[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
ESG PART I: AN EXAMINATION OF
ENVIRONMENTAL, SOCIAL, AND
GOVERNANCE PRACTICES WITH
ATTORNEYS GENERAL
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HEARING
BEFORE THE
COMMITTEE ON
OVERSIGHT AND ACCOUNTABILITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MAY 10, 2023
__________
Serial No. 118-27
__________
Printed for the use of the Committee on Oversight and Accountability
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on: govinfo.gov,
oversight.house.gov or
docs.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-161 PDF WASHINGTON : 2023
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COMMITTEE ON OVERSIGHT AND ACCOUNTABILITY
JAMES COMER, Kentucky, Chairman
Jim Jordan, Ohio Jamie Raskin, Maryland, Ranking
Mike Turner, Ohio Minority Member
Paul Gosar, Arizona Eleanor Holmes Norton, District of
Virginia Foxx, North Carolina Columbia
Glenn Grothman, Wisconsin Stephen F. Lynch, Massachusetts
Gary Palmer, Alabama Gerald E. Connolly, Virginia
Clay Higgins, Louisiana Raja Krishnamoorthi, Illinois
Pete Sessions, Texas Ro Khanna, California
Andy Biggs, Arizona Kweisi Mfume, Maryland
Nancy Mace, South Carolina Alexandria Ocasio-Cortez, New York
Jake LaTurner, Kansas Katie Porter, California
Pat Fallon, Texas Cori Bush, Missouri
Byron Donalds, Florida Jimmy Gomez, California
Kelly Armstrong, North Dakota Shontel Brown, Ohio
Scott Perry, Pennsylvania Melanie Stansbury, New Mexico
William Timmons, South Carolina Robert Garcia, California
Tim Burchett, Tennessee Maxwell Frost, Florida
Marjorie Taylor Greene, Georgia Becca Balint, Vermont
Lisa McClain, Michigan Summer Lee, Pennsylvania
Lauren Boebert, Colorado Greg Casar, Texas
Russell Fry, South Carolina Jasmine Crockett, Texas
Anna Paulina Luna, Florida Dan Goldman, New York
Chuck Edwards, North Carolina Jared Moskowitz, Florida
Nick Langworthy, New York
Eric Burlison, Missouri
Mark Marin, Staff Director
Jessica Donlon, Deputy Staff Director and General Counsel
Alan Brubaker, Senior Advisor
Jeanne Kuehl, Senior Professional Staff Member
David Ehmen, Counsel
Mallory Cogar, Chief Clerk
Contact Number: 202-225-5074
Julie Tagen, Minority Staff Director
Contact Number: 202-225-5051
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C O N T E N T S
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Page
Hearing held on May 10, 2023..................................... 1
WITNESSES
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The Honorable Steve Marshall, Attorney General, Alabama
Oral Statement............................................... 6
The Honorable Sean Reyes, Attorney General, Utah
Oral Statement............................................... 7
The Honorable Michael Frerichs, Treasurer of Illinois
Oral Statement............................................... 9
Opening statements and the prepared statements for the witnesses
are available in the U.S. House of Representatives Repository
at: docs.house.gov.
INDEX OF DOCUMENTS
----------
* Article, Stanford Law Review, ``Reconciling Fiduciary Duty
and Social Conscience: The Law and Economics of ESG Investing
by a Trustee''; submitted by Rep. Biggs.
* Case Law, WestLaw, ``Central States, Southeast and Southwest
Areas Pension Fund v. Central Transport, Inc.''; submitted by
Rep. Biggs.
* Public Interest Comment, Mercatus Center, GMU, ``The SEC
Lacks Legal Authority to Adopt Climate-Change Disclosure
Rules''; submitted by Rep. Biggs.
* Case Law, ``Fifth Third Bancorp, et al. v. Dudenhoeffer, et.
al.''; submitted by Rep. Biggs.
* Letter, from Attorney General Landry to Rep. Comer and Rep.
Raskin, May 10, 2023; submitted by Rep. Higgins.
* Article, The Post, ``While Silicon Valley Bank Collapsed, Top
Executive Pushed `Woke' Programs''; submitted by Rep. Timmons.
* Article, Axios, ``SVB's Collapse was a Failure of ESG (as in
Governance)''; submitted by Rep. Raskin.
* Article, Knowledge at Wharton, ``Texas Fought Against ESG-
Here's What It Cost''; submitted by Rep. Raskin.
* Study by Wharton School of Business Professor & Federal
Reserve Professor on the cost of 2021 Tax Law; submitted by
Rep. Bush.
* Pew-Research Center report on Black-Owned Businesses;
submitted by Rep. Brown.
* Article on ESG Dinner; submitted by Rep. Garcia.
* Letter from AGs; submitted by Rep. Frost.
* Article, Bloomberg News, on Investment in ESG; submitted by
Rep. Raskin.
* Statement for the Record; submitted by Rep. Connolly.
