ESG Under Attack at House Oversight Committee Hearing

On Wednesday, May 10, the House Committee on Oversight and Accountability held the first of multiple planned hearings on ESG. Wednesday’s hearing, “ESG Part I: An Examination of Environmental, Social, and Governance Practices with Attorneys General,” was led by House Oversight Chairman James Comer (R-Ky.). Comer blasted ESG principles in his press release about the hearings, calling ESG “a progressive scheme pushed by radical left-wing groups to pressure large and small businesses to adopt policies that routinely undermine performance.”

The hearing is partly in response to a March 2023 letter from 21 Republican state attorneys general to various large investment firms. The letter expressed concerns about the use of ESG principles in asset management and voting decisions at corporate annual meetings. Among other things, the letter claimed asset managers were shirking their fiduciary duties in favor of furthering “political goals” like race and gender equity and net zero compliance.

The “ESG Part I” hearing featured testimony from Utah Attorney General Sean Reyes, Alabama Attorney General Steve Marshall, and Illinois State Treasurer Michael Frerichs (minority witness). In his testimony, Republican attorney general Reyes called ESG an “open conspiracy to bypass Congress and instead impose costly changes on American consumers using the power of horizontal agreements by key players in our financial system.” He argued that ESG investing could incentivize changes to society that Americans have not agreed to. Climate goals, for example, could spur changes that “impact everything from how we grow our food and what we eat to how we power our homes and businesses and even what kind of cars we are allowed to purchase.”

Democratic Representative Jamie Raskin disagreed, and claimed ESG principles are just a tool that can help asset managers, corporate board members, and executives “be vigilant, watchful, and alert to opportunities and risks.” To not use ESG principles, Raskin suggested, would be “a negligent and inattentive investment strategy.” Another Democratic witness, Illinois State Treasurer Michael Frerichs, argued that attacks on investors who utilize ESG principles are “highly coordinated” and “politically motivated.” Frerichs noted that, contrary to what the attackers might say, “ESG is about looking at a wider range of risks and value opportunities that can have a material financial impact on investment performance.”

Chairman Comer noted that the May 10th hearing would not be the end of the Committee’s work, and is only the first in a series of oversight actions the Committee intends to explore. There are currently no further ESG hearings scheduled, but we will continue to monitor for additional updates.