Pub. 3 2023 Issue 4

A View From the Capitol

Environmental, social, and governance (ESG) policies remain very present in corporate America, with companies giving in to pressure from progressive investors and policymakers to get on board with things like climate initiatives and other social policies that have nothing to do with the company or its practices. Corporate boardrooms have become political platforms for extreme ideology. As I’ve said several times in the past, advancing political agendas at the expense of American investors paying into their retirement or savings is unacceptable.

Considering all the issues there are with ESG, combatting these radical proposals and policies has been high on our priority list at the House Financial Services Committee this summer. Recently, we had a full committee hearing on the ramifications of ESG on American investors and financial regulation. One of our hearing witnesses, Lawrence Cunningham, has built his reputation on being a trusted industry voice on corporate governance, culture and law. In response to my questions, Mr. Cunningham replied, “It’s commonly said that following ESG practices is good for the long-term economic interests of a company or of a fund, but the empirical evidence doesn’t support that assertion …” I couldn’t agree more, and it seems that some of ESG’s earliest disciples are being forced to acknowledge that truth. BlackRock CEO Larry Fink commented in June that he was “ashamed” to be part of the ESG political debate and is no longer using the term. Vanguard has pulled out of its net zero climate effort for more “independence” in helping its customers find returns.

While it’s clear that I have serious issues with the many shortcomings of ESG investing, there is another issue at hand. The hypocrisy of many in corporate America who preach social and environmental responsibility while continuing to do business with the Chinese Communist Party is staggering. China has the largest carbon footprint on Earth and openly utilizes forced labor to manufacture the products these “socially conscious” companies sell around the world. This is another problem that I’m working on in my capacity as the Chairman of the Subcommittee on National Security, Illicit Finance, International Financial Institutions and a member of the Select Committee on the CCP.

I, unfortunately, have no doubt that ESG will continue to be an issue the financial services industry must grapple with for the foreseeable future, and we are working to combat these misguided policies in various ways here in Congress. Together with my colleague Congressman Bill Huizenga (MI-02), we introduced the House version of the Investor Democracy is Expected (INDEX) Act. This bill will empower American investors who are currently at the mercy of investment advisers. The INDEX Act requires investment advisors of passively-managed funds to vote proxies in accordance with the instructions of fund investors — not at the discretion of the adviser. Senator Dan Sullivan (R-AK) introduced the Senate version, and we are working in a bicameral fashion to advance this bill soon. While combatting ESG is going to certainly take more than one piece of legislation, this bill is a good start and allows investors who want a voice to have one.

While we certainly have our work cut out for us with the prevalence of ESG policies, my House Financial Services Committee colleagues and I will continue working to find ways to put an end to the unethical ESG practices and pressures that are turning corporate America into political campaigns.