House Republicans are still fighting their war against environmental, social, and governance (ESG) practices.
An “ESG working group,” established by Republican members from the House Committee on Financial Services, published its report outlining goals against ESG policies. Its targets include regulating proxy voting, managing financial and consumer regulatory agencies, and limiting EU regulations from U.S. companies, among others.
Specifically, the report targets the “E” or environmental factor of responsible investing as its primary focus: “The initial focus of the Working Group centers on the environmental aspect, specifically the current promotion of environmental policies in the financial services industry and by regulatory bodies,” wrote House Republicans in the report.
The politicization of ESG has largely been attributed to environmental factors, as fossil fuel companies and oil and gas-backed lawmakers file suits and create coalitions against agencies supporting the sustainable factors in retirement plans.
In a February webinar that focused on the primary objectives surrounding the Department of Labor’s (DOL) ESG rule, general counsel of the American Retirement Association (ARA) Allison Wielobob credited the growing politicization of sustainable investing to the “E” aspect of ESG.
“For some reason, the ‘E’ [factor] really gets under people’s skin and in this context,” she said at the time.
The environmental aspect of ESG has become so prominent in politics that original pioneers of sustainable investing are choosing to forego the acronym altogether. Larry Fink, CEO and chairman of BlackRock, recently disclosed that he will no longer utilize “ESG” in his language due to its concept being “totally weaponized” and “misused by the far left and the far right,” he said during the Aspen Ideas Festival in Colorado.
BlackRock, one of the world’s largest asset managers, faced immense controversy from conservatives after Fink said it would embrace ESG investing in 2018.
Proxy voting reforms
The report also calls for changes to the proxy voting system, starting with proxy advisory firms Glass Lewis and Institutional Shareholder Services (ISS), who the report mentions have increasing influence on institutional investors’ voting decisions due to its influence in the market. “Their dominance raises serious questions about bias and accountability, as these firms have the power to sway institutional investors’ voting decisions,” the report writes. “This level of influence undermines the fairness and transparency that underpins corporate governance.”
The group calls for proxy advisors to be transparent and accountable towards investors, specifically by providing recommendations that consider “the long-term economic value of the company,” disclosing their economic analysis, and providing financial justifications when recommending against the judgment of an independent board of directors.
The report also asks for proxy advisors to publish annual reports that provide overviews of their activities, which would include a summary of the shareholder proposals reviewed, the recommendations made, and the financial analysis employed to justify those recommendations.
Such an annual report would also include instances where shareholder proponents were clients of the proxy advisory firm, added the report.
Republicans made similar suggestions for ESG rating firms, calling for improvements towards accountability and transparency.
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