* Questions for the Record: to Mr. Marshall; submitted by Rep.
Gosar.
* Questions for the Record: to Mr. Reyes; submitted by Rep.
Gosar.
The documents are available at: docs.house.gov.
ESG PART I: AN EXAMINATION OF
ENVIRONMENTAL, SOCIAL, AND
GOVERNANCE PRACTICES WITH
ATTORNEYS GENERAL
----------
Wednesday, May 10, 2023
House of Representatives
Committee on Oversight and Accountability
Washington, D.C.
The Committee met, pursuant to notice, at 10:16 a.m., in
room 2154, Rayburn House Office Building, Hon. James Comer
[Chairman of the Committee] presiding.
Present: Representatives Comer, Gosar, Grothman, Palmer,
Higgins, Sessions, Biggs, Fallon, Armstrong, Timmons, Burchett,
McClain, Boebert, Fry, Luna, Langworthy, Burlison, Raskin,
Norton, Connolly, Khanna, Ocasio-Cortez, Porter, Bush, Brown,
Stansbury, Garcia, Frost, Balint, Lee, Crockett, and Moskowitz.
Also present: Representative Seth Magaziner (D-RI).
Chairman Comer. The Committee on Oversight and
Accountability will come to order. I want to welcome everyone
here.
Without objection, the Chair may declare a recess at any
time.
I recognize myself for the purpose of making an opening
statement.
Welcome to the Committee on Oversight and Accountability's
first hearing on the Environmental, Social, and Governance
Agenda, also known as ESG. Americans should be free to invest
their money in any legal investment strategy they choose. This
freedom does not exist when asset managers use their clients'
funds to push ESG into the client's return, and let us not kid
ourselves; ESG is just window dressing for liberal activism and
radical far-left ideology.
Because the left are not big fans of diverse thought or
individual freedom, they are using the feel-good language of
ESG to force compliance to their ideology. That is why I am
concerned that asset managers and activist shareholders are
pushing a political agenda with their clients' money, agreeing
to ESG pledges pushed by global advocacy groups. These ESG
pledges and commitments are often at odds with their clients'
best interests and happen without their clients' knowledge.
Asset managers control an estimated $126 trillion--that is
``trillion'' with a ``T''--and almost 30 percent of all global
financial assets. That is a lot of money being manipulated to
push a leftist ideology. Even beyond control by asset managers,
ESG activists have infiltrated the broader market by
influencing just two proxy advisory firms who, together,
control more than 90 percent of the market. This is a
coordinated effort by unelected shadow organizations to force
their policies on U.S. taxpayers, investors, and retirees. And
instead of providing Americans with financial protections they
are due, regulators under the Biden Administration are actively
encouraging this political takeover of the American financial
system.
President Biden dealt a heavy blow to workers and retirees
when he used his first veto to kill a bill that reinforces fund
managers' fiduciary duty to maximize returns on pensions
instead of focusing on the ESG effort. When Biden vetoed this
bipartisan bill, Senator Manchin said, ``This Administration
continues to prioritize their radical policy over the economic,
energy, and national security needs of our country, and it is
absolutely infuriating.'' Senator Manchin is right. No
Administration should be able to gamble with Americans'
retirement funds to its own political agenda in the private
market. We must expose and investigate the propriety and
legality of this coordinated effort.
In today's heated political environment, it is impossible
to avoid the ever-expanding web of issues people call ESG.
Whether it is climate change, abortion, guns, DE&I initiatives,
or energy independence, the passions run very deep. Our country
is based on a system of laws. Issues of policy should be
decided by elected officials accountable to voters. I am
concerned about the well-coordinated campaign to push ESG
policies through markets and bureaucratic action, even though
those policy goals do not appeal to voters and have not been
decided by elected officials. They are trying to achieve
through intimidation and coercion what they cannot achieve at
the ballot box.
This issue is not theoretical. It is very real for any
American family planning and saving for their retirement.
Trillions of dollars in retirement plan assets are at stake.
Obviously, maximizing the return on investment within a
retirement account should be the primary factor asset manager's
focus on for their clients. The ESG agenda prioritizes leftist
ideology over the growth over retirees' investments. This is an
injustice to those who shoulder the burden for their retirement
savings. Even the slightest reduction in returns from chasing
social policy instead of value can have long-term impacts on
Americans' retirement savings and ability to retire and spend
quality time with their families.
Today's hearing is specifically focused on concerns that
Attorney Generals have with ESG policies pushed by left-wing
activist on the asset management industry and the potential
harm for investors and retirees, but today will not be the end
of this committee's work. Asset managers should understand that
they are stewards of money that is not theirs, and their
failure to act in the best interest of their clients is
dereliction of duty. Proxy advisors should understand they
cannot intimidate and coerce companies to implement ESG
policies without scrutiny.
