House hearing on ESG goes off the rails

“A colossal waste of time.”

“Completely outrageous.”

“We’re wasting our time again with this nonsense.”

Those were just some of the phrases House Democrats used during the second hearing their Republican colleagues called to investigate the use of ESG factors by financial services companies.

The hearing, whose witnesses and lines of questioning largely mirrored those at the first hearing last month, was much shorter and sparsely attended. Only a few Republican representatives attended and asked questions, and they were outnumbered 2-to-1 by Democrats, who were not shy about mentioning that.

“I’m really struggling here to understand what Republicans want to have happen … It seems like they want companies to do things that they like. I too would like companies to do what I like,” said Rep. Katie Porter, D-Calif. “I can’t believe this is part two, when part one was the stupidest hearing I’ve been in. Please god, let there not be a part three.”

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Like the first hearing, the second plainly showed the divide between the left and right that has only increased during the culture wars. While the first hearing indicated that Republicans and Democrats have different definitions and ideas about ESG, the second made it obvious that they also don't agree on what “choice” means in the context of investing.

On the right, choice seemed to pertain to asset managers not restricting the universe of securities within the funds they manage. On the left, choice meant allowing fund managers to consider all information available to them, include ESG data, and letting individual investors have the option of picking funds that suit their needs and preferences.

“It is not money managers’ job to pursue political agendas. It’s to manage the accounts for returns on investment,” said Rep. Lisa McClain, R-Mich., who took issue with asset managers voting fund shares on ESG-related shareholder resolutions. “We are seeing more instances of woke corporations importing European values over American values, and they’re not even telling their clients about it.”

The witness invited by Democrats, Columbia Business School professor Shiva Rajgopal, compared the risks identified by using ESG data as similar to those from accounting risk.

“Think about the tail risk associated with the future cash flows of the stocks you hold,” Rajgopal said.

“We should just let the free market do what it wants to. Markets can’t be efficient if you restrict access to data,” he said. “If there are signals that inform your view of future cash flows and risk, you would actually fail in your duty as a fiduciary if you didn’t look at those signals.”

Environmental, social and governance factors, which have been used by various asset managers for years as an additional dimension of assessing risk and opportunity, are a liberal cause, McClain and other Republicans said.

“ESG — does that empower [asset managers] to consider any agenda they want? What if it was a pro-life agenda?” McClain said. “We’d be all up in arms about that.”

A bill recently submitted by Rep. Chip Roy, R-Texas, seeks to prohibit ESG-themed fund options in the federal Thrift Savings Plan’s mutual fund window. While the plan contains numerous sustainable investment options, it also has Catholic-themed funds that take abortion access and other factors into account. A consequence of that bill, which is co-sponsored by 18 other Republicans, is that it would likely limit plan participants from accessing those funds.

CONSPIRACIES, COERCION AND CARTELS

Testimony from some of the witnesses and lines of questioning from some Republicans showed that it was unclear where the line between investing and the culture wars is being drawn.

Rep. Glenn Grothman, R-Wisc., one of the bill’s co-sponsors, asked Republican-invited guests for examples of public companies that “pride themselves on discriminating against white people,” the same theme he explored during the first hearing on ESG.

One guest, Jason Isaac, director of Life:Powered at the Texas Public Policy Foundation, took aim at ESG ratings from different data providers, which can vary significantly. “The climate cartel is in full force, which is why companies like FTX, while they had no board, had a good climate score,” Isaac said.

Another witnesses, Mandy Gunasekara, who had been chief of staff of the Environmental Protection Agency during the Trump administration, characterized the “S” in ESG as “a tool to advance the Left’s broader cultural agenda,” specifically, conspiracy “efforts to promote ‘gender transitions’ for children.”

Asked by Rep. Becca Balint, D-Vt., “whether you really believe that garbage,” Gunasekara said, “It’s not a matter of believing. It’s a matter of fact.”

Balint, having spoken prior to the hearing with families of trans children, was visibly unhappy about attempts to connect conspiracy theories to the world of investing.

“You believe that investment strategies are a secret, weaponized way to promote gender transitions for children,” Balint said. “Somehow, the witnesses figure out a way to bring trans kids into every conversation we have. I don’t think it has any place in this hearing on investments to beat up on kids.”

PARTING WORDS

Rep. Cori Bush, D-Mo., said that she had had enough of the term “woke,” which pertains to awareness of social inequality, primarily by the Black community, being repurposed by some conservatives.

“It is astounding how often we hear about wokeness from people who have no idea what it means or where it stems from,” Bush said. “Unless you are saying ‘I’m a racist white supremacist and I’m bigoted,’ stop talking about wokeness … Responsible investing has nothing to do with wokeness.”

In following comments, McClain and Rep. Pat Fallon, R-Texas, were quick to defend themselves.

“Racism is a diminishing phenomenon,” Fallon said. “People of color — Asian Indians … they are the most successful ethnic group, which is remarkable, because if racism truly exists to the extent that a lot of people argue, they wouldn’t be.”

“The real issue is … you have to have whole families — fathers in the home,” he said. “When you’re a 14- or 15-year-old, you’re just not afraid of your mom, and it’s hard to raise kids.”