[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                       CLIMATE CHANGE AND SOCIAL
                   RESPONSIBILITY: HELPING CORPORATE
                  BOARDS AND INVESTORS MAKE DECISIONS
                        FOR A SUSTAINABLE WORLD

=======================================================================

                            VIRTUAL HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON INVESTOR PROTECTION,

                 ENTREPRENEURSHIP, AND CAPITAL MARKETS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 25, 2021

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 117-7
                            
                            
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                              __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
43-994 PDF                  WASHINGTON : 2021                     
          
--------------------------------------------------------------------------------------

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado              ANN WAGNER, Missouri
JIM A. HIMES, Connecticut            ANDY BARR, Kentucky
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio                   FRENCH HILL, Arkansas
JUAN VARGAS, California              TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey          LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas              BARRY LOUDERMILK, Georgia
AL LAWSON, Florida                   ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam            WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa                     TED BUDD, North Carolina
SEAN CASTEN, Illinois                DAVID KUSTOFF, Tennessee
AYANNA PRESSLEY, Massachusetts       TREY HOLLINGSWORTH, Indiana
RITCHIE TORRES, New York             ANTHONY GONZALEZ, Ohio
STEPHEN F. LYNCH, Massachusetts      JOHN ROSE, Tennessee
ALMA ADAMS, North Carolina           BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas
MADELEINE DEAN, Pennsylvania         WILLIAM TIMMONS, South Carolina
ALEXANDRIA OCASIO-CORTEZ, New York   VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
        Subcommittee on Investor Protection, Entrepreneurship, 
                          and Capital Markets

                   BRAD SHERMAN, California, Chairman

CAROLYN B. MALONEY, New York         BILL HUIZENGA, Michigan, Ranking 
DAVID SCOTT, Georgia                     Member
JIM A. HIMES, Connecticut            STEVE STIVERS, Ohio
BILL FOSTER, Illinois                ANN WAGNER, Missouri
GREGORY W. MEEKS, New York           FRENCH HILL, Arkansas
JUAN VARGAS, California              TOM EMMER, Minnesota
JOSH GOTTHEIMER. New Jersey          ALEXANDER X. MOONEY, West Virginia
VICENTE GONZALEZ, Texas              WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TREY HOLLINGSWORTH, Indiana, Vice 
CINDY AXNE, Iowa                         Ranking Member
SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
EMANUEL CLEAVER, Missouri            BRYAN STEIL, Wisconsin
                           
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 25, 2021............................................     1
Appendix:
    February 25, 2021............................................    39

                               WITNESSES
                      Thursday, February 25, 2021

Andrus, James, Investment Manager, Board Governance and 
  Sustainability Program, California Public Employees' Retirement 
  System (CalPERS)...............................................    10
Green, Andy, Senior Fellow for Economic Policy, Center for 
  American Progress..............................................     5
Ramani, Veena, Senior Program Director, Capital Market Systems, 
  Ceres..........................................................     9
Ramaswamy, Vivek, Founder & Executive Chairman, Roivant Sciences.    12
Toney, Heather McTeer, Climate Justice Liaison, Environmental 
  Defense Fund, and Senior Advisor, Moms Clean Air Force.........     7

                                APPENDIX

Prepared statements:
    Andrus, James................................................    40
    Green, Andy..................................................    51
    Ramani, Veena................................................    83
    Ramaswamy, Vivek.............................................    99
    Toney, Heather McTeer........................................   107

              Additional Material Submitted for the Record

Sherman, Hon. Brad:
    Center for American Progress report, ``The SEC's Time to 
      Act''......................................................   116
    CDP report, ``Pitfalls of Climate-Related Disclosures''......   153
    Ceres report, ``Disclose What Matters''......................   163
    Ceres report, ``Running the Risk''...........................   194
    Letter from Kevin Fromer, President and CEO, Financial 
      Services Forum, to Senator Menendez and Representative 
      Meeks......................................................   237
    ISS Climate Scenario Analysis................................   238
    ISS ESG Climate Portfolio Analysis...........................   248
    ISS Ethix, ``Decarbonizing a Portfolio Versus Decarbonizing 
      the Economy''..............................................   253
    Letter from Rich Sorkin, CEO, Jupiter Intelligence, to 
      Chairwoman Waters, Chairman Sherman, Ranking Member 
      McHenry, and Ranking Member Huizenga.......................   256
    PGIM report, ``Weathering Climate Change''...................   260
    Letter from Fiona Reynolds, CEO, PRI, to Chairman Sherman and 
      Ranking Member Huizenga....................................   265
    Letter from Lisa Gilbert, Executive Vice President, Public 
      Citizen, to Chairman Sherman and Ranking Member Huizenga...   273
    Recommendations of the Task Force on Climate-Related 
      Financial Disclosures (TCFD)...............................   277
Huizenga, Hon. Bill:
    ``Yellen Can't Save the Polar Bears,'' by Gregory Zerzan.....   351
    Written statement of Benjamin Zycher.........................   355

 
                       CLIMATE CHANGE AND SOCIAL
                        RESPONSIBILITY: HELPING
                          CORPORATE BOARDS AND
                        INVESTORS MAKE DECISIONS
                        FOR A SUSTAINABLE WORLD

                              ----------                              


                      Thursday, February 25, 2021

             U.S. House of Representatives,
               Subcommittee on Investor Protection,
             Entrepreneurship, and Capital Markets,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:01 p.m., via 
Webex, Hon. Brad Sherman [chairman of the subcommittee] 
presiding.
    Members present: Representatives Sherman, Scott, Himes, 
Foster, Meeks, Vargas, Gottheimer, Gonzalez of Texas, San 
Nicolas, Axne, Casten, Cleaver; Huizenga, Stivers, Wagner, 
Hill, Emmer, Mooney, Davidson, Hollingsworth, Gonzalez of Ohio, 
and Steil.
    Ex officio present: Representative Waters.
    Also present: Representative Barr.
    Chairman Sherman. The Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the subcommittee at any time. And, in fact, I do intend to 
declare a recess, probably around 4:15 p.m., to allow Members 
to vote in the end of the first vote on the Floor, and resuming 
probably a half hour later so that Members will have a chance 
to have voted on the second vote that we expect to happen this 
afternoon.
    Also, without objection, members of the full Financial 
Services Committee who are not members of this subcommittee are 
authorized to participate in today's hearing. This is the first 
hearing of this subcommittee in the 117th Congress, and I do 
want to thank everyone for being here.
    And I'd like to point out that with the Chair of our Full 
Committee being an ex officio member of this subcommittee, this 
subcommittee has four Full Committee Chairs as members of this 
subcommittee, because we have the Chairs of the Financial 
Services, Oversight and Reform, Agriculture, and Foreign 
Affairs Committees serving with us here today.
    As a reminder, all Members should keep themselves muted 
when they are not being recognized by the Chair. This will 
minimize disturbances while Members are asking question of our 
witnesses. The staff has been instructed not to mute a Member 
except when the Member is not being recognized by the Chair and 
there is inadvertent background noise.
    Members are also reminded that they may only participate in 
one remote proceeding at a time. If you are participating 
today, please keep your camera on, and if you choose to attend 
a different remote proceeding, please turn your camera off. If 
Members wish to be recognized during the hearing, please 
identify yourself by name to facilitate recognition by the 
Chair.
    Today's hearing is entitled, ``Climate Change and Social 
Responsibility: Helping Corporate Boards and Investors Make 
Decisions for a Sustainable World.''
    And I have just been informed that our Full Committee Chair 
Maxine Waters will not be joining us for an opening statement, 
and accordingly I recognize myself for 5 minutes to deliver an 
opening statement. I'll then recognize the ranking member of 
this subcommittee, Mr. Huizenga, for his opening statement.
    For hundreds of years, boards of directors and investors 
have focused pretty much on one thing: Can the corporation pay 
dividends? The chief measure of this was earnings per share. 
The accounting profession for centuries has developed a system 
to define, measure, tabulate, audit, and report earnings per 
share. Those who defined earnings per share controlled what a 
corporation would do, since its board would instruct its 
executives to do whatever was legal and ethical in order to 
achieve earnings per share. And this met societal expectations, 
since society simply wanted corporations to create and maintain 
profitable businesses.
    Today, we have different expectations. In addition to 
shareholders, we have stakeholders. All of us are stakeholders. 
Society at large protects the corporation and its property, 
educates its workforce and their children, and stakeholders 
also want to know what the corporation is doing. And the 
shareholders themselves want more information than earnings per 
share. They especially want information about the effect on 
climate change.
    Keep in mind that over the last 40 years, the number of 
weather events costing over a billion dollars has increased by 
300 percent. So, climate change is real and it is affecting us. 
And we know who is affected most: disadvantaged communities and 
communities of color. For example, during Hurricane Katrina, 
more than one-third of those residents who were forced to leave 
their homes were African Americans, and half of those who died 
from that hurricane were African Americans.
    So, those looking at corporations want to know, how is the 
corporation affected by future climate change, how will it be 
affected, and how is its behavior designed to minimize climate 
change? We have a host of other social issues to deal with, and 
with each of them we want to define numerical standards. We 
don't want an extra page or two added to the report of the 
corporation, the 10-K, loaded with greenwash and denial 
statements. We need to define and hopefully have numerical 
standards and measures to tabulate. We want to change the 
behavior of corporations, both in causing them to prepare for 
climate change and to hopefully minimize their effect on 
climate change.
    And there are those who argue that this is not important, 
it is not material, that the only things that are material are 
things that change earnings per share by at least a few 
pennies. First, these issues are material to shareholders; and 
second, there is a reputational risk that will affect earnings 
per share. So if you focus only on earnings per share, you are 
not going to be in a position to predict future earnings per 
share. And investors themselves are interested in these social 
issues, not just on earnings per share.
    Now, we can't turn the Form 10-K into a telephone book. We 
need to be selective, and sometimes issues may arise that are 
important that may not be as important in future years. Right 
now, I'm working with others on getting disclosure of 
involvement in Xinjiang Province in China, so that we will know 
whether forced labor is part of a corporation's supply chain. 
Hopefully, 10 years from now, that won't be an issue. But we do 
know that climate change and the corporation's effect on other 
environmental issues and environmental justice will be 
important to stakeholders and shareholders in the future.
    We do know that we want to disclose whether the corporation 
is engaged in political contributions that are hidden from the 
public, so-called ``dark money,'' and for those who say that is 
not material to investors, tell me on the record whether you 
would invest in a company that gave $20 million to the 
Communist Party of the United States or one of its dark money 
subordinate entities.
    We want to focus on executive pay versus average pay, and 
whether the corporation is paying taxes, or taking advantage of 
tax havens. There are a host of issues that I think are serious 
enough to require the corporations to disclose them and for 
shareholders to want to focus on them.
    With that, I recognize Ranking Member Huizenga for 5 
minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. So, what exactly are 
ESGs? Many claim that Environmental, Social, and Governance 
(ESG) investing is an investment strategy that focuses on 
incorporating criteria into investment decisions in addition to 
the traditional focus on investment financial returns. However, 
ESG data criteria spans a range of issues including, among 
others, measures of companies' carbon emissions, labor policies 
[inaudible.]
    Chairman Sherman. Mr. Huizenga, if you can suspend until 
the majority of us can hear you?
    Mr. Huizenga. Okay. Can you hear me now? I am not sure 
what's happening.
    Chairman Sherman. We can hear you now.
    Mr. Huizenga. Okay. I'll pick up partway through, assuming 
that you are dealing with the timing properly to put some time 
back on. Correct, Mr. Chairman?
    Chairman Sherman. You have almost 4\1/2\ minutes.
    Mr. Huizenga. Okay. Well, this data spans a range of 
issues, deals with what are frankly policy decisions, not 
business decisions. And, whether the CEO and the chairman of 
the board of directors is the same person or whether the 
company issues dual-class shares shouldn't be the role of this 
body.
    It is clear that demands for ESG information have increased 
recently. The amount of money in ESG-specific exchange-traded 
funds went from taking in $8 billion in 2019, to $31 billion in 
2020. According to Bank of America's global research, it is 
estimated that the amount invested in ESG funds could increase 
by $20 trillion over the next 2 decades. Because of these 
increased demands, many companies have responded by voluntarily 
increasing the amount of ESG information that they disclose. By 
all means, companies should focus on providing meaningful 
material disclosure that a reasonable investor needs to make 
informed investment decisions. After all, companies and not 
bureaucrats are best equipped to determine--
    Chairman Sherman. Once again, Mr. Huizenga, I wonder if you 
can suspend, and I will ask staff to freeze the clock. Can 
others hear Mr. Huizenga? I cannot.
    We've frozen the clock at 3:17, and now we can hear the 
gentleman.
    Mr. Huizenga. I am trying to reconnect on my Bluetooth. I'm 
sorry. I am trying to reconnect to the internet, the Wi-Fi 
here, and make sure that's connected properly.
    Chairman Sherman. We can hear you now.
    Mr. Huizenga. Okay. Sorry about that. Hopefully, the 
internet is--I am in my office. I can't do much more than be in 
my office to get a signal.
    So with that, individual businesses should be able to 
create an optimized value for their shareholders and potential 
investors. What should not happen is that the government 
mandates ESG disclosures. As we had talked about, and maybe it 
got cut out, doing this voluntarily is proper, but having 
government mandates to do it should not be.
    These disclosures only name and shame companies that we all 
know; for some, naming and shaming what they perceive as 
corporate brilliance has been fun and trendy and some even have 
profited from the practice. Additionally, compliance with these 
types of mandatory disclosures only wastes precious private 
sector resources that could otherwise be used to create jobs, 
increase wages, grow the company, expand capacity, and maximize 
shareholder value.
    To date, there is very little concrete evidence that over 
the long term, ESG investing outperforms broad market indexes. 
Politically-motivated disclosure requirements only increase 
costs and add yet another hurdle for companies who are looking 
to go public, while discouraging other companies from doing so. 
Over the last several decades, activist shareholders, corporate 
gadflies, and misguided politicians have hijacked the SEC to 
operate well outside its mandate and push nonmaterial social 
and political policies.
    In fact, a February 2021 report from the Global Financial 
Markets Center at Duke University School of Law goes so far as 
to say that securities law should be rewritten so that the SEC 
can regulate to, ``fight climate change, systemic racism, and 
income and wealth inequality.'' This is not part of the 
tripartite mission of the SEC. Instead of focusing on policies 
that solve societal ills, the SEC must remain focused on 
protecting investors; maintaining fair, orderly, and efficient 
markets; and facilitating capital formation.
    While some today may encourage or even embrace SEC mission 
creed, the reality is that government-imposed mandates will not 
lead to greater prosperity or protect investors. At the end of 
the day, the goal should be to create an atmosphere that 
increases capital formation, strengthens job creation, and 
boosts economic growth. When you talk about closing the gap on 
income and quality, that's how we do it. The subcommittee 
should be looking for ways to make our public markets more 
attractive, and more competitive, not examining ways to 
increase regulatory and compliance burdens on the private 
sector.
    The title of this hearing says, ``Helping Corporate Boards 
and Investors Make Decisions for a Sustainable World.'' The 
chairman said, ``We want to change the behavior of 
corporations.'' This is not helping, this is mandating, and not 
all of us agree with the chairman. Some may have those 
different expectations. So, it is amazing to me the mental 
gymnastics that are being used to justify this path forward, 
and what we need to do is to make sure that we are dealing with 
policy, not social engineering, plain and simple. With that, I 
yield back.
    Chairman Sherman. Thank you.
    Today, we welcome the testimony of our distinguished 
witnesses.
    Andy Green is a senior fellow for economic policy at the 
Center for American Progress, and was a counsel to former SEC 
Commissioner Kara Stein.
    Heather McTeer Toney is a climate justice liaison at the 
Environmental Defense Fund, and a senior advisor at Moms Clean 
Air Force. Previously, she served as mayor of Greensville, 
Mississippi, and as regional administrator for the EPAs 
southeast region.
    Veena Ramani is senior program director of capital market 
systems at Ceres, a sustainability nonprofit organization that 
works with investors and companies.
    James Andrus is the investment manager of the Board 
Governance and Sustainability Program for CalPERS, which has 
some of my money, and I believe it is the largest institutional 
investor.
    And Vivek Ramaswamy is founder and executive chairman of 
Roivant Sciences, and he is an entrepreneur and author, as 
well.
    Witnesses are reminded that your oral testimony will be 
limited to 5 minutes. You should be able to see the timer on 
your screen that will indicate how much time you have left, and 
a chime will go off at the end of your time. I would ask that 
you be mindful of the timer and quickly wrap up your testimony 
if you hear a chime. And without objection, your written 
statements will be made a part of the record.
    Mr. Green, you are now recognized for 5 minutes.