While this is the first official hearing of what will be a
series of oversight actions by this Committee to explore ESG,
we have already held several hearings to investigate related
issues, including misguided energy policy and progressivism in
the military. We must also continue our oversight of the Biden
Administration's governmentwide efforts by unelected
bureaucrats to dictate to the American people what they are
allowed to say, spend their money on, or do what their hard-
earned savings. Whether it is the SEC and the Federal Reserve,
the EPA and Department of Energy, the Pentagon, the State
Department, know this: we are watching.
I now yield to the Ranking Member for five minutes.
Mr. Raskin. Thank you, Mr. Chairman, for launching this
important discussion and for holding a hearing on responsible
investment strategies that take into account all material
considerations and risks when planning for Americans'
retirement and savings. And, you know, that is precisely what
insurance companies, asset managers, builders, energy
suppliers, transportation companies, farm businesses, auto
manufacturers, landscapers, investment firms, and countless
others are doing right now by incorporating into their business
plans all relevant factors, including the calamitous
consequences of climate change, the devastating hurricanes, the
dangerous droughts, the sea-level rise and coastal erosion, the
storm water flooding, the spread of disease, and other costly
natural disasters produced by destabilization of the earth's
climate.
But the same Big Oil and Big Gas companies that suppressed
for decades their scientific understanding of the dynamics of
climate change now want to deploy government to literally block
the ability of other private companies and asset managers to
fulfill their fiduciary duties by planning around all relevant
risks and costs, including the risks of climate change, which
has cost businesses, government, pensioners, and consumers
billions and billions of dollars. Amazingly, the fossil fuel
industry wants big brother now to march in and stop the free
market from responding to the climate crisis that the carbon
kings created. I hope that we will bring in this process, Mr.
Chairman, real business people and other private asset managers
and investment advisors to testify about how outrageous and
indefensible it is to assault the free market in this way.
It is clear that honest American businesses are not buying
the propaganda of climate denialism. They have a duty of
loyalty and care to their shareholders, and they are focused on
the actual bottom line, and that always means, as we will hear
from the minority witness today, facing reality, facing the
real risks and costs that businesses encounter, not swallowing
a bunch of mythology and lies. America's most successful
investors and asset managers have voluntarily and freely
embraced responsible investment principles as a fulfillment of
their legal fiduciary duty to minimize risk, maximize returns,
and prudently plan for long-term challenges like the ones
associated with climate change. That is the freedom, and that
is the decision that the fossil fuel industry and its
supporters want to destroy, but responsible investing works,
and we have the opportunity to explain it today.
The proof is in the pudding. Over the last decade,
Bloomberg's ESG Index performed dramatically better than
Standard & Poor's traditional fossil fuel-based index. Consider
this remarkable contrast on the sign behind me.
[Chart]
Mr. Raskin. Now, the ESG Index is obviously performing a
lot better than the general stock index, but I would never say,
Mr. Chairman, because of these stunning trend lines, which
smart investors will certainly take note of, I would never say
that the states or the Federal Government should force all
investors or asset managers to steer all their investments into
ESG stocks, like wind or solar or conservation, or whatever. I
would never say that. If there are investors who want to
continue to invest in just Big Gas and Big Coal and Big Oil,
that is totally their prerogative and right to do so, and I
would never interfere with that. But one can only regard with
amazement the fact that the fossil fuel industry is using their
massive wealth and power now to try to force investment funds,
asset managers, unions, pension funds, and businesses to invest
in the less successful carbon-dominated stocks. It makes sense
to say in the free market that no one should be forced to do
the demonstrably right thing with their money, but it is
appalling to say that everyone should be forced to do the
demonstrably wrong thing with their money. Let us let the free
market operate.
The new campaign against what Tocqueville called the
enlightened self-interest of American business comes dressed as
an attack on woke capitalism, the same epithet used by Governor
DeSantis in his attack on the Disney Corporation, which has
backfired so badly on him. Although every other word coming out
of their mouths these days is ``woke,'' our friends have proven
famously unable to define what they mean by ``woke.'' So, I did
a little research, and I want to help with the etymology of the
word.
``Woke'' comes from the Indo-European root ``weg,'' which
means to be strong, lively, alert. That root grew into
``woke,'' ``awake,'' ``wakefulness,'' but it also grew into the
closely related word ``vigilance,'' and I think vigilance is
probably the best definition of ``woke'' as you guys are using
it. The whole point of being a fiduciary is to be vigilant,
watchful, and alert to opportunities and risks, and that is
what asset managers, corporate board members, and executives do
with other people's money. The opposite of a vigilant, woke
investment strategy is a negligent and inattentive investment
strategy, or, to put it more simply, when it comes to climate
change, if you don't have a woke capitalism, you are going to
have a broke capitalism.
Responsible investing principles, including ESGs, have been
freely chosen by America's companies and employed by asset
managers and pension fund managers for decades. Right-wing
attacks on these principles, fueled by dark money, corporate
special interests, and flawed legal arguments, threaten now the
savings and retirement of Americans by forcing asset managers
to ignore material risks and considerations and violate their
fiduciary duties, and we are hearing this from all over
America.
