Anti-ESG Attacks Continue at State & Federal Government Levels

In our Top Story this issue, as reported in ESG Today, anti-ESG critics continue to work to undermine the use of ESG factors by various public sector fiduciaries – such as state and city pension fund managers, comptrollers, treasurers – and are joining forces at both the state and federal levels to mount attacks on ESG proponents (such as Wall Street asset managers).

For example, the House of Representatives’ Committee on Oversight and Accountability held hearings earlier this spring to “examine the concerns of state attorneys general related to the integration of ESG factors by [state-based] asset managers.” Republican committee members see great dangers posed by adoption of ESG investment strategies by fiduciaries in their states. The hearings produced anti-ESG comments to encourage House and Senate Republicans to pass legislation to reverse the Department of Labor’s rule allowing for state and city pension plan managers (under ERISA oversight) to use ESG factors in their investment management process.

A number of Republican state AGs are working in tandem at the state level to attack the ESG investment strategies adopted by state pension system managers in their jurisdictions -- which the AGs see “as being used to push a radical, far-left ideology to shape the behavior of American businesses.” The House hearings were designed to air these grievances, such as those of Utah AG Sean Reyes, who sees ESG as “an open conspiracy to bypass Congress and impose costly changes on American consumers by using the power of horizontal agreements by key players in the financial system.” (These are the banks, asset managers and insurance companies forcing changes “over the real economy corporations” by pressuring managements “to adopt changes they would not do on their own.”)

On the national level, the committee members characterized “the Biden Administration [agenda] as routinely pushing ESG priorities over the economic, energy, and national security needs of the United States.” Committee Chair James Comer – Republican of Kentucky, a coal-producing state – said ESG practices “are a coordinated effort by unelected shadow organizations to force liberal policies on U.S. taxpayers, investors, and retirees.” In his view, the Biden Administration’s embrace of ESG initiatives (such as renewable energy) is risking Americans’ retirement funds in an effort to advance a political agenda. This is how “the Far Left” works, he states.

Moving the committee’s agenda toward Federal law, Republican Congressmen Andy Barr (Kentucky) and Rick Allen (Georgia) reintroduced in late June the Ensuring Sound Guidance (ESG) Act “to protect retail investors’ retirement accounts from asset managers who put environmental and social goals ahead of returns.”

ESG approaches, says Representative Barr, are a “cancer within our capital markets that prioritizes higher-fee, less diversified and lower return investments.” The legislation if adopted would reverse the U.S. Department of Labor guidance for fiduciaries on ESG investments and seek to avoid such investments as in “climate-related ESG funds.” (The bill originally passed by House and Senate was sent to the White House in March for signing was vetoed by President Biden.)

The targeted Department of Labor rule – “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” – was adopted in December 2022, allowing pension plan fiduciaries for ERISA plans to consider ESG in the investment process and allows consideration of climate and ESG factors in annual corporate proxy voting. The Republicans in Congress are working to overturn the rule (which reversed a Trump-era rule that aimed to block the consideration of ESG factors by pension plan managers).

Should we consider this a primary factor in the anti-ESG attacks by many Republican leaders: The worldwide investment in clean power was the same amount spent on producing oil and gas (US$1 trillion).

As the attacks on “ESG” and “woke” policies accelerate at both federal and state levels of government, the G&A team will continue to keep you updated.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.