  STATEMENT OF ANDY GREEN, SENIOR FELLOW FOR ECONOMIC POLICY, 
                  CENTER FOR AMERICAN PROGRESS

    Mr. Green. Thank you so much, Chairman Sherman, and Ranking 
Member Huizenga. I am Andy Green, a senior fellow at the Center 
for American Progress. These remarks reflect my own views.
    The problems facing our world from climate change to 
systemic racism to economic inequality are problems that 
investors directly face, too. Disclosure and accountability 
aren't about subjective outcomes and preferences; they are 
about making the economy work. Information and accountability 
are the lifeblood of competition and the broadly distributed 
economic opportunity that makes capitalism in America work if 
we hold true to it.
    Consistent, comparable, and reliable information, the 
government's corporate accountability tools, and strong banking 
regulation enable investors and the public to help align 
outcomes for the long-term shared interests of all: investors; 
companies; workers; and the public. When those outcomes are not 
so aligned, financial crises, corporate scandals, taxpayer 
bailouts, pollution, racism, and economic inequality occur far 
more easily. Climate change is a systemic risk to the U.S. 
financial system, and many ESG matters pose glowing threats 
including existing threats to investor protection, retirement 
security, and economic growth.
    Climate change will destroy assets and hamstring recovery 
and growth. The need to transition to net zero will leave 
behind those who are laggards. As scholar Graham Steele has 
outlined, climate's impacts on the financial system will flow 
through and amplify existing vulnerabilities, in particular, 
leverage, interconnectedness, and concentration. The less that 
investors are speculative will do more to prevent what Steele 
terms a climate ``Lehman Brothers moment,'' where working 
families, investors, and taxpayers will be left holding the 
bag.
    We need equitable solutions for communities of color, 
agricultural communities, many of which are communities of 
color, too, and all Americans, who are similarly geographically 
impacted. Capital can move across borders in minutes, yet 
working families are far more bound to the communities in which 
we all live. We need to lean against the downward pressure that 
mobile capital can place on worker wages and environmental 
standards, and more, both within the country and 
internationally.
    Laissez-faire rules, including around the capital markets 
and financial regulations, get you concentrations of wealth and 
economic power, and ultimately, deep distressed in the 
political system that enabled that. Equity is only one of the 
reasons why I feel so strongly about a focus on financial-
sector transparency and accountability around the emissions in 
finances, and the labor practices, and tax risks that are 
enabled, and other ESG issues.
    Ultimately, it is far more equitable to hold accountable 
the large financial firms that are financing, underwriting, and 
trading in climate risk or labor risk in financial products and 
bringing those finance emissions, for example, down in line 
with the Paris Accord and the best science, that is, to smack 
the community banks and credit unions who are serving working 
families and farmers. Bringing down emissions across the 
financial system will reduce the climate impacts on those 
communities and on all of us. Getting net zero by 2050 is the 
best way to reduce climate financial risk and protect 
investors.
    Similarly, holding the financial sector accountable on 
worker empowerment, systemic risk, taxpayer and human rights, 
and democracy, sends powerful signals via the marketplace that 
we are all in this together, investors and the public.
    The United States has for far too long been a laggard in 
sustainable finance. Correcting that presents an opportunity 
for better markets and for American leadership in the world. To 
date, the subcommittee has considered a number of important 
bills, all of which advance sustainable finance, and which I 
supplemented with a range of recommendations in my written 
testimony. All of these areas interact with one another in 
multiple ways and progress across them together reinforces the 
effectiveness of all of them.
    Our history of predicting past financial consumer and 
investor protection crises is poor, but we have the opportunity 
to get it right this time. I hope we seize that opportunity. 
Ultimately, it is about enabling capitalism to work. Thank you 
very much. I look forward to answering your questions.
    [The prepared statement of Mr. Green can be found on page 
51 of the appendix.]
    Chairman Sherman. Thank you, and thank you for not using 
absolutely all of your time.
    Ms. Toney, you are now recognized for 5 minutes.

  STATEMENT OF HEATHER MCTEER TONEY, CLIMATE JUSTICE LIAISON, 
ENVIRONMENTAL DEFENSE FUND, AND SENIOR ADVISOR, MOMS CLEAN AIR 
                             FORCE

    Ms. Toney. Thank you, Chairman Sherman, Ranking Member 
Huizenga, and members of the subcommittee. Thank you for 
holding this very timely hearing to discuss the necessity to 
normalize climate change and social responsibility as a 
consideration of corporate boards and investors. I truly 
approximately the opportunity to testify about the very real 
risk to investors, markets, and communities, particularly 
Black, Brown, and marginalized areas that are disproportionally 
impacted when corporations fail to calculate the risk of 
climate change.
    I am here today in my capacity as the climate justice 
liaison for the Environmental Defense Fund, and as senior 
advisor to Moms Clean Air Force. Together, we are a community 
of over 3.7 million parents, members, and allies who tackle our 
planet's biggest environmental challenges through science and 
partnership, economics, and advocacy. I previously served as 
Administrator for the EPA's Southeast Region under President 
Obama, and I am also a former mayor, having served my hometown 
of Greenville, Mississippi, for two terms.
    I have recently served as a climate justice advisor to two 
Fortune 500 companies. But my most important job is as a mom. I 
am the mother of three children, ages 25, 15, and 4, and it is 
through this lens that I share my expertise on the impact of 
climate change as a risk impact to corporations.
    It is also with great pleasure that I sit alongside 
colleagues who are no strangers to this work or our 
organizations. This subject is not new to us. But what's 
unfortunate is that the warnings we all shared over 10 years 
ago were not heeded. Right now, today, we are experiencing in 
real time the devastation, physical, and financial loss borne 
by those most unable to stand the burden due to failures of 
corporations to adequately prepare and disclose their climate 
risk.
    I am going to focus on the impacts felt by what I call the, 
``invisible investor,'' and that's the American taxpayers 
invested in the infrastructure and assets of our communities 
nationwide. More often than not, the brunt of these expenses 
fall on communities most at risk to the impacts of climate 
change
    When I was mayor, I was blessed with a really good 
corporate partner, Mars Food, Incorporated. They operated Uncle 
Ben's Rice, now known as Ben's Original Rice, in Greenville, 
Mississippi, for over 40 years. They not only supply needed 
jobs to the community, but they also hold an important role as 
a major public asset. They occupy over 80 acres, 250,000 square 
feet of space and produce 100,000 tons of rice annually. It is 
the largest Mars Food factory in the world. Sitting right on 
the Mississippi River, it serves as an anchor to a majority of 
the African-American community that has been working hard to 
overcome systemic poverty for generations.
    During my time of public service, I had to manage not one, 
but two, 500-year flood events. Both events caused extensive 
and expensive damage to the infrastructure of the community: 
roads; bridges; and water systems. They were all impacted by 
the heavy rainfall and the incessant storms that battered the 
City of Greenville year after year.
    Quite frankly, the tax base of the City couldn't handle the 
existing infrastructure needs, let alone the added pressure of 
becoming resilient to climate impacts. It is the type of 
activity that would cause a major business or corporation to 
close up shop and move somewhere else. Nevertheless, the Mars 
Food climate sustainability plan took into account the asset 
placement, needs, preparation, and mitigation necessary to 
continue strong global economic growth while supporting local 
community needs.
    Their willingness to not only assess climate risk, but 
share the information, meant that I was prepared to account for 
the necessary support: street upgrades; police and fire in case 
of emergency; water system points of weakness; potential levee 
breaches; and places to point the Army Corp of Engineers to for 
review. All of these calculated costs added value to the 
company while protecting the invisible investor: the citizens 
of my City who, through their tax dollars, were able to defer 
and reinvest repairs to other places where it was needed.
    How I wish that same energy could have emerged in Texas 
with the recent winter storms and the energy debacle that arose 
from the complete failure of publicly-traded energy 
corporations to prepare, let alone disclose their climate 
risks. While you will certainly hear that voluntary climate-
risk disclosures create a better opportunity for corporations 
to self-regulate, while protecting their proprietary 
information, the bottom line is that the astronomical rates in 
the deregulated system represent a failure of market 
incentives. It also demonstrates that some oversight is 
necessary to protect those most at risk from the economic 
fallout of these intense climate-weather events.
    These are the ``invisible investors,'' because the people 
pay a high price when there is a market crash. They cannot 
short-sell their stock in the community. They are not able to 
redistribute the loss among other assets. The invisible 
investors are not able to categorize the outrageously high 
electric and water bills as a capital loss and reduce their tax 
rate.
    How our government, corporations, and communities respond 
right now will determine whether or not we have learned for our 
historic history of systemic racism and exclusion by following 
the science and listening to community experts in order to 
create a more efficient and equitable process that saves our 
economy, ecosystem, and lives at the same time. I stand ready 
to answer any questions. Thank you.
    [The prepared statement of Ms. Toney can be found on page 
107 of the appendix.]
    Chairman Sherman. Thank you.
    Ms. Ramani, you are now recognized for 5 minutes.