After Kentucky passed a law in April of last year to divest
state funds from financial companies that used ESG principles,
the county Employment Retirement System responded that the
requirement was ``inconsistent with its fiduciary
responsibilities.'' An analysis by the Kansas Public Employees
Retirement System of the anti-ESG legislation proposed in the
state found that it could cause more than a billion dollars in
losses due to the early sale of assets and could reduce returns
by $3.6 billion over the next decade.
In August 2022, the Florida State Board of Administration
divested its pension from BlackRock due to the asset managers'
ESG commitment, and in May 2023, Governor DeSantis signed into
law a bill prohibiting state and local government funds and
pensions from considering any social, political, or ideological
factors. Analysis by the Sunrise Project indicates that because
of these incomprehensible actions, Florida stands to spend
between $97 million and $361 million more on municipal bonds
alone to satisfy this new anti-woke political correctness
standard. These anti-ESG laws threaten American retirements,
especially those of public workers, like teachers, and
firefighters, and librarians.
At the end of the day, the only way for asset managers to
meet their fiduciary duties is to allow them the freedom to
invest, focusing on what will provide the greatest return for
their beneficiaries that they have a fiduciary duty to. Even if
you favor as a personal financial strategy exclusive investment
in oil and coal, you should not be interfering with the rights
of others to make other decisions, especially when their
decisions have been yielding significantly higher returns.
Thank you, Mr. Chairman. I yield back.
Chairman Comer. The gentleman yields back. I am pleased to
welcome our three witnesses today, who are all statewide
elected officials, but first I yield to the gentleman from
Alabama, Mr. Palmer, to introduce his good friend and our very
first witness.
Mr. Palmer. Thank you, Mr. Chairman. I am very pleased to
welcome Steve Marshall, Alabama's 48th Attorney General.
Attorney General Marshall has done an excellent job as
Alabama's AG. He is so well esteemed that virtually every
District Attorney in Alabama attended his inauguration, and it
has been a personal privilege to have worked with Attorney
General Marshall on some issues involving state and Federal
interest.
I would like to also recognize a former colleague of mine,
Katherine Robertson, who is the Deputy Attorney General of the
state of Alabama, in attendance today. And, Attorney General
Marshall, welcome to the Oversight Committee, and we look
forward to your testimony. I yield back.
Chairman Comer. The gentleman yields back. Next, Attorney
General Sean Reyes.
Mr. Reyes. Reyes.
Chairman Comer. Reyes--it takes me a minute; thank you--was
appointed by the Governor to serve the people of Utah as
Attorney General in 2013. He was then elected in 2014 and has
since been reelected twice. Our third witness is Treasurer
Michael Frerichs.
Mr. Frerichs. Frerichs.
Chairman Comer. Frerichs. Mr. Frerichs was first elected as
the 74th Treasurer of the state of Illinois in 2015 and is now
in his 3d term in office. I look forward to hearing from
Attorneys General Reyes and Marshall as well as Treasurer
Frerichs on their experiences with ESG investment strategies.
Pursuant to Committee Rule 9(g), the witnesses will please
stand and raise their right hands.
Do you solemnly swear or affirm that the testimony you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
[A chorus of ayes.]
Chairman Comer. Let the record show that the witnesses all
answered in the affirmative.
Now we will begin with opening statements, and we will
begin with General Marshall.
STATEMENT OF STEVE MARSHALL
ATTORNEY GENERAL
ALABAMA
Mr. Marshall. Chairman Comer, Ranking Member Raskin, and
Members of the Committee, thank you for the opportunity to be
here today. My name is Steve Marshall, and it is my honor to
serve as Attorney General for the state of Alabama.
Alabama law, like the laws of many states, empowers me to
represent the state's interest in court and to enforce the
state's consumer protection laws. ESG poses unique challenges
to Alabama's energy consumers as well as many of our state's
leading industries, like steel, iron, coal, agriculture,
timber, and oil and gas, but it is bigger than just Alabama.
ESG is a clear and present danger to consumers and to our
democracy. An unelected cabal of global elites is using ESG to
hijack our capitalist system, capture corporations, and
threaten hard-earned dollars of American workers.
Since President Trump's election, the global elites have
formed at least 10 alliances dedicated to implementing radical
ESG plans. These alliances threaten consumers by limiting
output, raising prices, risking retirement funds, and creating
anti-competitive conduct. They also undermine our system of
government because unelected elites are making policy decisions
outside of democratic processes. Groups like Climate Action
100+ and Net-Zero Banking Alliance require their members to
coordinate on business activity to meet ESG standards not
otherwise required by law. This private coordination is
designed to accomplish what could not be done through normal
democratic processes or the free market. ESG requires companies
to forgo otherwise profitable economic transactions to achieve
woke social policy.
