Protesters demonstrating over climate justice, loss and damage, fossil fuels, human rights, exploitation by wealthy countries of poor countries and other climate related issues throughout the UNFCCC SB58 Bonn Climate Change Conference on June 13, 2023 in Bonn, Germany.
Sascha Schuermann | Getty Images News | Getty Images
WASHINGTON — A Republican-led House Financial Services subcommittee held a second hearing Thursday scrutinizing the Biden administration’s environmental, social and governance disclosure proposals for public U.S. firms.
The hearing zeroed in on the influence of proxy advisors on shareholder voting decisions on questions related to ESG investing. Republicans pushed back against what they called the prioritization of ESG shareholder resolutions, while Democrats say shareholders deserve to be told of all possible risks to their investments.
“Unfortunately, unrestricted shareholder activism is diverting attention and limited resources from core issues, undermining the attractiveness of U.S. markets and discouraging firms from going public,” Rep. Ann Wagner, R-Mo., chair of the Subcommittee on Capital Markets, said during opening remarks.
The hearing was the second of six scheduled this month on ESG investing by House Republicans. The GOP has leveraged its latest majority power this yr to criticize socially conscious investing and Biden administration policies designed to market it.
Proxy advisors recommend voting decisions on key resolutions before shareholders. They include firms like Glass Lewis — which had a representative appear before the Subcommittee on Oversight and Investigations on Thursday.
The SEC adopted rule amendments in 2021 that aimed to make it easier for advisory firms to supply advice to shareholders.
Wagner said the proxy process must be reformed to make sure shareholder proposals align with company interests. She also denounced the Securities and Exchange Commission’s 2022 proposal to require public firms to make more disclosures related to environmental, social and governance aspects, reiterating criticism made during a full committee hearing Wednesday.
Out of 13 pieces of laws the subcommittee is considering, seven goal the SEC.
“Congress has not granted the SEC the authority to create regulations that compel firms to reveal general details about ESG-related issues,” she said.
The GOP’s push against policies designed to advertise ESG investing has garnered the support of a number of the largest business advocacy groups, similar to the Business Roundtable and the National Association of Manufacturers. The Business Roundtable said it has challenged the SEC led by Chair Gary Gensler in court for rolling back proxy advisory reforms established throughout the Trump administration.
Chris Netram, managing vice chairman of tax and domestic economic policy for NAM, contended that the SEC has enabled a “parade of activist groups and proxy advisory firms” to divert shareholder votes away from core company interests.
“In reality, the SEC over the past two years has taken proactive steps to support and empower these third-party actors—rescinding much-needed guardrails, limiting firms’ ability to exclude activist proposals from the proxy ballot and inspiring environmental, social and governance agendas unrelated to long-term business growth and shareholder returns,” Netram said in pre-released testimony.
Democrats, led by Rep. Maxine Waters, rating member of the Financial Services Committee, are countering Republicans’ monthlong assault on ESG regulations.
“Today, Republicans are giving the term ‘investor protection’ latest meaning by pushing laws that may protect investors from their very own ideas,” Waters said throughout the hearing. “For a celebration that supposedly values free speech and free market capitalism, they are actually attempting to muzzle the flexibility of shareholders to bring forth proposals that may influence the direction of the businesses they own.”
Nell Minow, vice chair of proxy firm ValueEdge Advisors, argued that the fossil fuel industry is the most important opponent of firms making climate-related ESG disclosures.
“(It’s) no secret that it is the fossil fuel industry that’s against these questions,” Minow said. “Everybody else is for them. I have never noticed anybody provide you with a single example of some ESG proposal or ESG vote that was in some way detrimental to anybody.”‘
During questioning, Rep. Sean Casten, D-Ailing., emphasized the necessity for required reporting to satisfy the demand for climate-related information and said a majority of investors support climate disclosures as material information that would alter voting decisions.
“This debate is settled. There isn’t a query about whether climate disclosures are material unless you think that that there are people on this committee who know higher than free markets, who know higher than the interests of investors,” Casten said.
“I’m sorry it has turn into partisan to look out for the interests of investors,” he added.