  STATEMENT OF VEENA RAMANI, SENIOR PROGRAM DIRECTOR, CAPITAL 
                     MARKET SYSTEMS, CERES

    Ms. Ramani. Thank you, Chairman Sherman, Ranking Member 
Huizenga, and members of the subcommittee. Thank you for the 
opportunity to appear before you today. My name is Veena 
Ramani, and I represent Ceres, a nonprofit organization that 
works with hundreds of influential investors and companies to 
tackle the world's greatest sustainability challenges, 
including the climate crisis. My testimony draws from Ceres' 
long history in working on climate change risk management and 
climate change disclosure.
    Climate change is not only an environmental issue; it is a 
systemic financial risk. The physical impacts of climate change 
are happening all around us. Just this past year, we've lived 
through the worst wildfire season, the busiest hurricane 
season, and the hottest year on record. Combined damages from 
these and other extreme weather events totaled close to $100 
billion in 2020.
    These impacts are landing disproportionately on low-income 
communities, rural communities, and communities of color. As my 
fellow panelists have reiterated, climate change, public 
health, and racial inequality don't exist in silos. They are 
deeply intertwined and, in turn, affect financial market 
stability and broader economic well-being.
    Companies are adjusting at different speeds to this new 
normal. Many companies are seeing and embracing the lucrative 
opportunities being created by the shift to a net zero economy. 
We've seen companies set goals, innovate, and evolve their 
business strategies. Actions like this remain the exception 
rather than the rule. In fact, last year, when Ceres assessed 
the climate risks of major banks, we found that more than half 
of their syndicated loans faced significant transition risks 
because many of their clients are not prepared for the shift to 
a net zero economy.
    Investors have known about the physical and transition 
risks for years. Most investors understand that climate is not 
just a financial risk; it is a material risk. But the latest 
understanding from the Federal Reserve and other regulators is 
that the climate crisis is a systemic risk that threatens the 
very stability of financial markets.
    In the face of the climate crisis, companies, investors, 
and regulators need to make consequential decisions, and they 
need to make them now. The foundation for this is starting to 
be laid. Companies are starting to integrate climate change 
into their risk management. Investors are including climate 
change in shareholder proposals, their dialogue with companies, 
and their investment analysis. Financial regulators have 
started to include climate change factors into their 
supervision of key industries.
    But, there's a catch. Companies, investors, and regulators 
don't have access to quality, actionable, and reliable climate 
change disclosures at scale. You cannot make good decisions 
without good information. To address climate change risks in 
financial markets, decision-makers first need information on 
the nature of the risks that markets face, and for this, 
companies need to provide information on their climate change 
performance, strategies, and approach.
    It is important to note that there has been an uptick in 
voluntary climate change disclosures driven by investor demand 
and the pioneering work done by key groups in this space like 
GRI, SASB, CDP, and others. But even though the volume of 
disclosure has grown, the quality of disclosure remains 
variable. Investors and regulators are still not getting 
decision-useful insights.
    Federal Reserve Governor Lael Brainard actually summarized 
the core of the problem just last week, when she said, 
``Current voluntary disclosure practices are an important first 
step, but they are prone to variable quality, incompleteness, 
and a lack of actionable data.''
    The SEC has issued guidance that explains how its existing 
disclosure rules could be applied to climate risks, but to 
date, the guidance has not been strongly enforced. A clear, 
right, and urgent action to address the climate crisis, robust 
climate change disclosure, is key. Decisive action is needed by 
the SEC because this is fundamental to the success of 
companies, investors, and regulators. Ceres has called on the 
SEC to robustly enforce the existing interpretative guidance on 
climate change. And just yesterday, Acting Chair Allison Lee of 
the SEC issued a statement directing SEC staff to enhance their 
focus on climate-related disclosure. We would welcome this as a 
critically important step in the right direction. We also call 
on the SEC to build on this new focus and adopt and enforce 
rules for climate change disclosure.
    In closing, companies, investors, and regulators lack vital 
information on climate change, and in a very real way, they are 
flying blind. Again, you cannot make good decisions without 
good information. And given the scale of the risk and the 
important decisions that need to be made, climate change 
information does not just need to be good; it needs to be as 
good as possible. I thank you for your attention and I'm happy 
to answer questions.
    [The prepared statement of Ms. Ramani can be found on page 
83 of the appendix.]
    Chairman Sherman. Thank you for adhering to our time 
limits.
    Mr. Andrus, you are now recognized for 5 minutes.

STATEMENT OF JAMES ANDRUS, INVESTMENT MANAGER, BOARD GOVERNANCE 
   AND SUSTAINABILITY PROGRAM, CALIFORNIA PUBLIC EMPLOYEES' 
                       RETIREMENT SYSTEM

    Mr. Andrus. Chairman Sherman, Ranking Member Huizenga, and 
members of the subcommittee, thank you for the opportunity to 
testify at today's hearing. My name is James Andrus, and I'm an 
investment manager for the Board Governance and Sustainability 
Program for the California Public Employees' Retirement System 
(CalPERS). I am pleased to appear before you today on behalf of 
CalPERS. We applaud and support the subcommittee's focus on 
building a sustainable and competitive economy. I will provide 
an overview of CalPERS, discuss our governing principles, and 
discuss climate risk, charitable political expenditures, human 
capital management, and board diversity.
    CalPERS is the largest defined benefit public pension fund 
in the United States, with approximately $450 billion in global 
assets. Ultimately, CalPERS' primary responsibility is to our 
beneficiaries. Since December 2019, we have considered climate-
related risks to be among the top three risks to the long-term 
value of our portfolio. Our view aligns with the U.S. National 
Climate Assessment's finding that climate change exacerbates 
existing vulnerabilities in communities across the United 
States, presenting growing challenges to human health and 
safety, quality of life, and the rate of economic growth.
    Climate change is a systemic risk, so it is critical that 
investors can access clear disclosures of the risks it poses to 
long-term value creation by the companies in which they invest.
    Accordingly, we help lead global initiatives like Climate 
Action 100+, an initiative which CalPERS co-founded to engage 
the systemically important carbon emitters to mitigate climate 
risk in our global equity portfolio. However, initiatives like 
Climate Action 100+ are poor substitutes for policy and 
regulatory action.
    In positive international developments, the International 
Accounting Standards Board has issued guidance that promotes 
including certain climate risk items in financial statements. 
This is an important development, and one U.S. policymakers 
should consider thoughtfully. Our principles call for robust 
board oversight and disclosure of corporate charitable and 
political activity to ensure alignment with business strategy 
and to protect assets on behalf of shareowners. The materiality 
of corporate political spending was recently reaffirmed by 
companies themselves in the aftermath of the January 6th attack 
on the U.S. Capitol Building.
    I want to highlight Justice Kennedy's words from Citizens 
United v. the Federal Elections Commission, because they make 
clear that the Supreme Court envisioned wide disclosure of 
political contributions.
    Justice Kennedy wrote: ``With the advent of the Internet, 
prompt disclosure of expenditures can provide shareholders and 
citizens with the information needed to hold corporations and 
elected officials accountable for their positions and 
supporters. This transparency enables the electorate to make 
informed decisions and give proper weight to different speakers 
and messages.''
    Justice Kennedy's expectation has not been fulfilled, but 
it is more apparent now than ever before that it should be.
    The convergence of the current economic, climate, and 
public health crises, as well as the mounting call to advance 
racial equity, have accelerated investors' focus on effectively 
managing human capital. The value of human capital management 
disclosures is straightforward. Businesses depend on the 
workforce as a source of value creation which, if mismanaged, 
could harm long-term performance. Researchers have found that 
high-quality human capital management practices correlate with 
lower employee turnover, higher productivity, and better 
corporate financial performance, producing a considerable and 
sustained alpha over time.
    There remains a substantial lack of board diversity in U.S. 
companies. NASDAQ has stated that the U.S. currently ranks 53rd 
in board gender diversity, according to the World Economic 
Forum. Third-party analysis shows that as many as 70 percent of 
NASDAQ companies' boards lack a woman or a racially diverse 
person.
    The Office of the Illinois State Treasurer published a 
White Paper entitled, ``The Investment Case for Board 
Diversity,'' which provides an extensive and comprehensive 
review of academic and practitioner research on the value of 
gender and ethnic board diversity for investors. The 
examination finds that the gender and racial ethnic composition 
of corporate boards does indeed have a material and relevant 
impact on company performance.
    Requiring standardized disclosures of relevant information 
is necessary to close the information gap. In line with this 
view, we strongly support a further comprehensive review of the 
disclosure requirements of Regulation S-X and Regulation S-K, 
with a greater focus on investor needs. We look forward to 
working with the subcommittee and the committee to discuss 
these issues as well as the policy proposals set forth in 
today's hearings and more proposals in the future.
    Thank you, Chairman Sherman and Ranking Member Huizenga, 
for inviting me to participate in this hearing, and I look 
forward to your questions.
    [The prepared statement of Mr. Andrus can be found on page 
40 of the appendix.]
    Chairman Sherman. Thank you.
    And finally, Mr. Ramaswamy, you are recognized for 5 
minutes.

