National Association of Manufacturers slams ESG disclosures

WASHINGTON – As Republicans within the House dig in to research environmental, social and governance, or ESG, investing, a serious industry group that represents 1000’s of firms is urging them to make reforms.

The National Association of Manufacturers, in a letter to the House Financial Services Committee, slammed recent rules and regulatory changes by the SEC and asked lawmakers to rein in proxy voting and limit the shareholder proposals firms need to reveal.

The industry lobbying group said recent changes from the SEC are harmful to manufacturers and are “putting their ability to finance their growth in jeopardy,” in keeping with the letter, which CNBC obtained. NAM plans to send the letter to the committee Monday. The letter is addressed to committee Chairman Rep. Patrick McHenry, R-N.C., and rating member Rep. Maxine Waters, D-Calif.

The letter underscores the business muscle behind the GOP’s battle against policies that back ESG investing. NAM represents about 14,000 firms, including Johnson & Johnson, Exxon Mobil and Pfizer.

ESG investing has change into a heated policy battleground. McHenry said earlier this yr that ESG has change into the “latest tool” for liberals to “force their far-left ideology on the American people.” Progressive Democratic lawmakers have pushed back, arguing that considering ESG makes investors more aware of potential risks and opportunities.

The committee plans to carry a hearing Wednesday examining environmental and social policy investing and its impact on investors. That will likely be followed by other hearings this week and later this month digging into the influence of proxy voting firms that provide advice to investors.

Republican lawmakers, who hold the bulk within the House, ultimately plan to advance a package of laws on several issues related to ESG investing. The measures, in the event that they pass the House, are unlikely to realize traction within the Democratic-controlled Senate yet could proceed to influence the talk.

Much of the House GOP’s concern centers on two firms that make up 97% of the proxy advisory market: Institutional Shareholder Services and Glass Lewis. Research from Stanford University shows recommendations from the firms have significant sway over how individual investors vote and the way publicly traded firms are governed.

While the National Association of Manufacturers’ letter didn’t name either company, the group’s CEO, Jay Timmons, wrote that such firms “influence or control large swaths of the shareholder vote yet operate with minimal transparency and significant conflicts of interest.”

Through the Trump administration, the SEC proposed several business-friendly rules allowing firms to see what proxy firms were recommending upfront and require proxy advisors to let their clients learn about any response the businesses needed to their recommendations. Last yr, the Biden administration rescinded each those rules.

Earlier this yr, a gaggle of Republican state attorneys general wrote to each firms expressing concerns that their recommendations “threaten the economic value of our States’ and residents’ investments and pensions — interests that might not be subordinated to your social and environmental beliefs, or those of your other clients.”

ISS fired back with an 11-page response rebutting the accusations and ending with a promise to proceed “serving the institutional investment community in a way consistent with our legal and contractual obligations.” Glass Lewis issued a 13-page response, saying the state officials’ letter “fundamentally misunderstands our voting policies and the way they’re utilized in our work.”