Protesters gathered at the UNFCCC SB58 Bonn Climate Change Conference in Bonn, Germany, to advocate for climate justice, the end of fossil fuel use, and the protection of human rights. The Republican-led House Financial Services subcommittee recently held a hearing to discuss the Biden administration’s proposals for environmental, social, and governance (ESG) disclosure by public U.S. companies.
During the hearing, the focus was on the influence of proxy advisors and their impact on shareholder voting decisions regarding ESG investing. Republicans expressed concern about what they perceived as an overemphasis on ESG shareholder resolutions, while Democrats argued that shareholders should be fully informed about potential risks to their investments.
In her opening remarks, Rep. Ann Wagner, R-Mo., the chair of the Subcommittee on Capital Markets, criticized unrestricted shareholder activism, claiming that it distracts from more pressing issues and undermines the appeal of U.S. markets.
This hearing is one of several scheduled this month on ESG investing by House Republicans, who have been using their majority power to question socially conscious investing and policies designed to promote it.
Proxy advisors, such as Glass Lewis, play a role in advising shareholders on how to vote on important resolutions. The SEC adopted rule amendments in 2021 to facilitate advisory firms’ ability to provide guidance to shareholders.
Wagner argued for reforming the proxy process to align shareholder proposals with company interests. She also criticized the Securities and Exchange Commission’s proposal to require public companies to disclose more information related to ESG factors, a sentiment reiterated during a previous full committee hearing.
Out of the 13 pieces of legislation under consideration by the subcommittee, seven target the SEC. Wagner emphasized that the SEC does not have the authority to impose regulations compelling companies to disclose general information about ESG-related issues.
The GOP’s opposition to policies promoting ESG investing has gained support from major business advocacy groups like the Business Roundtable and the National Association of Manufacturers. The Business Roundtable has taken legal action against the SEC’s rollback of proxy advisory reforms established during the Trump administration.
Chris Netram, managing vice president of tax and domestic economic policy for the National Association of Manufacturers, claimed that the SEC has empowered activist groups and proxy advisory firms to divert shareholder votes away from companies’ core interests.
Democrats, led by Rep. Maxine Waters, are pushing back against the Republicans’ attacks on ESG regulations. Waters accused Republicans of trying to silence shareholders’ ability to influence the direction of the companies they own.
Nell Minow, vice chair of proxy firm ValueEdge Advisors, argued that the fossil fuel industry is the main opponent of climate-related ESG disclosures.
During questioning, Rep. Sean Casten, D-Ill., highlighted the need for mandatory reporting of climate-related information, citing investor support for climate disclosures as material information that could impact voting decisions.
The debate on climate disclosures is essentially settled, according to Casten. He criticized the partisan divide on looking out for investors’ interests and emphasized the importance of market forces and investor preferences in shaping climate-related policies.
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