  STATEMENT OF VIVEK RAMASWAMY, FOUNDER & EXECUTIVE CHAIRMAN, 
                        ROIVANT SCIENCES

    Mr. Ramaswamy. Thank you, Chairman Sherman, Ranking Member 
Huizenga, and members of the subcommittee. My name is Vivek 
Ramaswamy. I offer strictly my personal viewpoints and not 
those of any organization with which I'm affiliated.
    I was born and raised in Ohio. I spent 7 years as a biotech 
investor. For three of those years, I also attended law school. 
In 2014, I founded a biotech company that I led as CEO until 
last month, and I'm now writing a book about stakeholder 
capitalism, a topic that's central to today's discussion.
    Stakeholder capitalism refers to the idea that companies 
should serve not only their shareholders but also other 
societal interests. And big tech, big banks, and big business 
have roundly endorsed the idea. Milton Friedman didn't like it 
because it might lead companies to be less profitable, but my 
concerns are different. I worry that stakeholders' capitalism 
represents a threat to the integrity of American democracy 
itself.
    For companies to pursue societal interests in addition to 
shareholder interests, companies and their investors have to 
first define what those other societal interests ought to be. 
And that isn't a business judgment; it is a moral judgment. 
Speaking as an American, I do not want our capitalist elites to 
play a larger role than they already do in determining our 
society's core values. The answers to those questions ought to 
be answered by America's citizens through our democratic 
process, publicly through open debate, and privately at the 
ballot box. Personally, I don't know if that is a Republican 
idea or a Democratic idea. I consider it an American idea.
    It is puzzling to me that stakeholder capitalism is viewed 
as a liberal idea. Many progressives who love stakeholder 
capitalism abhor Citizens United precisely because it permits 
corporations to influence our elections and our democracy. 
Stakeholder capitalism is Citizens United on steroids. It 
demands that CEOs use corporate resources to implement the 
social goals that they want to push.
    In the pharmaceutical industry, does rejecting stakeholder 
capitalism mean putting profits ahead of patients? No. But 
putting patients first means actually putting patients first, 
including ahead of other social causes. It means we don't care 
about the race or gender of the scientist who discovers a cure 
to COVID-19. Or whether the manufacturing or distribution 
process that delivers a vaccine most quickly to patients is 
carbon-neutral.
    Conflicts of interest actually lie at the heart of this 
debate. In the real world, most conflicts are actually 
financial. If I am a public company CEO and I decide to use the 
corporate piggy bank to make a donation to my high school, or 
to the temple where I worship, that should raise a red flag, 
since my high school or my temple have nothing to do with my 
business.
    But why is it any different if a CEO uses the corporate 
piggy bank to make a donation to a climate change organization 
or to a specific racial advocacy group? Many CEOs did exactly 
that last year and they were applauded for it, but in both 
cases, the CEO derives a personal benefit from using the 
company's piggy bank to make a donation. That is a conflict of 
interest and I find it curious that there's no mandated 
disclosures about that.
    Many CEOs are surely going to advise you to mandate these 
ESG-related disclosures. My whole advice to you is this: Ask 
yourself what these business leaders hope to achieve for 
themselves in that process. Some of them may hope to distract 
you from other regulatory issues that pose real risks to their 
business. For example, in Silicon Valley, disclosing climate 
risks is easy. Respecting user privacy, now that's hard. When 
choosing between constraints on matters that relate to the core 
of your business versus matters that don't, self-interested 
CEOs are generally going to choose the latter.
    I also have other concerns that I would be glad to address 
in the Q & A. I think mandatory disclosures tend to impose 
burdens on companies, they tend to favor incumbents over 
startups, and they make it harder for startups to go public. I 
also think that these policies might contribute to a GSE-linked 
asset bubble akin to the pre-2008 housing bubble that was 
driven by government policy just for homeownership. But those 
are secondary issues. The bigger issue is the threat to 
American democracy itself.
    If we are honest, let's acknowledge that the debate today 
is not actually about protecting investors. It is about 
fighting climate change. And I'm not saying that is a bad goal, 
but I do think that is what is going on here. And if that is 
true, then I urge you to just be frank and to just say that. 
Protecting investors isn't the main reason. It is a 
justification.
    If the goal were to protect investors, there are many, many 
other disclosures you would mandate ahead of climate risks on a 
wide range of topics, for example, about the health and dietary 
practices of company employees or the social or political 
commitments of the company's CEO. If we pretend that protecting 
investors is the real reason for these climate disclosures, we 
risk opening that Pandora's Box.
    So, in closing, speaking to you as an American, I urge you, 
as Members of Congress, to implement your chosen policies 
through the front door rather than sneaking them in through the 
back door. Do not use companies as instruments to accomplish 
what you cannot get done directly as legislators. Unlike you, 
CEOs are not democratically accountable and that might make 
them a convenient solution in the short run, but in the long 
run you will create a monster that you cannot put back in its 
cage. And that is not just bad for Republicans or for 
Democrats; it is bad for America.
    Speaking as an American, I don't want to live in a 
corporatocracy. I don't want to live in a one-dollar one-vote 
system. I don't want to live in a modern version of Old World 
Europe where a small group of elites decide what is good for 
society and the rest of the world. I want to live in a 
democracy where everyone's voice and vote counts equally. Thank 
you.
    [The prepared statement of Mr. Ramaswamy can be found on 
page 99 of the appendix.]
    Chairman Sherman. Thank you.
    I now recognize myself for 5 minutes of questioning. And to 
the witness who just spoke, I would say that we are walking 
through the front door here. The SEC is part of the 
democratically-elected government, and we're using a 
democratically-elected government to try to achieve at least 
some corporate recognition of important social impacts.
    I do want to commend the SEC for just yesterday, Acting SEC 
Chair Allison Lee announced that she has directed the Division 
of Corporation Finance to enhance its focus on climate-related 
disclosures in public company filings. I think that is relevant 
even to your earnings per share investors who will want to know 
what risk factor the company has from climate change, but also 
whether it is in a position to attract investment and attract 
clients and enhance its reputation because it is doing 
something helpful for the environment.
    The ranking member said that ESG funds don't necessarily 
outperform. I'm sure that there's a lot of information in our 
financial statements where you could say companies that spend 
more on advertising don't overperform, and don't underperform. 
But we disclose a lot of information to shareholders, who may 
decide that in the future, such companies--such as companies 
with diverse boards will overperform in the future whether 
they've overperformed in the past or not.
    My first question is again on board diversity. Mr. Andrus, 
NASDAQ recently issued a proposal to require all of its 
companies to make certain disclosures regarding the diversity 
of their boards. We are considering--and I see him here, so I 
guess the Foreign Affairs Committee has adjourned for a bit--
Congressman Meeks' Improving Corporate Governance Through 
Diversity Act, which the House passed last year, and which 
would put in place similar requirements for all public 
companies. Can you tell us, as an institutional investor, what 
a diverse board signals to you about a company and how it 
affects your investment decision?
    Mr. Andrus. A diverse board signals that the company has 
considered the talents of the entire population in selecting 
board candidates. This is not happening currently. More than 
half of U.S.-based public companies have all White boards. We 
are 53rd in terms of gender diversity, which means that 52 
countries have more women on their boards than U.S. companies. 
And this is the baseline from which we're working. So in order 
to basically consider the talents of the entire population, we 
need to make certain that boards do this and place diverse 
people on their boards.
    Chairman Sherman. Thank you for that answer.
    Ms. Ramani, in 2019, the European Commission issued 
guidance providing a framework for corporate climate-related 
disclosures. Last year, the U.K. announced that it will be 
putting in place the mandatory climate-disclosure risks for the 
London Stock Exchange. And last fall, New Zealand announced it 
will implement requirements based on the recommendations of a 
task force on climate-related financial disclosures put forward 
by a group convened by the G20.
    Do any of these, the E.U., New Zealand/G20--I know the U.K. 
hasn't fully filled out what their plan is--provide a good 
model for us to use to define and have numerical standards for 
the issues we're talking about here today?
    Ms. Ramani. Thank you, Chair Sherman. Our recommendation is 
to premise any rules that we create for climate change 
disclosure on the framework that has been offered by the Task 
Force on Climate-Related Financial Disclosures (TCFD). The 
reason I suggest this is because the TCFD is a framework that 
was created largely by the financial community to essentially 
generate information that they could use in understanding the 
risk, the financial risk of climate change in terms of their 
own portfolios and in terms of the capital markets within which 
they function. That's one of the reasons that we do support the 
Climate Risk Disclosure Act, because it is premised on the TCFD 
and because it has a very appropriate focus on generating 
disclosure--
    Chairman Sherman. Thank you. I just want to add one thing, 
and that is how important it is that companies disclose how 
much they are paying to Third-World governments for petroleum 
and other mineral extraction. The risk that the money is 
stolen, and the people of the country don't even know how much 
is coming in, is a terrible risk for that country. That's also 
a reputational risk for the petroleum company as well.
    Now, let's move on to the ranking member of the 
subcommittee, Mr. Huizenga, who is recognized for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. And I'm going to 
briefly note that Chair Yellen, soon to be Secretary of the 
Treasury Yellen, said in 2017, at the Jackson Hole Conference, 
that the section that you are talking about, Section 1503, was 
the worst part of the Dodd-Frank Act, flat out. So, just to set 
the context there.
    Mr. Ramaswamy, we've had a lot of conversations here on 
this committee about IPOs and about investor ability to go in 
and be a part of the financial system. And I'm curious from 
your perspective as someone who has worked in the private 
sector extensively, and in both private and public companies, 
is this going to promote private companies to go public and 
offer up that opportunity for citizens to engage in the public 
sphere of finance?
    Mr. Ramaswamy. Look. As you are aware, in recent years 
there has been a trend of fewer companies going public and 
choosing to remain private. There's a lot of factors driving 
that trend, but all else being equal, added disclosure 
requirements are a reason why many companies choose not to go 
public.
    In my opinion, would one additional risk factor relating to 
climate risks singlehandedly be a deterrent for companies to go 
public? I don't personally think that would be the single-
handed straw that breaks the camel's back. However, I do think 
that that opens the Pandora's Box, which opens the door to, if 
we're really being intellectually honest and limiting ourselves 
to identifying factors, risk factors that protect investors, 
there is a much longer list of factors that are more material 
to investors than the climate-related risks of a particular 
corporation that, if incorporated into the added disclosure 
regime, would collectively prevent companies from being able to 
successfully go public.
    Mr. Huizenga. Over the years, compiling mounting parts of 
the regulatory side has stopped that. You used the term, 
``corporatocracy.'' I was going to call it a, ``mercantilist 
government.'' I'll lay out my nerd card here and add and 
reference Star Wars, when Queen Amidala was talking in the 
senate and she was addressing the Trade Federation, the 
Corporate Alliance, the Intergalactic Banking Plan, the 
Commerce Guild, and the Techno Union. That's the direction in 
which it seems that we could be going here as we have 
executives and companies playing a fundamental role in 
determining society's core values and policies rather than 
government doing that. And I'm curious if you could expand on 
your experiences that shaped your concern with this?
    Mr. Ramaswamy. Yes. Based on my first-hand experiences, I 
believe that corporations accrete greater power when they are 
responsible not just for determining the rules of the road and 
the market for products and services, where to build a 
manufacturing plant or where to build a research facility, but 
also whether to prioritize climate change over prices for 
consumer goods or to prioritize one conception of diversity 
over another. Corporations then actually have not only a lease 
on the things that we buy in the marketplace for goods and 
services, but the ideas that we consume in the marketplace of 
ideas.
    And today's companies, especially in Silicon Valley, but on 
Wall Street and Silicon Valley included, are some of the most 
powerful companies in the history of the world. Even the Dutch 
East India Company, which had a private militia of its own and 
a private currency, still didn't have the ability to influence 
what we thought, what we prioritized in terms of our moral 
values, or what we could read or what we could discuss in open 
forums like this one. That is what today's technology companies 
and corporations across American control today. So, we ought to 
be really concerned about giving them even greater power.
    And I'm going to close this answer with a brief reference 
to something that many of you may be familiar with, which is 
that there's a body of law relating to Congress delegating its 
responsibilities to administrative agencies. The Administrative 
Procedure Act (APA), as many of you know, governed that body of 
law. But at least that puts guard rails around what the 
Alphabet Soup of the FEC, FDA, SEC, FTC, and so on, are able to 
administer. The Administrative Procedure Act says they have to 
at least go through certain procedures before implementing 
certain rules as law.
    When we do this with corporations using disclosures, 
regimes, or other tools to get corporations to implement social 
values that ought to be adjudicated through our democracy, 
there are no such constitutional guard rails. And the new 
alphabet soup of AAPL, AMZN, MSFT, or GOOG is not constrained 
by the same constitutional constraints as even the 
administrative agencies that you delegate your responsibilities 
to through the APA.
    Mr. Huizenga. I've been concerned about elected government 
at all levels seemingly having this wish to give up their 
constitutional responsibilities, their constitutional duties to 
bureaucracies and others, who then get to make tough decisions 
in a vacuum rather than being held directly accountable for 
those difficult decisions. And so, as we're closing out our 
time, I appreciate your view on this and I hope that we're 
going to be able to make sure that we're creating an atmosphere 
that allows more of these private companies to go public. With 
that, I yield back.
    Chairman Sherman. Thank you. I want to thank the ranking 
member for pointing out that Dodd-Frank was such an excellent 
piece of legislation that even its worst provision was a good 
provision.
    And I will now recognize Mr. Foster for 5 minutes.
    Mr. Foster. Thank you.
    Mr. Andrus, and Mr. Green, following the Supreme Court's 
Citizens United decision, publicly traded companies, often with 
