will be based in Frankfurt, Germany. According to Reuters:
“Regulators are cracking down on many aspects of ESG investing with basic rules to make it easier to punish greenwashing, where the environmental credentials of an investment or activity are overstated, in a cross-border sector where investment is “exploding”.
The International Organization of Securities Commissions (IOSCO), which groups securities watchdogs from the United States, Europe, Asia and Latin America, published 10 recommendations for its members to apply in day-to-day work….
Asset managers use ratings from about 160 raters such as MSCI, S&P Global and Morningstar to pick stocks and bonds for “green” products now popular with ethical investors, but there are no regulatory checks on how those ratings were put together.
IOSCO said its recommendations will begin shining a light on how ratings are compiled and conflicts of interest handled in a largely unregulated business which is already worth around $1 billion and growing at 20% a year.
It recommends that ESG ratings and data providers consider implementing written procedures to underpin high quality ratings, and make public disclosure a priority.”
Lawsuit challenges SEC’s order approving diversity quotas for Nasdaq-listed companies
On November 22, in what experts believe is the first volley in a legal battle over various ESG-related investment rules, Boyden Gray & Associates filed its opening brief in a case brought by the firm’s client, the Alliance for Fair Board Recruitment, against the Securities and Exchange Commission (SEC). The case centers on the SEC’s approval of a diversity rule introduced by the Nasdaq Stock Exchange last year, which threatens corporations with de-listing from the exchange if they fail to meet certain board diversity demands. Citing its brief, the firm explains that the SEC has gone beyond its jurisdiction to promote a rule that, in its view, it has no legal or statutory right to promote:
“The SEC’s order violates the constitutional right to equal protection, as it encourages discrimination against potential board members and also by current board members and shareholders; and it stigmatizes board members who identify as one of the preferred demographics. The order also violates the First Amendment by demanding disclosure of “controversial” information, which the Supreme Court has prohibited absent compelling justifications and narrow tailoring. Finally, the SEC lacked statutory authority to issue the order, which seeks to regulate demographics through the guise of “financial disclosures.”
The firm continues, arguing that, in addition, the Nasdaq rule is discriminatory, thereby violating Supreme Court precedent:
“Nasdaq’s minority director rules, by requiring a quota of racial or sexual minorities to be board members—or else a public explanation—requires companies to discriminate based on race. The Supreme Court has always looked on such distinctions with extreme suspicion because, as the brief explains,
“Distinctions between citizens solely because of their ancestry are by their very nature odious to a free people.” Rice v. Cayetano (2000). There are no “benign” racial classifications; sorting people by race always “stimulates our society’s latent race consciousness,’ “delays the time when race will become … truly irrelevant,” and “perpetuates the very racial divisions the polity seeks to transcend.” Shaw v. Reno (1993).”
The firm’s namesake—C. Boyden Gray, the former White House Counsel to President George H.W. Bush and former U.S. Ambassador to the European Union—co-authored an op-ed for The Wall Street Journal this past April, in which he and one of the firm’s partners, Jonathan Berry, foreshadowed the case that they are currently making in court and argued that Nasdaq’s efforts are driven by social policy and not the best interests of companies, boards, and shareholders:
“Nasdaq has, in its own words, embraced “the social justice movement.” The actual job of a stock exchange, however, is to ensure that trading is orderly and its listed companies follow standard governance rules. But doing that doesn’t earn the applause of the political left.
Progressive approval apparently means a lot to Nasdaq, which has officially proposed to its regulator—the Securities and Exchange Commission, newly chaired by Gary Gensler —to increase boardroom diversity through a “regulatory approach.” This proposal would require that Nasdaq-listed companies not only disclose the diversity characteristics of their existing boards, but also retain “at least one director who self-identifies as female,” and “at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, two or more races or ethnicities, or as LGBTQ+.” Noncompliant firms must publicly “explain”—in writing—why they don’t meet Nasdaq’s quotas.
Nasdaq’s discriminate-or-explain rule is unlawful, unconstitutional, and unsupported by the evidence. Quota systems like this unjustifiably classify people by arbitrary categories of sex and race in violation of equal-protection principles, and the “alternative” of explaining why a firm won’t discriminate compels speech in violation of the First Amendment….
Under the Exchange Act, Nasdaq’s listing rules must be designed to achieve one of the lawful purposes of an exchange, such as preventing fraud or protecting investors. Aspirational statements of purpose are insufficient; Nasdaq needs to provide real evidence that its proposal is designed to further the purposes of an exchange. It doesn’t have the evidence….
