House Republicans kicked off a series of hearings Wednesday dissecting ESG investing and examining new legislation that would block proposed federal regulations that promote the practice.
In the crosshairs are the Securities and Exchange Commission’s proposed rules requiring publicly traded companies to report how their businesses impact the environment and steps being taken to manage climate risks. Critics say such mandates should be voluntary and that they’re too broad, costly and difficult to assess — particularly for smaller companies — and could have a chilling effect on new investments across the economy.
“This is the government’s intervention to distort the free flow of capital,” said Rep. Andy Barr of Kentucky, a Republican on the Financial Services Committee that conducted the hearing. “I don’t understand why anyone would say this is about assessing climate risk. Increasing energy prices … does not promote financial stability.”
Rep. David Scott, a Georgia Democrat on the committee, also expressed concern about what the SEC’s climate disclosure proposal would impose on farmers. He said he feared it would cripple small farmers and ranchers, potentially jeopardizing their ability to receive loans if banks embrace ESG.
Known as Scope 3 emissions under the proposed climate disclosure rules, the SEC wants larger companies to determine their broader carbon footprint by factoring in the emissions of other public companies they do business with within their supply chain, despite having no control or ownership over those other companies.
“I hope that [SEC Chairman Gary Gensler] would not implement this Scope 3 situation. I think we need to carefully look at the impact it has on our agriculture community,” Mr. Scott said. “My hope is he will continue to review feedback on this Scope 3 emissions and make the appropriate change before any rule is final.”
Mr. Gensler said in an interview with the Council of Institutional Investors earlier this year that the SEC was likely to scale back its emissions disclosure rules, an apparent acknowledgment of concerns. He also testified to senators last year that there was “no goal to touch farmers in any of the states you represent — or ranchers” and that the rule would not apply to any private companies, including private farms.
The Financial Services Committee has made it a top priority to counter environmental, social and corporate governance investing or ESG that factors in climate change and social justice politics.
“It’s time to get politics out of corporate boardrooms and discourage financial regulation from being weaponized to drive far-left environmental and social policy,” Financial Services Chairman Patrick McHenry, North Carolina Republican, said.
He said the committee will also focus on combating two other ESG issues: proxy voting that gives pro-ESG investment fund managers broad power over public corporations and liberal efforts to have companies align with how those in Europe make environmental and social justice politics disclosures. Unless the SEC implements strict climate disclosure rules, the European Union plans to require U.S. companies with business across the pond to follow their climate reporting rules.
Rep. Brad Sherman, California Democrat, elicited laughs from the committee’s Republicans when he said their anti-ESG stance promotes socialism — the same accusation critics levy against ESG proponents.
Red states across the country have led the anti-ESG charge, divesting billions in public state pension funds from some of the globe’s largest pro-ESG financial firms like BlackRock, JPMorgan, Wells Fargo, State Street and Vanguard.
Congressional Republicans have rallied around the anti-ESG issue but have been unable to pass legislation into law. With the help of some Senate Democratic defectors, Congress approved legislation earlier this year to roll back President Biden’s Labor Department rule allowing 401(k) fiduciaries to engage in ESG investing without their clients’ knowledge. However, Congress failed to override Mr. Biden’s veto.
Rep. Maxine Waters of California, the committee’s top Democrat, said Republicans were the ones pushing “anti-capitalist, anti-investor, anti-business and anti-American” policies.
“This House-wide effort is meant to divide Americans by ripping freedoms, rights and opportunities away from women, people of color and members of the LGBTQ community. This is the true meaning of the term anti-woke,” she said.
Democrats have struggled with public relations to effectively counter the onslaught against ESG, which proponents argue provides investors with key knowledge about companies’ moral values and long-term financial viability beyond climate change and normal monetary factors.
As part of the effort, House Democrats created the Sustainable Investment Caucus.
“Apparently, it’s become deeply partisan to defend free markets, to admit that science is real and look out for the interests of investors,” said Rep. Sean Casten of Illinois, the group’s co-founder. “We are here to defend that because that’s the role of Congress.”
• Ramsey Touchberry can be reached at rtouchberry@washingtontimes.com.
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