deep pockets, can and do engage in significant political 
funding. These companies are not required to disclosure the 
funding of their political activities, even to their own 
shareholders. This means that shareholders have no way of 
knowing whether the companies they are investing in are engaged 
in political spending or what kind of spending those companies 
are engaged in or the purposes. For example, shareholders and 
CEOs are unlikely to be in the same tax brackets, so 
shareholders might be very interested to discover if the 
investments that they've made are being used by those running 
the company to influence politicians to shift taxes in a way 
that increases taxes for shareholders while dropping it for 
CEOs. But they have no way of knowing that.
    Now, more than ever, investors are also exercising their 
political voice with their money as are customers and 
consumers. And investigative investors are more sophisticated 
than ever and are concerned with with more than just a 
company's bottom line and their balance sheet. hey understand 
the reputational risk of having questionable political 
contributions made by a company in which they consider 
investing.
    So, Mr. Andrus, and Mr. Green, what sort of serious 
problems come up when investors are unaware that companies that 
they hold equity in are funding significant political 
activities? We can start with Mr. Andrus if that--
    Mr. Andrus. There are a number of issues that come up. 
First, all we're asking for is transparency and the 
information. We're not questioning whether or not the 
expenditures should be made, but if made, it should be 
disclosed so that we would have the information so that we can 
make proper investment decisions. It is important to point out 
that investment decisions include voting decisions such as 
voting on boards and voting on executive compensation. So, we 
need that particular information.
    Some of the things that can happen are what we saw on 
January 6th, and when you unpack it, the concern is 
substantial. It is critical that some of those investments 
could lead to insurrection within our own government. I know 
some people downplay that, but that is a serious concern that 
money, i.e. shareowners' money, is being used in that 
particular capacity. At a minimum, it should be disclosed if 
companies choose to make those sorts of contributions.
    Mr. Foster. Okay. Mr. Green?
    Mr. Green. Thank you. I would very much add that right 
now--and this goes to the point by the witness a couple of 
minutes ago--these determinations are being made by companies, 
by elite insiders, by corporate CEOs, and a small number of 
other corporate elites. And the real question is about how 
investors' money is being utilized. So, if you don't have the 
transparency, you don't know whether a company's position 
around any number of issues, whether it is climate change or 
worker treatment or any number of issues, is being matched by 
what is going on and what types of positions they are taking in 
Washington. If this money was not important, why are companies 
spending any money engaging in the process at all? It is not 
charity. It goes to the deep interests of companies, and 
investors are the ones who ultimately are the ones whose money 
is at risk and they need to understand that.
    Mr. Foster. Thank you. And one of the biggest issues that I 
see personally is the potential misalignment of interests 
between those running the companies as individuals and those of 
the shareholders, that without that transparency there is no 
guarantee that those interests will be even approximately 
aligned when it comes time to invest and try to affect our 
political system. My time has just about expired, so I yield 
back.
    Chairman Sherman. Thank you.
    Mr. Stivers is recognized for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman. I appreciate it, and 
I appreciate all of the witnesses for their testimony.
    Mr. Ramaswamy, in the chairman's own words, he said at the 
beginning of this hearing in his statement that shareholders 
want this information. In your experience, don't shareholders 
already have the ability to get this information?
    Mr. Ramaswamy. Yes. You raise an important point, 
Congressman Stivers, which is that the distinction between a 
worthy disclosure and a mandatory disclosure. Just because a 
disclosure may be worthy to particular investors does not alone 
mean it ought to be a mandatory disclosure, because investors 
elect their corporate boards every year. A majority of 
investors, actually in most cases in most States, can actually 
amend the corporate bylaws to demand whatever disclosure it is 
that they want.
    That's not to say that there's no space for mandatory 
disclosures, but it is only to say that just because a given 
disclosure may even be worthy does not automatically mean that 
it has to be a mandatory disclosure because investors in 
particular companies are able to wield their own power to 
shareholders to demand disclosures in a particular case.
    So, first, the question is, is the information worthy or 
not, material for investors; and second, even if it is 
material, are investors able to get that information on their 
own? There is then the separate question of whether a 
particular class of disclosures is required to be mandatory and 
what effect that ought to have or ought not to have on 
decisions that Congress or the SEC makes to mandate those 
disclosures?
    On that last question, one of the arguments that I find at 
least intellectually persuasive is that there may be negative 
externalities of certain company's behaviors that ought to be 
internalized into their own decision-making, and that the 
investors who own those companies may want to know how they can 
internalize those negative externalities as well.
    And one point I'd just like to inject into this, and 
somebody raised January 6th earlier, I think it is an important 
point that the negative externalities for American democracy of 
a small group of institutional elites adjudicated through the 
corporate board room mandating and in concert with the work of 
the SEC mandating particular disclosures is monolithically 
enforcing a particular agenda that many Americans may not agree 
with, but not only do they not agree with it, they may not have 
an opportunity to have their voice heard equally. And we 
convert from the system of one person, one vote, instead into a 
system of one dollar, one vote. And I'll tell you, if I may, 
Congressman Stivers, to sort of share a short story to 
demonstrate the principle of what I mean. Before, when I used 
to go to temples as a kid when my parents used to take me to 
India, there used to be a system where every pilgrim had to 
wait in line, patiently wait their turn to get to the front of 
the temple. But today, when you travel to those temples, you 
can actually pay a little bit of extra money and get to the 
front of the line, and some of the people can pay a lot of 
money and get to the very front of the line. And to me, that's 
not the way that a religious institution is necessarily 
supposed to work at its best.
    I feel the same way about our democracy, in that with a 
small group of institutional leads in the corporate board rooms 
adjudicated through mandated SEC disclosures on top of that to 
be goaded into doing more of this are able to convert our 
system, our democracy, into a one-dollar, one-vote system 
instead of a one-person, one-vote system, which tells the 
people who show up at the ballot box every November that their 
vote doesn't matter as much as the vote of somebody in the 
corporate board room, because of the number of dollars that 
they control in the marketplace.
    And to me, the use of that market power to translate into 
social currency in matters that aren't corporate matters, but 
aren't commercial matters, but are matters relating to moral 
values, normative questions like how we ought to address 
climate change, or what conception of racial justice matters 
over a different one, or how we tackle issues of racial equity, 
those are questions that ought to be adjudicated through open 
public debate and spheres like this one, not necessarily 
through the corporate board room.
    And while the chairman made a good point in the very 
beginning, I do think that this is a further direction in 
goading companies to be able to take on further responsibility 
in mission creep in a way that has a negative externality for 
the integrity of American democracy itself. And if the 
discussion is going to sound on negative externalities for the 
environment, or negative externalities for other social 
principles that we care about, I think that at least, in that 
cost-benefit analysis of whether to mandate a disclosure, we 
ought to also take into account the possibility of a negative 
externality for American democracy, including Americans who may 
feel disaffected by decisions made by corporations privately in 
the board room.
    Mr. Stivers. Thank you. Now tell me, Mr. Ramaswamy, our 
republic, our constitutional republic is intentionally messy 
with checks and balances for the very reasons you've talked 
about. Could you talk about some of the problems that would be 
created by the fact that corporate elites could influence and 
implement an agenda without checks and balances?
    Mr. Ramaswamy. I'll share a very short funny story. I was 
having dinner with the CEO of a big bank about a year and a 
half ago, I won't say which one out of respect to him. He was 
asked at the dinner if he wanted to be President of the United 
States. And his answer, without missing a beat was, of course, 
he wants to be President. He just doesn't want to run for 
President. And everyone in the room laughed, not because what 
he said was so ridiculous, but because what he said was so 
obviously true. And I think a lot of the messiness of our 
democratic process is part of what makes it beautiful. We 
shouldn't sidestep it to get to our solutions via the simpler 
corporate route instead.
    Mr. Stivers. Thank you, Mr. Ramaswamy.
    I yield back the balance of my time.
    Chairman Sherman. I now recognize Mr. Meeks for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman. It's good to be with 
you for this very important hearing.
    My question goes to Mr. Andrus. Several Republican Senators 
recently sent a letter criticizing NASDAQ's decision to require 
its listed companies to disclose the demographic composition of 
their boards as they relate to race and gender. More 
specifically, the letter stated that such requirements were 
``narrow'' and ``miss the mark.'' However, that letter failed 
to examine why the SEC's current disclosure rules, which leaves 
diversity to be defined by companies, has led to vague and less 
useful disclosure. So my question is, why are the SEC's current 
diversity disclosure requirements inadequate in your opinion, 
if they are?
    Mr. Andrus. We have to discuss what they are, but 
basically, all a board has to do is say that they considered 
diversity or that they have a diversity policy. They don't have 
to take any real steps to diversity. And so, they are 
inadequate because they have done absolutely nothing to change 
where we are. The baseline where we are is that more than half 
of U.S. publicly-traded companies have all White boards. And 
roughly 16 percent of those companies have no women on the 
board.
    So when we are in that particular baseline and it has--
there has been a lot of talk about corporate elites or 
something like that, those same corporate elites that are being 
said to be in favor of ESG or whatnot are the ones who have 
basically placed us in this particular situation. We need real 
policy work to actually address the crisis that we are in and 
to actually create some board diversity. It has worked in other 
countries that have had gender-related policies that have been 
able to add women to the board. The California initiative has 
been very successful in adding women to the board and will be 
successful in adding racially diverse and LGBTQ people to the 
board.
    And so, we need a Federal response that will actually kick-
start what should have happened over a decade ago when the 
issue was being addressed by the SEC. We know now that that 
response was totally inadequate. We need a more adequate 
response.
    Mr. Meeks. Thank you. And also let me ask you this 
question. My bill, the Improving Corporate Governance Through 
Diversity Act, requires more specific disclosures around board 
demographics, but the bill also requires disclosures around the 
demographics of companies' senior management. So my question to 
you is, is C-suite diversity as important as board-level 
diversity?
    Mr. Andrus. In some cases, the C-suite diversity is even 
more important than board-level diversity. We focused on board-
level diversity, because that's where shareholders interact 
with the corporation. We have the right to vote on the boards 
and we monitor what the board activity happens to be, and so 
that has been what we have focused on.
    So it is very welcome that your bill also focuses on 
executive diversity, which is an area in which we need a 
substantial amount of work. And then, when we are thinking long 
term, it means that those companies will consider the talents 
of all of the people within the country, add all of the talents 
within the country, and in the following years we could expect 
to see more diversity within the C-suite, which will actually 
lead to even more board diversity, which is needed.
    Mr. Meeks. Thank you. Let me try to squeeze this in quickly 
to Ms. Ramani. I'm proud that the Biden Administration has 
reentered the Paris Climate Agreement, but let me ask this 
question quickly. Institutional Shareholder Services, or ISS, 
which is a firm well known in the industry in advising its 
investors on vote recommendations for board elections of 
various corporate matters, has set out to analyze what 
corporations are doing to reduce emissions. But even still, an 
overwhelming 250 companies in the S&P 500 Index have no target 
at all.
    Why is it so crucial for these companies to set targets and 
what can these companies do to not only ensure that their 
pledges relate to their lending and financial activity, but 
also to their stocks and bonds that they manage?
    Ms. Ramani. Thank you for the question, Congressman. We at 
Ceres believe that companies should set goals and adjust and 
evolve their business strategies for climate change to meet the 
financial risk of climate change. So, we very much appreciate 
the fact that we've reentered the Paris Climate Agreement and 
are looking for companies to set goals that are aligned with 
the signs of climate change, because those goals would then 
meet the risks that climate change poses to them, to their 
investors, and to financial markets at large.
    Mr. Meeks. Thank you. I think my time has expired.
    I yield back.
    Chairman Sherman. Thank you. There has been a little change 
in plans. We won't find it necessary to adjourn the hearing for 
votes, because Mr. Casten will be able to sit in, and he'll 
take over maybe 30 minutes after they initially call the first 
vote. And hopefully, he'll be able to stay with us and be our 
substitute Chair for 30 minutes thereafter.
    With that, I recognize Mrs. Wagner for 5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman.
    Banks and other financial firms are proactively making 
significant investments in renewable energy and they are doing 
it without the heavy hand of regulation or political pressure. 
That's because the free market is responding to increased 
interest, I think, in green energy in particular. Just this 
morning, Wells Fargo announced it recently surpassed $10 
billion in tax equity investments in the wind, solar, and fuel 
cells industries.
    Mr. Chairman, I'd like to submit this press release for the 
record.
    Chairman Sherman. Without objection, it is so ordered.
    Mrs. Wagner. Thank you, Mr. Chairman. In addition, Wells 
Fargo committed to providing $200 billion in financing to 
sustainable businesses and projects by 2030. But it is not just 
one firm making these substantial investments. Many of 
America's largest financial institutions have made multi-
billion dollar sustainable finance commitments without 
government mandates. Instead of pushing forward prescriptive 
proposals on small businesses and adding additional barriers to 
capital formation, this committee needs to, I think, prioritize 
regulatory reforms that will lift up our economy and get 
Americans back to work.
    Mr. Ramaswamy, does the fact that many institutions are 
investing in and financing green energy projects negate the 
need for enhanced regulation and disclosure on ESG issues?
    Mr. Ramaswamy. Thank you for the question, Congresswoman, 