These global alliances hurt consumers by breaching
fiduciary duties. Those entities entrusted with Americans'
money have a fiduciary duty to act in their investors' sole
interest by maximizing returns. Yet ESG acolytes have openly
pledged allegiance to causes over profits, often failing to
give consumers adequate notice or any meaningful say in the
decision to virtue signal with their hard-earned dollars.
ESG is not good for American workers. The retirement
savings, and many Americans are invested, advised, or affected
by an entity that is participating in Net-Zero Alliance. Woke
agendas should not impact how retirement dollars of workers are
invested. Americans who responsibly save for retirement should
be confident that their money is invested in a manner to
maximize returns and not further the goals of agenda-driven
investment managers.
ESG also hurts consumers by increasing energy prices. To
accomplish their net zero goals, these alliances must work to
phaseout fossil fuels. Energy output is then limited, which
results in higher prices for consumers, and in states like
Alabama, under these policies, consumers would not only face
higher prices but also a lack of energy supply altogether.
ESG threatens America's energy independence and national
security. America achieved energy independence during the Trump
Administration, but ESG weakens America by constricting
foundational economic sectors, like energy, such that we now
must beg foreign countries for oil. ESG also makes America
dependent on products made in China, like solar panels and
electric battery components. This threatens to give China and
other bad actors a competitive advantage and leverage against
the United States.
These alliances also hurt consumers through anticompetitive
conduct. Alliance members appear to be conspiring to restrain
trade and commerce by colluding with other members to reduce
competition amongst themselves and coordinating restricted
investment and action toward specific companies unless ESG
policy objectives are implemented. And let us be clear: ESG
activity is subject to antitrust laws as the Biden
Administration has publicly confirmed.
ESG threatens America's democratic system. In this country,
important policy decisions are supposed to be made through the
process set forth in the Constitution. Congress debates issues
and passes legislation, the President signs and enforces
legislation, and the judiciary reviews any challenged
legislation. The global elites are using ESG alliances to
circumvent our system of government by shifting power to
unelected elites, both inside and outside the United States,
who are not accountable to American voters. Global elites are
advancing ESG through unlawful and anti-democratic means, but
Republican Attorneys General are fighting back to protect
consumers from harm caused by woke ESG policy.
Republican Attorneys General have launched investigations
in the Net-Zero Banking Alliance, Climate Action 100+, and
other companies, commented on policy proposals, warned
companies to not violate the law, and initiated litigation
where warranted. Republican Attorneys Generals are defending
Americans from these global elites and radical ESG activists.
We appreciate the attention this committee and Members of
Congress are giving to ESG. This conversation and debate is one
that must be returned to you, our Nation's policymakers. Mr.
Chairman, thank you for the time of being here today.
Chairman Comer. Thank you. General Reyes.
STATEMENT OF SEAN REYES
ATTORNEY GENERAL
UTAH
Mr. Reyes. Chairman Comer, Ranking Member Raskin, and
Members of the Committee, thank you for inviting me to testify
before you on this important issue of whether environmental
social and governance, or ESG, factors are distorting our
financial system and harming consumers and working-class
Americans.
ESG involves some of the biggest and most powerful players
in the global economy, forcing costly operational changes on
American companies in pursuit of the 2015 Paris Agreement
goals. These goals have never been adopted as yet by Congress
but contemplate changes to our way of life that are far
reaching and fundamental. They would impact everything from how
we grow our food and what we eat to how we power our homes and
businesses. These changes involve balancing multiple tradeoffs,
including financial costs and benefits, how quickly or slowly
the government imposes new technologies, and how reliable of a
power grid we will have.
My view is that we should trust consumers, promote American
energy independence or even dominance, and avoid as much
regulation as possible, but answering these difficult and
critical policy questions is the role of the people's elected
representatives in our republican form of democracy. That would
be each of you in Congress and state and local policymakers,
not me or unelected bureaucrats, foreign governments, asset
managers, proxy companies, or anyone else.
But ever since the signing of the Paris Agreement, there
has been an open conspiracy to bypass Congress using the power
of horizontal agreements by key players in our financial
system. Some of these groups are Climate Action 100+ and the
Glasgow Alliance for Net Zero, which include the largest asset
managers, banks, and insurance companies globally. These
horizontal organizations seek to use their collective market
power over tens of trillions in assets to force burdensome
changes on American companies. Such changes drive up the cost
of goods, and they harm shareholders by reducing returns. In
sum, ESG is an undemocratic tax on our economy and
productivity.
ESG also weakens America's national security and that of
our allies for all the reasons that my colleague outlined. Many
renewables require rare earth elements and other supply chain
needs that are dominated by China. Thus, adopting these
fundamental changes to our energy supply provides China even
more leverage over our economy and security. The various
problems with ESG present a multifaceted topic beyond the scope
of any single hearing, but in addition to the more macro ESG
concerns that General Marshall and I have raised, I present
three very specific ESG concerns to you today. These are areas
that the Committee can and should investigate further.
