The House GOP is taking aim at ESG proposals and corporate influence in a series of initiatives that includes investigating the Securities and Exchange Commission and the Big Three asset managers Vanguard, State Street Global and Blackrock, a House ESG working group said in a memo released late last week.
“The prioritization of ESG by the Biden Administration through regulatory measures is a deliberate strategy aimed at circumventing the lack of congressional support for certain environmental, social, and political policy issues,” the House Committee on Financial Services’ ESG working group said in their memo on Friday.
“Faced with the inability to pass these initiatives through traditional legislative channels, the administration is exploiting financial regulatory agencies to impose their policy and other ESG-related priorities on the private sector,” wrote the working group, which is chaired by Rep. Bill Huizenga, who is chairman of the House Oversight and Investigations Subcommittee.
The Biden administration “is exploiting financial regulatory agencies to impose their policy and other ESG-related priorities on the private sector,” the House working group said.
The group said it wants to see careful evaluation of the impact of the administration’s push, including the effect of SEC policies on retail investors and markets.
The working group alleged the SEC is exceeding its authority by mandating non-material ESG disclosures through regulations.
“Congress has not granted the SEC the authority to create regulations that compel companies to disclose general information about ESG-related issues," the group stated. "In fact, Congress has voiced its disapproval on the number and complexity of disclosures presently required by the SEC and has urged the agency to simplify them rather than adding to their complexity."
The SEC declined to comment on the matter, a spokesman said.
In March 2022, the SEC proposed a 500-page climate disclosure rule that would replace voluntary sustainability reports with mandatory disclosures that include detailed emissions data and climate risk management strategies.
At the time it released the proposal, the agency said the rules were necessary to weigh climate-related risks that "are reasonably likely to have a material impact on [registrants'] business, results of operations or financial condition."
SEC Chairman Gary Gensler said the new rules were necessary as an increasing number of investors consider climate-related issues in their investment decisions.
"Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions," Gensler said when the proposal was released. He added that the rules "would help issuers more efficiently and effectively disclose these risks and meet investor demand, as many issuers already seek to do."
Friday's memo is part of a broad campaign by the GOP on the state and federal levels to push back against ESG investing, with states such as Texas passing broad prohibitions against ESG investing in public pensions and other public investments.
The working group also claimed the SEC is planning to propose a new rule that would introduce additional qualitative and quantitative disclosures related to workforce management.
“These rules will increase the costs associated with public company disclosures, making securities activities more expensive, burdening the capital formation process, and ultimately discouraging private companies from going public,” the group added.
The House working group also said there is a need to reform the proxy voting system and put the brakes on the increase in shareholder resolutions filed at public companies—a result made possible because the SEC under Biden told public companies via no-action letters that they are no longer immune from regulatory action if they block shareholder proposals.
The flood of shareholder proposals has been costly for both companies and investors, the group said.
Vanguard, State Street Advisors and Blackrock are also in the working group’s crosshairs. The group said it plans to ask Congress to develop a more complete understanding of the extent to which the Big Three exercise influence over the management and corporate policy of their portfolio companies and explore legislation to provide a more precise definition of “control” to prevent potential regulatory loopholes.
“This would enable a more accurate assessment of the Big Three’s influence over banking organizations, triggering necessary regulatory restrictions and oversight to safeguard retail investors,” the working group said.
One consideration is prohibiting big investors from automatically casting votes in line with proxy advisor firms’ recommendations, the memo said.
“By removing the robo-voting mechanism, institutional investors will be compelled to critically evaluate proxy advisory firm recommendations before casting their votes,” the group said in the memo.
The group also wants to require proxy advisors to create annual reports detailing how clients cast votes on shareholder proposals, as well details on how advisors “reconcile their votes with their fiduciary duty to act in the best economic interest of shareholders.”