and I believe that it does. I obviously think that the market 
working in a particular direction sends us signals as to where 
additional regulation is and isn't needed. But I'd actually 
like to take that one step further to highlight a separate 
concern that I have even in the direction of the private market 
already and I think the private market is, in part, not 
operating as a truly free market, but actually in response to 
regulations and to regulatory incentives which already exist, 
which have distorted the private market already in the 
direction of potentially creating the early stages of an ESG-
linked asset bubble.
    And in order to understand why, there are certain factors 
relating to the 2008 financial crisis that we have to take into 
account. I think it is instructive. I'm offering this not as a 
history lesson, but potentially as the early signs of a 
warning. The standard explanation for the subprime mortgage 
bubble before 2008 was that predatory lenders were greedy 
sharks who took advantage of the opportunity to ultimately make 
loans that they shouldn't have made. But in reality, the 
question is where all of those predatory sharks got all that 
money in the first place? And, of course, all of you know, 
perhaps better than I, that the roots of this began with 
government policy to spur homeownership, including through the 
birth of quasi government--
    Mrs. Wagner. Thank you, Mr. Ramaswamy. I appreciate the 
history lesson here, but I have more questions.
    Mr. Ramaswamy. Yes.
    Mrs. Wagner. What would be the impact on small businesses 
such as those back in Missouri's second congressional district 
and Main Street investors with 401ks saving for retirement if 
we allow shareholders' capitalism and ESG disclosures to drive 
our markets, I think, to your point?
    Mr. Ramaswamy. Look, I think that a big part of the trend 
here is that mom-and-pop investors have in part benefitted from 
fee-free investment vehicles through passive index funds over 
the course of the last 10 years. And many of the drivers of 
this new ESG movement, you would know better than I, but even 
many of the firms who may advocate for ESG-related disclosures 
are actually in the traditional active management industry, in 
the mutual fund industry, which charge higher fees to mom-and-
pop investors.
    Now, I think that part of what may be going on here is that 
making up for the absence of superior returns compared to 
passive index funds, we are now seeing the masquerade of 
morality as justifying those higher fees in the first place. 
Mom-and-pop investors, including older Americans, actually tend 
to be extremely generous, but they would rather be generous--I 
serve on the board of the Philanthropy Roundtable, which 
actually records this information, and says that elder 
Americans are among the most philanthropic. But they would tend 
to pick the causes they want to donate to on their own rather 
than handing it over to a mutual fund manager that ultimately 
picks companies that embody their own causes.
    Mrs. Wagner. You are absolutely correct. And would you say 
that these burdensome regulations have a more significant 
impact on younger companies compared to, let's say, larger 
companies?
    Mr. Ramaswamy. They do. I think that larger companies tend 
to be able to bear additional disclosure requirements and 
additional regulatory requirements, which actually tend to 
favor incumbents over start-up companies.
    Mrs. Wagner. And certainly as an entrepreneur and based on 
your experience as an entrepreneur and executive, do you think 
your companies would have been more or less likely to 
accomplish their goals in terms of producing marketable 
products if they were required to make ESG disclosure?
    Mr. Ramaswamy. Putting my companies to one side, I think 
that in general, all things being equal, start-up companies 
tend to be more poorly barren of regulatory requirements and 
disclosure requirements than large companies. They actually 
counterintuitively help large companies as a consequence.
    Mrs. Wagner. Thank you. I yield back.
    Chairman Sherman. Thank you. I'm going to ask Mr. Casten to 
be temporary Chair for the next 4 minutes, and I'm going to 
recognize Mrs. Axne for 5 minutes.
    Mrs. Axne. Thank you, Mr. Chairman. Thank you so much for 
having this hearing, and I thank all of the witnesses for being 
here today. This hearing, of course, is all about sustainable 
corporate practices which can generate long-term growth both 
for the economy and for the company. And I want to focus on 
just one piece of this, which is tax avoidance, and my bill to 
require public country-by-country reporting.
    I sure don't believe that anyone thinks that shifting 
profits to tax havens like the $60 billion of profits booked in 
the Cayman Islands every year or outsourcing all of the work to 
a country with weak labor standards and laying off American 
workers are how a company wants to perform long term. 
Unfortunately, right now though, investors don't know if 
companies are using gimmicks like that or where multi-national 
corporations are really generating their profits.
    Mr. Andrus, it is good to see you again. You testified here 
last Congress regarding U.S. current tax disclosures, that the 
lack of transparency creates an information gap whereby 
management may be well aware of risks being taken while 
shareowners are being left in the dark.
    If you had public country-by-country disclosures of 
financial information like tax payments, revenues, and 
employees in a country, would CalPERS and other institutional 
investors likely consider that information when making 
decisions about capital allocation?
    Mr. Andrus. Yes, we would consider that information, and I 
think you placed it in the right perspective. Because it is not 
only returns, it is risk and returns, and we've seen abuses 
that could cause substantial problems for corporations in which 
we invest. I think country-by-country reporting would alleviate 
that. And it is information that is easily available to the 
management of the company and easily disclosed.
    Mrs. Axne. Thank you. I couldn't agree more. I know 
investors representing at least $2 trillion in assets under 
management have now backed country-by-country financial 
disclosures as a critical path to counter that risk. And former 
SEC Chairman Jay Clayton, in testimony before this committee, 
also recognized public country-by-country disclosures as an 
increasing part of how sophisticated investors are looking at 
companies. So as you can tell, support for these disclosures 
now extends well beyond the usual corners of sustainable 
investments, and includes mainstream investors, credit 
reporting agencies, financial analysists, small businesses, et 
cetera.
    And already, the Global Reporting Initiative an ESG 
standard-setter followed by more than 78 percent of companies 
in the DOW Jones Industrial Average, has brought its new tax 
standard on country-by-country reporting online this year, 
which is great, meaning that we can expect voluntary 
disclosures by corporations as soon as January 2022.
    But, Mr. Green, I'd like to ask you, can you explain a 
little of why voluntary disclosures like that won't be enough, 
and give us the kind of information that investors need?
    Mr. Green. Yes. We have had a regime of voluntary 
disclosure in these areas, it has been the slow-moving norm, 
but we have not achieved wide-ranging comparability, 
reliability, and consistency that investors need for the 
capital markets to work. Let's remember, capitalism works 
because lots of different investors, millions and millions of 
investors deploy their money based on the information they 
have, and when that money is deployed based on the information 
that everybody has money, the capital markets will yield 
competitive returns for all of us.
    When you don't have that, when the information is only 
available to the insiders, to those who are already in control, 
you are not going to have the efficiency and sustainable long-
term outcomes that you need in capitalism. And that's why 
getting this information out there is so essential. You need 
mandatory standards so that you don't have holes in the market 
where those who have the inside information are keeping it from 
everyone else who would otherwise move their money somewhere 
else. Everyone is at risk.
    Mrs. Axne. Thank you for that. And I'll tell you, that's 
why we need action at the SEC either directly or through my 
bill the Disclosure of Tax Havens and Offshoring Act, to your 
point to establish a clear, comparable standard for all public 
companies. Thank you so much.
    I hope we can get this done to finally provide our 
investors with the information they need here, and to make sure 
that we know that businesses are generating real, sustainable, 
long-term growth. I know that I, and other investors, want to 
be able to support businesses that are keeping money in the 
American economy. Thank you so much.
    And I yield back.
    Chairman Sherman. Thank you. I thank Mr. Casten for 
stepping in as Chair for 4 or 5 minutes, and it is possible 
that we will get this hearing done before they close the first 
vote, which means that may be the only time I call upon Mr. 
Casten to step in.
    I now recognize Mr. Hill.
    But I'll also point out to Mr. Huizenga that at the end of 
the hearing, I will give him one minute for a closing 
statement, and after him, I will take one minute for a closing 
statement.
    Mr. Hill?
    Mr. Hill. Thank you, Chairman Sherman, and Ranking Member 
Huizenga, for arranging this hearing so that we can talk about 
these legislative proposals. I'd like to focus my remarks in 
the climate disclosure arena. It is something we've talked 
about in our committee several times before. Mr. Green, in his 
very good testimony, stated that we, meaning the United States, 
are not great at predicting, ``financial crises.'' He says 
we're very poor at those predictions, in his testimony. I think 
that is a fair point.
    And Lael Brainard, a Governor of the Federal Reserve, was 
quoted saying that there are varying and different approaches 
to current disclosures and that those could be improved. I 
think that's a good point. It reminds me of the ancient Chinese 
proverb, ``Those who have knowledge, don't predict, and those 
who predict, don't have knowledge.'' So, this is an imperfect 
science.
    Going back to when I was college, we were talking about the 
coming Ice Age in the United States. We studied that in our 
science courses. And then, as I was graduating in the late 
1970s, we were told that Denmark would be underwater due to 
changing climate conditions within 4 decades. So, bottom line, 
those events did not take place, so I think predictions in this 
area are challenging.
    And Mr. Bloomberg's task force that has been mentioned, 
that Mike Bloomberg runs on behalf of the G-20 and fundraises 
for, he says that climate disclosure should be reliable, 
verifiable, and objective. They should be comparable among 
organizations and sectors, and they should be timely. And so we 
can accept that as great wisdom from Mike Bloomberg on how to 
do climate disclosure.
    And what I'm arguing is we have a materiality standard. We 
require all companies to disclose things in their financial 
statements that meet those timeliness issues, and accuracy and 
reliability issues, and they don't go beyond that, because I'm 
arguing that so much of this is not as predictable as some of 
our friends would suggest.
    And I think that one example that's always given is the 
hurricane data and that we should be disclosing at banks the 
risk of greater hurricanes. But looking at NOAA's numbers since 
1853, there are not more, and they are not more intense in 
terms of making landfall in the United States. In fact, the 
worst one ever was in 1935, in Miami.
    But what is different, and I think it is relevant and I 
think banks do disclose it is the issue, if you look at the 
American Meteorological Society, they concluded that while 
neither U.S. landfalling hurricane frequency nor intensity 
shows any significant trends since 1900, growth in coastal 
population and wealth have led to increasing hurricane-related 
damage in the coastline. And the same could be true of wildfire 
risk out in Southern California. We are building and 
encroaching in areas that have natural risk, not necessarily 
enhanced risk. And if it is enhanced, so be it.
    And I think companies recognize that risk of fire and 
liability, and risk to residential construction in LA County, 
where you shouldn't be building. And we've built too much 
density on America's seacoast, potentially. I think if you look 
at that, the lender has that responsibility to disclose that 
kind of risk, and the property and casualty company. And I 
believe they do that, and I believe our existing prudence in 
both financial regulation and at the SEC give you that 
authority right now.
    So, Mr. Ramaswamy, I am interested as a CEO in what more 
could we tell the SEC? If people can't measure it, how can the 
SEC come up with a standard? I'm curious about your reflections 
on that.
    Mr. Ramaswamy. Thank you. I will wear my hat as someone who 
was trained as a scientist before going into business. And I do 
believe that we face a separate issue that you touched on, 
which is a crisis of public trust in science. That is the last 
thing I would want to see happen to exacerbate that crisis, in 
part, by overstating the certainty of our claims in order to 
advance a particular agenda, when acknowledging that even in 
the face of uncertainty, we may need to make decisions that, 
with the best of information available, we still need to make.
    I think that we ought to be transparent about that, rather 
than getting into what I see as a race to the bottom between, 
as we have less public trust in scientists, the scientific 
community, including in the climate community in my opinion, 
overstate the certainty of their claims as assuming that only a 
fraction of that's going to be believed, when, in fact, people 
believe even less of it as a consequence. So, I think you put 
your finger on an important issue.
    Mr. Hill. Thank you. I yield back, Mr. Chairman, and thank 
you for the hearing.
    Chairman Sherman. Thank you.
    And let's go on to Mr. Casten.
    Mr. Casten. Thank you. And thank you, Mr. Chairman. I am 
proud to have served as your temporary substitute Chair today. 
I am also proud to have worked with Senator Warren on the 
Climate Risk Disclosure Act and was very pleased to see Allison 
Lee's statement yesterday directing the Division of Corporation 
Finance to enhance its focus on climate relief disclosures.
    I just want to respond a little bit to the comments of my 
good friend, Mr. Hill. There is such a danger in politicizing 
science. This science is settled, and my goodness, let us not 
continue that nonsense any longer. We know that the Earth is 
warming and we have to do something about it.
    Mr. Hill also raised this question of materiality, and, Mr. 
Green, I just want to ask you a simple question. Who should 
define materiality, investors or management?
    Mr. Green. It's quite clear that it needs to be investors 
and it needs to be clear, simple, standardized disclosures that 
the SEC determines. It should not be left in the hands of 
management, where it is been for far too long, and we've seen 
the result.
    Mr. Casten. I quite agree.
    Mr. Andrus, as a representative of the investor class here 
today, if you were given the opportunity to invest in a company 
that didn't much care for Generally Accepted Accounting 
Principles (GAAP), and said they wanted to insist on voluntary 
disclosures for their off-balance sheet transactions, would you 
invest in them?
    Mr. Andrus. No.
    Mr. Casten. How about if they wanted to use voluntary 
disclosures for related-party transactions? Any red flags 
there?
    Mr. Andrus. Yes. There are red flags there.
    Mr. Casten. Okay. Can you tell me briefly, why you would 
like those companies to provide consistent standard 
disclosures?
    Mr. Andrus. Because, one, we want the truth. I think what 
this hearing is about and what we're looking for is basically 
information. We get that information through honest and fair 
disclosures. And that's only what we're looking for. And that 
allows us to make better investment decisions. So in answering 
your question, we want to make better investment decisions, and 
we get that by getting better information, and we get that 
through disclosures.
    Mr. Casten. Hear, hear. I now want to agree with my 
colleague Mr. Huizenga, but there are real problems with ESG. 
As a reporting methodology, I would encourage all of my 
colleagues, if you haven't read it, to read the Commodity 