The first is the role of asset manager agreements on
utility companies and whether the Federal Energy Regulatory
Commission, or FERC, is doing its job to ensure asset managers,
who collectively own significant percentages of utility stock,
are improperly influencing the operations of those utilities.
The second is the role of proxy advisory firms in making
recommendations for share voting that are based on the goals of
pressure groups rather than shareholders' best interests. In
one particular case, this includes a proposal for considering
race in insurance underwriting, which violates applicable anti-
discrimination laws and, therefore, should not even be on proxy
statements. The third is the recent Department of Labor rule
allowing ERISA fiduciaries to consider collateral fractures and
investments in shareholder voting. This is a severe weakening
of the fiduciary rule, and I applaud you for the bipartisan
action that you took in Congress to repeal this rule under the
CRA. It is only because of the President's veto that this rule
presently stands, and I am proud to be leading a coalition of
26 states, along with private parties, challenging this rule in
court.
In conclusion, I am not here to debate the policy of E, S,
or G. There is a time and place for that, and while it may not
be today or in this Committee, I am convinced it is in this
larger body of Congress where such policy should be determined.
So, if I am not here to dispute or defend policy, what is my
purpose? I am here to warn you about the process of involved in
effectuating ESG goals.
No matter how much you may agree with the policy being
pushed, if you deconstruct the process, it is a flawed and
dangerous one and may also be illegal. The process threatens
your prerogative as representatives of the people. It gives no
consideration to checks and balances or separation of powers.
It ignores the rule of law. It undermines our American system
of lawmaking, however inefficient and vexing it may be at
times. The process focuses all the power centers of the
financial sector into one organized syndicate of pressure.
Whenever such a concentrated array of power conspires together
for a specific outcome, we must be wary.
As State AGs, we will exercise our power to expose these
entanglements and protect consumers. We hope you will use your
power to do the same. Thank you.
Chairman Comer. Thank you. The Chair recognizes Treasurer
Frerichs.
STATEMENT OF MICHAEL FRERICHS
ILLINOIS STATE TREASURER
Mr. Frerichs. Thank you much. Good morning, Chairman Comer.
Good morning, Ranking Member Raskin and Members of the
Committee. My name is Michael Frerichs, and I am the Illinois
State Treasurer. I am the state's Chief Investment and Banking
Officer, and in that role, my office manages approximately $52
billion. That portfolio includes by $26 billion in state funds,
around $17 billion in college savings and retirement funds, and
about $9 billion on behalf of local and state governments. I
also serve as a trustee of the Illinois State Board of
Investment, which manages approximately $28 billion in pension
assets on behalf about 230,000 beneficiaries.
It is my job to protect and grow the hard-earned savings of
families across the state as well as funds that state and local
units of government depend upon. I take this responsibility
very seriously. Whether it is the single mom trying to save for
her kids' college tuition, or the town financing new schools, I
know they are trusting the Treasurer's Office to grow returns
on those funds over the long term and ensure that they have the
money they need in the meantime. I am tasked with investing not
just for the next quarter but with the goal of maximizing
returns over the next quarter century.
This is what brought me here today. We are witnessing a
widespread, highly coordinated, politically motivated attack on
investors and the hard-working people they serve. This pushback
is anti-free market and anti-investor. It is misleading, and it
is harmful. It harms retirement savers, pensioners, working
people, businesses, and it harms America. This coordinated
campaign is focused on ESG investing.
Most people do not know what ESG is. ESG is data. ESG is
simply additional information that investment professionals use
to assess risk and return prospects. It is about value, not
about values. In order to maximize returns, an investor must be
able to manage and mitigate risk. The more data we as investors
have, the better informed our decisions are when selecting
investments over the long term. ESG is about looking at a wider
range of risks and value opportunity that have a material
financial impact on investment performance. For example, if you
are investing in a pharmaceutical company, it is thinking about
whether that company has exposure to massive lawsuits because
of its role in the opioid epidemic.
Our approach is to integrate material ESG factors into
investment decisions along with many other considerations. We
are not ignoring traditional financial factors, like
profitability and creditworthiness. We are integrating more
data into our decisions to give us a better idea of risk and
growth prospects. This approach is backed by academic research,
but it is also common sense. Companies that value their workers
have less turnover and higher productivity. Companies that
build a strong corporate governance structure will be more
resilient and valuable over the long term.
While I welcome healthy debate about best practices and
fiduciary duty, I do not welcome the deployment of blacklists
and overreaching legislation that would strip professionals of
their freedom to invest responsibly. I do not welcome decrees
that ignore the research, fundamentally misunderstand the role
of fiduciaries, and impose real costs on taxpayers, pensioners,
and hardworking families. When it comes to material data, it is
irresponsible to tell investment professionals to ignore
information that they can use to do their jobs better.
