GOP committee aims at ESG rules

SEC Chairman Gary Gensler “is more focused on climate change and social justice than protecting investors”, a House Republican report claims.

“In 2021, the SEC implemented changes that made it easier for politically motivated proposals to be included in annual proxy statements,” the House Financial Services Committee’s ESG Working Group says. “Chair Gensler’s use of the SEC as a political tool is deeply concerning, as it puts the investments of hard-working Americans at risk and sets a dangerous precedent of weaponising the agency for progressive purposes.”

Republicans promised they would target ESG regulation ahead of last year’s elections. Republicans on the House Appropriations Committee have already proposed legislation to “zero out” any ESG, Regulation Best Execution or private fund compliance rules. Financial Services Republicans have promised to fill July with hearings on the problems with ESG in investing.

Under Gensler, the SEC has floated two ESG proposals – one that would force public companies to track and disclose their Scope 1, 2 and 3 emissions, and another that would force investment advisers to do similarly. But the Commission has also adopted rules that make it easier to force proxy votes by shareholders.

Eight priorities

“Shareholders have the right to protect their investments and participate in corporate decision-making,” the report states. “However, the SEC rules have allowed social activists to abuse the proxy system. Last year, ESG shareholder proposals accounted for 61 percent of all proposals on proxy ballots, nearly double the previous year’s count. Research demonstrates a correlation between increased activism by public pension funds promoting social agendas and lower stock returns, resulting in a 14 percent decrease in valuation for affected companies. Moreover, these extraneous ESG proposals impose substantial costs on companies and their shareholders, without holding the proponents accountable.”

Financial Services Republicans say they have eight priorities they want to tackle:

• Reform the proxy voting system to safeguard the interests of retail investors.
• Promote transparency, accountability and accuracy in the proxy advisory system.
• Enhance accountability in shareholder voting by aligning voting decisions with the economic interests of shareholders.
• Increase transparency and oversight of large asset managers to ensure their practices reflect the pecuniary interest of retail investors.
• Improve ESG rating agency accountability and transparency to safeguard retail shareholders.
• Strengthen oversight and conduct thorough investigations into federal regulatory efforts that would contort our financial system into a vehicle to implement climate policy.
• Demand transparency, responsibility and adherence to statutory limits from financial and consumer regulatory agencies.
• Protect US companies from burdensome EU regulations, safeguarding American interests in global markets.