Futures Trading Commission (CFTC) report that recently came 
out, ``Managing Climate Risk in the U.S. Financial System.'' 
They make the very compelling argument--I think it is an MIT 
study--that there is no correlation between ESG rankings, even 
between firms that rank, not because there's a problem with 
ESG, but because that's a problem with voluntary disclosure 
methodologies. If everybody disclosed their off-balance sheet 
transactions in a different way, there wouldn't be a 
correlation. That's a problem. It is not a problem with the 
ESG, per se. It is a problem with voluntary disclosures.
    And I also just want to really emphasize something. I can't 
stress enough to folks on both sides of the dais, because I 
think all of us have maybe slipped up a little bit. This is not 
about naming and shaming. This is about connecting risk and 
reward. If I have a portfolio of investments, and I think I'm 
overexposed to a given commodity, or a given currency, or a 
given industry, or a given region, I may want to reweigh my 
portfolio. Maybe I like the overall asset holding I have. I 
want to hedge against it.
    Ms. Ramani, my follow-up question is for you. In the 
absence of consistent, mandatory disclosures of climate 
impacts, can you quantify the exposure that your portfolio has 
to a changing climate? And can you identify ways to hedge out 
that risk?
    Ms. Ramani. Was that question to me, Congressman?
    Mr. Casten. Yes.
    Ms. Ramani. Oh, that's great. Sorry. I think that in the 
absence of consistent, comparable, and reliable information, 
investors just can't do what they need to do in terms of 
integrating climate change into their investment analysis. And 
that's the problem that we have right now, Congressman. Thirty 
years ago when Ceres started to work on climate and 
sustainability disclosure, our problem was that companies were 
not disclosing. We've solved that problem.
    Right now, the issue is not with disclosure quantity. It is 
with disclosure quality, because there are so many standards 
that companies can use to talk about issues like climate 
change, the information they are putting out there is not 
consistent. Because companies have the ability to pick and 
choose issues, to pick and choose the way that they talk about 
issues, investors are not getting the information that they 
consider to be reliable in terms of their investment analysis. 
And one point that hasn't been raised here before, is that the 
vast proportion of climate change disclosures is not externally 
verified. Rules for climate change disclosure, I believe, can 
fix these problems.
    Mr. Casten. Thank you. And I'm out of time, but I really 
appreciate your comments because this is about market 
efficiency, it is about making sure that investors have the 
right information to understand the risks they face, and 
allocate against those. In other words, it is about making sure 
that the markets accurately price risk, and that shouldn't be 
partisan, and goodness knows, let's move forward on this. Thank 
you.
    And I yield back.
    Chairman Sherman. Thank you. Just an update, we'll be 
hearing from Mr. Davidson. I will then go to Mr. Cleaver, and 
then unless some other person who is a member of this 
subcommittee shows up, our final questioner will be Mr. Barr. 
Mr. Barr, thank you for joining us for this subcommittee, and 
if somebody who is actually a member of the subcommittee comes, 
I'm sure you'll enjoy hearing their wisdom before imparting 
yours.
    I now recognize Mr. Davidson for 5 minutes.
    Mr. Davidson. Thank you, Mr. Chairman. I also thank the 
ranking member, and I thank our witnesses. I appreciate your 
testimony today and your virtual presence. Hopefully, we'll all 
one day be restored to physical presence.
    Mr. Andrus, in your opening statement, you cited a study 
that said companies with diverse boards are shown to perform 
better than those without diverse boards. If that is the case, 
isn't this a perfect example of a free market adjusting itself? 
But if other companies see this, wouldn't it be in their best 
interest to follow suit? Why would we need the government to 
tell public companies how to organize and structure their 
boards if the market will tell them that a diverse board is 
more high-performing?
    Mr. Andrus. We need to tell boards to diversify to ensure 
that they use all of the talents that are available within the 
country, and also, mindfully guard against the risks of 
operating with all White boards. So, it is not only that the 
boards perform better, but if you are sitting on a board, most 
people aren't going to step down to allow anybody else to--
    Mr. Davidson. Would term limits be just as effective as 
these kinds of disclosure requirements?
    Mr. Andrus. No, they will not be. Other countries have 
basically gone harder on it, and demanded that women be placed 
on boards, and that has been effective, and that has not 
basically made performance weaken whatsoever.
    Mr. Davidson. Thanks for your answer. I do think that the 
market shows that diverse boards can participate. And I think 
that really one of the big things that I think it shows is that 
diverse boards aren't only encompassed by the categories that 
we spend so much time on. For example, I think it was a great 
thing that the Supreme Court finally has somebody who didn't go 
to an Ivy League law school. That is a form of diversity as 
well.
    And, look, I would like to just highlight from a 
practitioner, Mr. Ramaswamy, as you might be aware, in December 
of 2020, NASDAQ sent a proposed rule to the SEC that would 
require most NASDAQ-listed companies to have, or to explain why 
they don't have, at least two diverse directors.
    When you consider this rule, taken in conjunction with 
proposed ESG disclosure requirements, what are the long-term 
effects on our capital markets when a rogue social agenda is 
imposed on public companies? At some point, is it the 
shareholder or the stakeholder that is supposed to be 
represented?
    Mr. Ramaswamy. I would add one further example that's maybe 
more pertinent to your point, which is one of the largest 
investment banks in the world announced in January of last year 
at Davos, at the World Economic Forum, that it would not take 
any company public if it did not have at least one diverse 
director, when they did not define what, ``one diverse 
director'' even meant. It was left to the discretion of this 
particular investment bank.
    And I think one of the issues at stake here, even from a 
disclosure standpoint, if we're going to go down that road, is 
that diversity of metrics that can be measured on a checkbox 
form--race, gender, and so forth--are supposed to have been 
proxies for diversity of thought when, in fact, the diversity 
of thought that we bring to the board, the board room benefits, 
I can say from firsthand experience, from diversity of 
thoughts, from diversity of experiences, from diverse 
prospective.
    But we create a systemic risk of a different kind by having 
discharged the responsibility to create a diverse appearance in 
the board room that we may actually foreclose the appearance, 
the actual diversity of thought, that skin-deep metrics were 
supposed to serve as a proxy for in the first place and 
disclosure is going to be a very difficult measure for solving 
that deeper problem of entering diversity of perspectives in 
the board room. I think, at the very least, it would open up a 
Pandora's Box of seeing whether we represent diverse political 
perspectives in the board room or diverse social perspectives 
in the board room. That's going to be very difficult to capture 
through any disclosure regime.
    Yes, I worry about separately--
    Mr. Davidson. Let me just ask quickly, how would you comply 
with the current ERISA and human resources (HR) laws to inquire 
as to whether you have sufficiently diversified a board? When 
you look at HR practices, many of the things they are looking 
for in these disclosures, you cannot even ask those questions 
appropriately in the HR setting, for example, sexual 
orientation?
    Mr. Ramaswamy. Sexual orientation is one of those examples 
that I have concerns with, where if you are also looking for 
diversity in terms of sexual orientation in the board room, you 
are also at odds with many HR and legal business practices that 
prohibit asking employees or potential directors about their 
respective sexual orientation. So, that's just one example of 
where, potentially, anti-discrimination policy may be 
intentional with the diversity measures even from a disclosure 
perspective or from a State level, for example, in California a 
mandated perspective that may come into tension with one 
another.
    Mr. Davidson. Thanks so much. I really appreciate your 
comments today, and I look forward to talking with you on this 
policy area in the future. I yield back.
    Chairman Sherman. Is Mr. Cleaver still with us? He was on 
my screen a second ago. If Mr. Cleaver is not there, I see no 
other Democrats--it is a Democrat's turn, and I see no other 
Democrat.
    I now recognize the gentleman from Ohio, Mr. Gonzalez.
    Mr. Gonzalez of Ohio. Thank you, Mr. Chairman.
    And thank you to our witnesses. I first want to reference 
something that Mr. Casten, I think suggested, that Mr. Hill was 
denying climate change. He certainly did not do that. He, in 
fact, cited multiple objective data points from government 
sources and pointed out the fact that climate projections have 
not been as accurate as some would like, but that's not climate 
denial. He knows I work on climate change in the Science 
Committee. I think it is a noble goal. But Mr. Hill was just 
simply stating facts.
    Additionally, comparing the materiality of climate 
disclosures and GAAP accounting, as if those are somehow the 
same and we have similar objective measures for both is sort of 
an interesting thing to suggest.
    But I want to actually start with something, Mr. Green, you 
answered earlier, and I'm glad the question was posed this way. 
The question was posed, ``Who is better at understanding 
climate risks, investors or managers?'' And you said, 
``Investors.'' And I think that is probably right. I am sure 
that we're not talking about that here. This hearing is about 
government mandates, not investors.
    And so, I will ask Mr. Ramaswamy. You said it once before. 
As a shareholder in a company, do you have the ability to get 
disclosures from public companies?
    Mr. Ramaswamy. Of course you can. Yes, sir. You do.
    Mr. Gonzalez of Ohio. Of course. Thank you. And to follow 
up on a point that you made earlier, I am really concerned 
about the legislation being considered here today, and using 
disclosures to address social or moral issues which, again, I 
agree these are all issues we need to solve. I think the 
question is, do we do this through financial disclosures in the 
Financial Services Committee or do we legislate it through the 
Energy and Commerce Committee and the Science Committee?
    What do you see as the dangers of doing it this way through 
disclosures and regulation as opposed to through the 
legislative process? I think you have stated it really well, 
but I would love to hear it again.
    Mr. Ramaswamy. To build on a couple of points that I made 
without repeating the points that I've already made, I will add 
two more to my oral opening statement, which are as follows. I 
think using disclosure as a low-resolution, blunt instrument to 
accomplish potentially worthy social goals may actually be a 
disservice both to the social goals as well as to the 
underlying actual capital formation objectives of the financial 
disclosure regime in the first place. I stated earlier that 
with respect to the latter, you would tend to favor industry 
incumbents over smaller startup companies. One disclosure alone 
isn't going to be the straw that breaks the camel's back, but 
collectively, if you apply an equivalent standard to include 
mandatory disclosures of equivalent materiality to say, 
climate-related disclosures, that collectively could be many, 
many more straws that do break that camel's back for the 
startup.
    On the other hand, you also have the inability to actually 
precisely allow firms, even if you are coming at the issue from 
the standpoint of a climate activist, for firms to be able to 
discharge their responsibilities simply by complying with the 
minimalist standards of disclosure. And I think that whether 
this is a conservative concern or a liberal concern, I don't 
know. But from both angles, I worry that disclosure is too 
blunt and low resolution of an instrument to actually 
effectuate the end itself, rather than acknowledging that what 
might be at issue here isn't really about protecting investors, 
but about dealing with the relevant social issues, doing that 
through the front door transparently through public debate, by 
the way, in a way that I believe would enhance public trust in 
the process of what we're actually accomplishing, rather than 
indirectly adjudicating these issues through the back door of 
disclosure and enforcing those into our public companies.
    There's one more concern I would like to address, but I 
will yield my time back to you.
    Mr. Gonzalez of Ohio. No, no, please.
    Mr. Ramaswamy. Okay. So, the other class of concerns that 
we haven't touched on today, that I think is important, is the 
risk factor on the global stage from a geopolitical 
perspective. Everything that we're talking about here is for 
U.S. public companies or for public companies that have 
reporting requirements in the United States. Let's acknowledge 
that there's a growing base of companies in China and in other 
parts of the world, but in China in particular, where there are 
no such mandatory reporting requirements and I think that this 
entire ESG movement is, in fact, a geopolitical boon to China 
in the following way.
    By requiring U.S. companies to own up to the negative 
externalities that they contribute to, but not requiring the 
same regime of companies abroad in China, we are creating a 
false moral equivalence or worse between the work of companies 
and actors here in the United States versus those in 
dictatorial regimes in places like China. And I believe that 
the Chinese government and other great power rivals on the 
world stage understand this phenomenon well; to be able to know 
that our greatest asset is not our nuclear arsenal, but is our 
moral standing on the global stage.
    And when the same actors and the same companies criticize 
both public policy here in the United States as well as their 
own behavior, be it Disney or the MBA or Marriott, but remain 
silent to true macro aggressions in China, that disparity is 
actually part of what undercuts our moral standing on the 
global stage. And so, the link between stakeholders' capitalism 
and geopolitics is something that, I think, hasn't been 
investigated enough. Thank you.
    Mr. Gonzalez of Ohio. I couldn't agree more, and I thank 
you.
    I yield back.
    Chairman Sherman. Seeing no Democrat, I will recognize 
another Republican, and I will commend Mr. Barr for his 
patience, but I will commend Mr. Steil for his decision to 
choose to serve on our subcommittee and recognize him first.
    Mr. Steil. Thank you very much, Mr. Chairman. I appreciate 
you holding today's hearing.
    Back to Mr. Ramaswamy, I really appreciate your last 
comments about the importance of the United States' global 
competitiveness and how placing burdens on U.S.-based publicly 
traded companies uniquely vis-a-vis non-publicly traded 
companies, but most importantly vis-a-vis foreign companies 
places such a disadvantage on U.S. companies, and ultimately on 
U.S. workers and U.S. consumers. I thought that your last 
comment was very strong.
    As many of my colleagues know, and as you may know, I have 
been very concerned about proposals that would really erode the 
tried and true principle of materiality, in particular as it 
relates to ESG disclosures on these U.S. publicly traded 
companies. I would argue that our existing materiality 
standards actually serve investors quite well. If information 
on climate change, diversity, or other common ESG metrics is 
material, I agree, it should be disclosed.
    I think the question is whether or not the SEC should deem 
that issue itself material. And I think deeming these de facto 
issues material could really drive up confusion, drive up 
compliance costs, discourage businesses from going public, and 
put us at a competitive disadvantage against global 
competitors. And as you correctly noted, vis-a-vis China, in 
particular.
    The SEC's mission, as we are well aware, is to protect 
investors, facilitate capital formation, and maintain fair, 