Frankly, I am deeply concerned by the highly orchestrated
attacks on the investment profession and the focus on
restricting investors' freedom to exercise their professional
discretion and fiduciary duty. To ask investment professionals
to ignore material risks and investment opportunities is asking
us to stop doing our jobs. For example, should we ignore when
healthcare companies understaff their operations and jeopardize
the safety of patients? Would you expect a company that does
this to continue to increase in shareholder value? It would be
irresponsible to ignore issues like these. It would be foolish
to hinder professionals' abilities and their freedom to invest
responsibly.
This astroturf opposition to decades of work by investment
professionals is a dangerous intrusion in our free market
system. If unchecked, this war on investors will stifle
economic growth, cost taxpayers and pensioners billions of
dollars, as many studies have already found, and it will
obstruct investors' ability to protect and grow people's hard-
earned savings.
In closing, now is not the time to stop investors from
considering prudent data that can lead to better returns over
the long term. The American economy depends on investors.
Please let us do our jobs. Thank you for your time and
attention.
Chairman Comer. Thank you. Thank you.
Without objection, Representative Magaziner will be waived
on the Committee for the purpose of asking questions at today's
hearing.
Without objection, so ordered.
And I want to remind our witnesses and the Members before
we enter into the question-and-answer phase that we have a
five-minute clock, and we try to adhere to that five-minute
timeframe. If someone asks a question and the five minutes
expires, we will give you an opportunity to answer it, but
please be mindful we have a lot of questioners, and we want to
get through this. So, we will begin questioning.
I recognize the gentleman from Louisiana, Mr. Higgins, for
five minutes.
Mr. Higgins. Thank you, Mr. Chairman. Part of the focus of
our hearing today is based upon a recent letter signed by 21
Attorneys General highlighting how organizations, including
asset managers and proxy advisers, could be violating state and
Federal law to channel funds for political objectives in the
category of ESG, environmental, social, and government
practices. One of our witnesses exclaimed that we are asking
him to stop doing his job. We are not asking you to stop doing
your job, good sir. We just expect to review whether or not
some of your colleagues are violating the law and, of course,
of doing their job.
In the second paragraph of that letter, which was signed,
by the way, again, Mr. Chairman, by 21 Attorney Generals. I
would like to submit for the record the opening statement of my
own Attorney General, my colleague and friend, Attorney General
Jeff Landry, former Congressman here in this body, was not able
to attend hearing today, but I would like to submit his
statement for the record, Mr. Chairman.
Chairman Comer. Without objection, so ordered.
Mr. Higgins. Thank you, Mr. Chairman.
Mr. Higgins. From the second paragraph of the letter signed
by so many of our Attorneys General addressing asset managers,
said, ``These companies are some of the largest asset managers
in the United States''--it is important for the American people
watching to grasp this--``collectively controlling trillions of
dollars of investments. Many individuals and organizations
count on these asset managers to provide sound investment
products and advise. The top three asset managers alone cast
about a quarter of the votes for the S&P 500 company
shareholder meetings. They are, therefore, not only bound to
follow the general laws discussed but also have extensive
responsibilities under both Federal and state laws governing
securities. Broadly, those laws require asset managers to act
as a fiduciary and in the best interest of clients, exercising
due care and loyalty. Simply put, asset managers are not the
same as political or social activists and should not allow vast
savings entrusted to be commandeered by activists, like ESG
activist organizations.''
So, Attorney General Reyes, I would like to address the
question to you, sir, to clarify for America what legal
requirements must asset managers, who act as fiduciaries,
adhere to when investing on behalf of a client, and how do
these requirements impact investment decision-making? And I am
going to ask you to address not only the letter of the law but
the spirit of the law that we are inquiring about today.
Mr. Reyes. Thank you for the question, Congressman. I will
try to be brief, and it is very simple. Their duty is a
fiduciary duty under laws like ERISA. It is the highest of all
duties that one can owe to another in a fiduciary relationship.
And that fiduciary duty requires them, investing assets on
behalf of others, to maximize shareholder value, to maximize
return back to the shareholder. It is as simple as that. That
has been the rule, the prime directive, if you will, for
generations, and it has served our market and it has served our
Nation well.
Mr. Higgins. For the Committee and for Americans viewing
this hearing, how would you assess, Attorney General Reyes, the
performance of ESG investment versus traditional investment?
Mr. Reyes. I believe there are a number of studies that
show that ESG funds have globally underperformed. So, my data
contradicts the data that we saw earlier from the Ranking
Member, if I recall, and there are studies, but I will point to
one. Over the past five years, global ESG funds have
underperformed the broader markets by more than 250 basis
points per year and average 6.3 percent return compared with an
8.9 percent return. So, in other words, an investor who put
$10,000 into an average global ESG fund in 2017 would have
about $13,500 today compared with $15,250 investment in the
broader market.