Together with University of Pennsylvania professor Jonathan Klick, our own examination of Nasdaq’s sources—and those it omits—shows that the effect of boardroom gender diversity on firm performance is inconclusive. Instead, Nasdaq cherry-picks the studies it reports, and then cherry-picks even among the results of those studies. Take its citation of a 2019 study as finding “a positive association between women on the audit committee with financial accounting expertise and the voluntary disclosure of forward-looking information.” Nasdaq doesn’t cite that same study’s ultimate conclusion: It is the financial expertise of committee members—not their sex—that improves reporting outcomes. Counter to Nasdaq’s narrative, the study concludes that “intrinsic characteristics linked to women” are “insufficient . . . to enhance voluntary disclosures.”
As sparse as the evidence is for its female director quota, Nasdaq has even less support for its catchall minority director mandate. Indeed, none of the sources Nasdaq cites to prove that board diversity enhances corporate governance even examine racial diversity. And not one of Nasdaq’s sources examined firms with LGBTQ board members.”
On Wall Street and in the private sector
Schwab gets in the ESG game while some argue the game is too crowded as it is
Two weeks ago, Charles Schwab, one of the world’s best-known names in retail brokerage and one of the pioneers in commission-free stock and ETF trading, announced the launch of its first ESG ETF, which is also its first actively managed ETF. On November 12, Bloomberg Green reported that the deluge of new ESG funds was frustrating to many analysts and “risks [a] breaking point”:
“The flood of new ESG funds is threatening to test the limits of investor demand, with the world’s largest credit ETF the latest to get a socially responsible doppelganger even as it bleeds cash.
The iShares ESG Advanced Investment Grade Corporate Bond exchange-traded fund (ticker ELQD) — a copycat of the $38.4 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) — debuted this week touting higher environmental, social and governance standards.
The BlackRock Inc. ESG launch comes despite a market backlash against credit strategies teeming with interest-rate risk….
The arrival of ESG versions of these currently unloved products is an acid test of demand for socially conscious investing options. U.S. issuers alone have launched 27 such ETFs in 2021 so far, one shy of last year’s record.
“Within the next year, I think we’ll start seeing a spike in ESG ETF closures,” said Nate Geraci, president of The ETF Store, an advisory firm. “A lot of product is being launched without proof that investor demand actually exists.”
Skeptics point to the modest $750 million invested on average in the 111 U.S.-listed ETFs that are designated as ESG — among the lowest asset-to-product ratios in the industry. By comparison, value-oriented funds have around $3.6 billion and growth-focused funds $5 billion, according to data compiled by Bloomberg.
Eric Balchunas, senior ETF analyst with Bloomberg Intelligence, reckons issuers are “way overestimating the demand.” He doesn’t see such funds becoming a sizable chunk of the industry even as it grows over the medium term.”
With supply chain dominating business news the past few weeks, it should come as no surprise that the issue is now starting to appear in ESG news as well. Supply chains and their management are issues that some in the ESG field believe have been overlooked and should be given more attention, particularly now, when investors and others are more keenly attuned to their overall impact.
In a piece published on November 9, by the online magazine The Conversation, two management professors—Tinglong Dai from Johns Hopkins and Christopher Tang from UCLA—addressed the issue as follows:
“[I]nvestors’ trust in ESG funds may be misplaced. As scholars in the field of supply chain management and sustainable operations, we see a major flaw in how rating agencies, such as Bloomberg, MSCI and Sustainalytics, are measuring companies’ ESG risk: the performance of their supply chains.
Nearly every company’s operations are backed by a global supply chain that consists of workers, information and resources. To accurately measure a company’s ESG risks, its end-to-end supply chain operations must be considered.
Our recent examination of ESG measures shows that most ESG rating agencies do not measure companies’ ESG performance from the lens of the global supply chains supporting their operations.
For example, Bloomberg’s ESG measure lists “supply chain” as an item under the “S” (social) pillar. By this measure, supply chains are treated separately from other items, such as carbon emissions, climate change effects, pollutants, and human rights. This means all those items, if not captured in the ambiguous “supply chain” metric, reflect each company’s own actions but not their supply chain partners’.
Even when companies collect their suppliers’ performance, “selective reporting” can arise because there is no unified reporting standard. One recent study found that companies tend to report environmentally responsible suppliers and conceal “bad” suppliers, effectively “greenwashing” their supply chain.
Carbon emissions are another example. Many companies, such as Timberland, have claimed great successes in reducing emissions from their own operations. Yet the emissions from their supply chain partners and customers, known as “Scope 3 emissions,” may remain high. ESG rating agencies have not been able to adequately include Scope 3 emissions because of a lack of data: Only 19% of companies in the manufacturing industry and 22% in the service industry disclose this data.
More broadly, without accounting for a company’s entire supply chain, ESG measures fail to reflect global supply chain networks that today’s big and small companies alike depend on for their day-to-day operations.”