orderly, and efficient markets. Mr. Ramaswamy, would you agree 
that mandated ESG disclosures, irregardless of materiality, run 
contrary to the mission of the SEC and the goal of our 
securities laws?
    Mr. Ramaswamy. I am not a securities law expert. Though I 
am trained as a lawyer, I think you all may be greater experts 
than I on that topic. But as I understand it, as both someone 
who has lived under the regime of the SEC as well as having 
studied it, I believe that the mandate of the agency ought to 
be constrained to protecting investors, not because other 
objectives aren't important, but because other agencies or 
other bodies may be better suited to look after the underlying 
content of concerns, and instead, allow the SEC to do its job 
well of requiring investors to have the information they need 
to make sound decisions and to be protected in the process.
    Now, I do believe that, if I may--I think that the two 
points I would raise is if there is a discussion about ESG-
related disclosures, in that discussion has to be included the 
idea of a point that I raised in my opening statement, which 
was the nonfinancial conflicts of interest of a CEO. It is 
well-established that if the SEC is going to look after one 
class of disclosures above those of any other, it is the 
conflicts of interest of the people who lead our public 
companies versus the principal agent conflicts they may 
experience relative to the shareholders whom they are supposed 
to represent.
    And I worry that the social causes and even the well-
intentioned social motivations of many of these CEOs including, 
but not limited to, Silicon Valley today are intentioned with 
the underlying objectives of their shareholders in ways that at 
least ought to be disclosed. I gave the analogy of someone 
donating to their high school.
    Mr. Steil. I am going to jump back in. This is a little 
challenging virtually. I only have so much time left, and I 
want to get you on another topic that I think is really 
important. You spoke, I think very eloquently, about how these 
nonmaterial ESG metrics could burden companies in the United 
States vis-a-vis international competition. I think another 
area that is worth noting is the impact that this has on large 
companies versus small companies. Large, publicly-traded 
companies in the United States may have large compliance teams, 
and large legal operations to be able to navigate through some 
of this.
    Can you speak to how these types of nonmaterial disclosures 
would burden some of the smaller, emerging growth publicly-
traded companies in the United States?
    Mr. Ramaswamy. They would very much help big four 
accounting firms that ultimately are responsible for 
administering these requirements for companies that want to go 
public, for lawyers and investment bankers who ultimately serve 
as gatekeepers for taking companies public. But they would be 
an added cost on our already costly process for startup 
companies that do want to go public.
    And, in closing, I think that one guard rail to your point 
about the internationalism of this is a point for consideration 
for the members of this committee might be to say that at least 
if you are going to adopt a mandatory form of disclosure, for 
example, on climate-related disclosures, whether to consider a 
minimum constraint of whether equal foreign powers, like in 
China, are willing to adopt similar constraints equivalently so 
that we don't undermine the competitiveness of companies both 
large and small globally.
    Mr. Steil. Let me jump in for the final 10 seconds. I like 
your thought. We need to look at emerging growth companies in 
the United States, make sure we are lowering those burdens and 
making sure that that benefit is to United States' companies, 
not foreign companies.
    With that, I yield back.
    Chairman Sherman. Thank you. I request unanimous consent to 
submit for the record a letter from the FACT Coalition in 
support of Mrs. Axne's Disclosure of Tax Havens and Offshoring 
Act, and country-by-country tax disclosure.
    Without objection, it is so ordered.
    I see the only Member who has not spoken, and that is our 
friend from the Full Committee, Mr. Barr. I will recognize him, 
and unless another Member comes in, I will then recognize Mr. 
Huizenga for one minute.
    Mr. Barr?
    Mr. Barr. Thank you, Mr. Chairman, for allowing me to 
participate in this hearing.
    And Ranking Member Huizenga, thank you as well.
    And to our witnesses, thank you for the vigorous 
conversation. It has been interesting indeed, and very timely. 
I have to say I wanted to listen to the testimony because I 
have been very alarmed by the growing trend of politicization 
of access to capital. Over the last several years we have 
witnessed financial firms publicly commit not to do business 
with certain legal companies in politically unpopular 
industries like the fossil energy sector.
    And these decisions were not based on the creditworthiness 
or the financial soundness of the borrower, but rather were 
driven by a number of non-pecuniary factors. Political pressure 
from vocal critics, public relations pressure from activist 
groups, the moral judgment of corporate leadership all 
contributed, but none of those factors should play a role in 
determining which legally operating business receives a loan 
from a bank, or gets investments through retirement funds, or 
is sold a commercial insurance policy. Any decision should be 
explicitly and exclusively dependent on objective risk-based 
underwriting standards.
    The politicization of access to capital threatens jobs and 
compromises entire industries based on the misguided opinions 
of a select few. If you would allow me the indulgence of just 
making one final editorial comment before my questions, and 
that is, I do not believe that this ESG movement is in any way 
about managing climate-related financial stress. What I believe 
this is really about is causing financial distress for 
particularly politically incorrect industries. The coal 
industry in my home State of Kentucky being a prominent 
example, a victim and the workers therein a victim of political 
correctness and the politicization of access to capital.
    And these mandatory climate disclosures are not about 
providing material information to investors; they are about the 
government putting its heavy hand on the scale to discriminate 
against certain legally operating businesses, to pick winners 
and losers in the marketplace and to politicize access to 
capital. In case you didn't know where I stood, I did want to 
just make that comment.
    I do think individuals should have the freedom to 
contribute their resources to political, social, and charitable 
causes. I think it is fine if someone wants to invest in the 
ESG fund, or invest in a climate-related cause with their own 
dime, but that's the individual's choice. When such choices are 
made for shareholders by agents acting at the corporate level, 
using the investor's own capital, then at best, we are inviting 
abuse, resource misallocation, malfeasance, and inefficiency.
    But at worst, we are enabling a practice that looks a lot 
like theft, theft from shareholders and investors, the actual 
owners of the corporation, by corporate directors and officers 
either voluntarily or by government mandate, and redirecting 
their money and their resources away from the core mission of 
the company and into an unrelated political errand. That, to 
me, is immoral. It is offensive.
    Mr. Ramaswamy, in your opinion, should the moral judgments 
of investment managers, banks, and other financial firms 
dictate which legally-operated firms get financing, especially 
if those opinions are based on unrelated social causes?
    Mr. Ramaswamy. With all due respect, I do not. And I think 
that is a conflict of interest that I believe is more material 
to investors than any of the other social factors that we have 
discussed today. Because if there's one thing that protects the 
integrity of our public capital markets, it is making sure that 
investors are aware of the conflicts that a given CEO or a 
manager bears when making decisions using shareholders' 
capital.
    And if one manager is going to use shareholder capital to 
garnish their personal reputational brand, or burnish their own 
social causes at the expense of other social causes, investors 
ought to know about that sooner than they ought to about other 
broader social-related climate risks or other.
    Mr. Barr. Mr. Ramaswamy, last question here. In terms of 
investor returns, I have no issue if investors choose to 
allocate their money to ESG funds if there is transparency and 
if there is an appetite for them. But I have a problem if asset 
managers who exclusively offer ESG options limit customers' 
options to invest in fossil energy, for example, as an 
alternative.
    Do you agree that investment advisors or retirement plan 
sponsors should advise their clients based on what will drive 
the highest returns or make clients aware if non-financial 
factors are driving particular asset-allocation or investment 
advice? I do worry that investors are getting hoaxed, because 
asset managers are politicizing the allocations of their 
capital as opposed to maximizing shareholder value.
    Mr. Ramaswamy. I agree with your comments, and I believe 
that's actually a relevant area for future inquiry with respect 
to disclosure requirements.
    Mr. Barr. Mr. Chairman, thank you for allowing me to 
participate today, and as you can tell, I am interested in this 
topic, and I yield back.
    Chairman Sherman. Thank you.
    I now recognize the Chair of the Full Committee, Chairwoman 
Waters.
    Chairwoman Waters. Thank you very much, Congressman 
Sherman, for holding this hearing. This is so very important 
with us getting into all of the ways by which we can deal with 
the whole issue of climate change. But I'd like to ask a 
question regarding the impacts of climate change on the 
communities of color and climate risk as an exposure.
    Ms. Toney, may I address this question to you? Series of 
segregationists and other racist policies have left communities 
of color, particularly Black communities, disproportionately 
vulnerable to the physical and health risks of climate change. 
For far too long, this important topic has been left out of the 
conversation. Reports coming from Texas show that Black and 
Latinx communities have been hit the hardest during Texas's 
historic freeze, compounding the disproportionate damage done 
to these same communities from increased extreme weather events 
like hurricanes and flooding.
    Drawing on your extensive experience as an environmental 
regulator, an environmental justice advocate, and as a former 
mayor of a major minority city, can you please discuss how 
corporate disclosures of climate risk can help communities or 
government better access the risk their communities face and 
help them take action to address these risks?
    Ms. Toney. Thank you, Chairwoman. Absolutely. The impact 
comes very hard and heavy. And it has been interesting 
listening to this dialogue because we have talked ad nauseum 
about how investors are impacted and whether or not this is a 
moral decision without realizing that some of the decisions 
that are made in the lack of disclosure is a decision in and of 
itself. The labor force that is working in these places, 
investors need to know whether or not the climate impacts of 
how people are actually out gathering food if it is a food 
company, how that happens in that particular marginalized 
community. And they are making these decisions right now.
    The companies know--for example, airlines are looking at 
climate to determine how the jet stream goes and how the future 
of infrastructure needs to be designed with respect to the air 
traffic ways and to the runways when we're thinking about how 
something like coffee beans are grown, or where water 
disparities are in our country. These are issues that are 
impacted by climate. These are issues where the labor force is 
often Black and Brown. These are places where the assets of the 
company are located in Black and Brown communities and 
investors need to know whether or not the climate impact and 
the disproportionate nature to communities of color will impact 
their bottom dollar.
    This is another important thing that I put into my 
testimony, and I hope everyone has an opportunity to read it. 
There is a study that has been done by Rice University and the 
University of Pittsburgh that shows specific evidence that once 
a climate disaster happens, White counties actually increase in 
terms of their average wealth, while Black and Brown counties 
decrease. There is an increase in the economic disparity when 
after climate disasters, investment is not done. And it is 
historic and it is systemic. This is not new to the Federal 
Government. HUD, FEMA, EPA, these are all regulatory agencies 
from the Federal Government, and the SEC is no different. So we 
must consider these as we talk about this issue.
    And last point, Chairwoman, if you will allow me, I think 
it is interesting to note that sometimes we tend to think that 
we are starting from a place of equality and we are not. Black 
and Brown communities are coming from the back. It would be 
lovely if we were all starting from a place of one person, one 
vote, but that is just not true. That is not our democracy. It 
is not our history. We are trying hard to come back and restore 
what should be happening and that is what the Biden 
Administration has said. And I think the way that they have 
outlined this and the way that we use climate as a bridge to 
equality is an opportunity that we have never had in our 
country and I am hopeful that we can all get on the same page.
    Chairwoman Waters. Wow. I love that statement, and I'm 
going to quote you, ``climate as a bridge to equality.'' Thank 
you very much.
    I yield back the balance of my time.
    Chairman Sherman. Thank you, Madam Chairwoman.
    Ms. Toney. Thank you, Madam Chairwoman.
    Chairman Sherman. I now recognize Mr. Huizenga for a one-
minute closing statement.
    Mr. Huizenga. Thank you, Mr. Chairman.
    And, Mr. Ramaswamy, if you are still on, I'm looking 
forward to your book that's upcoming, ``WOKE, INC.'' Despite 
claims that this is not about naming and shaming, pretty 
clearly it is. Political spending is naming and shaming. 
Diversity disclosure and sexual orientation and family status 
is naming and shaming. Pay structure, tax structures, and just 
because many of us oppose government-mandated nonmaterial 
disclosures does not mean that we aren't concerned about these 
particular issues.
    What the main question should be is, does this make us more 
competitive and attractive in a global economy? Large companies 
may be able to handle this. But this is going to damage small 
and medium-sized companies, especially those startups. And this 
bill, these sets, this issue is dealing with U.S. public 
companies, not privately-held companies, not foreign companies, 
and it begs the question, when will the push start to include 
privately-held companies as well? That is the slippery slope of 
this issue. And with that, I yield back.
    Chairman Sherman. Thank you.
    Mr. Ramaswamy, I want to thank you for focusing our 
attention on how the study of the Dutch East India Company can 
inform modern decision-making. You point out that we want a 
system of one person, one vote. Unfortunately, we live in a 
world where a corporate board can spend millions of dollars, 
overwhelming buy one vote at the ballot box. McCain-Feingold 
was designed to present that. At a minimum, we could force 
disclosure.
    You indicate that disclosure is a blunt instrument. It is 
actually the least blunt instrument. The second still would be 
to tax or subsidize a behavior, and the most blunt would be to 
prohibit or require a behavior. I think it may be unfair to 
public companies that we force these disclosures only on them, 
and I will happily go down that slippery slope and say the 
disclosures should be of all large companies, and we might even 
exclude a few of the smallest public companies.
    And finally, I do not think it is theft when a corporation 
that I might be a shareholder in spends money on planting 
trees, weatherizing a facility or otherwise reducing its effect 
on global warming. I do think it is theft when the company 
spends its money secretly on a political cause opposed to my 
interest and will not even reveal it.
    With that, we stand adjourned. Thank you.
    [Whereupon, at 4:01 p.m., the hearing was adjourned.]

                            A P P E N D I X


                           February 25, 2021
                           
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