So that is one example from one study or some market
research that demonstrates that ESG is not necessarily a good
bet and that asset managers should, again, be investing in the
best interests of their beneficiaries or the shareholders, not
for a proscribed outcome that is dictated by these horizontal
agreements and pushed and pressured by organizations, like NZAM
and Climate Action 100+.
Mr. Higgins. I thank General Reyes for his clarification
there. Mr. Chairman, I yield.
Chairman Comer. The gentleman yields back. The Chair
recognizes the Ranking Member.
Mr. Raskin. Thank you, Mr. Chairman. So, Mr. Frerichs, you
said that ESG is data, and some people call ESG, some people
call it responsible investing. Some people just call it
exercise of fiduciary obligations. But in any event, you are
saying what is under attack is data. How could more data hurt?
Mr. Frerichs. More data cannot hurt. More data is what we
need as investors to make good decisions. I liken these attacks
on states that would proscribe asset managers or proxy advisors
providing this data for us, as to making us pick a fantasy
football team without knowing the players' weights, their
injury status, their track record. You can not make good
decisions without useful, pertinent information, and that is
what ESG is.
Mr. Raskin. Go into a time machine for a second, if you
could. How does your job differ from someone who was the
Treasurer of Illinois 50 years ago? I mean, back in those days,
it seemed like it would be simple if you were trying to do the
valuation for an auto company, how many autos are pumped out
every year, and number of man hours that go into it, and so on.
How is the valuation of companies different today in 2023 than
it was 50 years ago?
Mr. Frerichs. The nature of value on the S&P 500 has
changed dramatically over the last 50 years. If you look back
in the early 1970's, somewhere between 75 to 80 percent of the
total value of the S&P 500 was intangible assets, things like
cars, things like paper, things like pencils. And you could do
an analysis of how many acres of forest you have under
contract, and you could see how many cars and pencils you could
produce, and you can reach a value.
Today the S&P 500 has about 80 percent of the value in
things like brands, intellectual property, and those things are
subject to different risks than those companies 50 years ago.
We are just trying to guard against those risks. A company like
Google is not worth how much it is today because of the number
of petaflops of data they have. It is based on their
reputation. Apple is not worth a trillion dollars because of
the number of iPhones they sell but because of their
reputation. And those are susceptible to social and governance
risks.
Mr. Raskin. Well, you know, some of the disagreement here
is about facts, and I appreciate what Attorney General Reyes
just said. He made the claim that the ESG-informed investments
do more poorly than the Standard & Poor's general. Our data is
completely different from that, showing that it has been over
performing. I would like your comments on that, but then I
would like you to comment on this. Let us say Utah sees it
differently than Illinois. Is there any problem with you
pursuing the investment strategy you want and Utah pursuing the
investment strategy they want?
Mr. Frerichs. Investing is not easy. Some people want to
put more work into it than others. If someone does not want to
look at this data, that is fine. They have that freedom.
Nothing in ESG proscribes that someone has to consider these
sources. I would say they would be not fulfilling their
fiduciary duty if they did not, but they have that right to.
And I would cite other studies, like a New York study, Stern
School of Business, a recent meta study which is a statistical
analysis that combines the results of multiple academic
studies, looked at 245 individual studies on ESG and financial
performance. The study found a positive relationship between
ESG and financial performance for 58 percent of those studies.
Only eight percent showed a negative relationship.
You can pick and choose. Any investment strategy will have
quarters where it performs better than others. You can pick and
choose, but over time, ESG has been a good set of data to help
us make better investment.
Mr. Raskin. And you make that judgment as a financial
expert who has a fiduciary duty to everybody in Illinois,
right?
Mr. Frerichs. I have a fiduciary duty to the beneficiaries
of those pension funds, the beneficiaries of those college
investments. I do not have a fiduciary duty to the oil and gas
industry.
Mr. Raskin. But you have got a fiduciary duty to maximize
the returns, and what you are saying is you want more
information. Like, somebody says this Purdue company just got
57 percent in the last quarter, invest in Purdue. What about
saying, well, that is all that you could do at that point. You
cannot look at whether or not they are trying to get people
addicted to drugs because that would be too woke.
Mr. Frerichs. That was exactly what happened with Purdue
Pharma. If you looked at their financial returns, they showed
themselves to be a very profitable company, but we wanted to
know more because there are risks associated with selling
highly addictive drugs.
Mr. Raskin. So, that is a real case for you.
Mr. Frerichs. Real case.
Mr. Raskin. Yes.
Mr. Frerichs. Reputational risks, regulatory risks,
litigation risk, and those litigation risks took a company that
was very profitable for a long time and bankrupted it.
Mr. Raskin. OK. This is my final question. Why shouldn't
Congress say, well, you know what? We are the House of
Representatives. The anti-ESG people, we are in control. We are
going to stop states like Illinois from looking at all the
data. What is wrong with that?
Mr. Frerichs. Well, that is what some states are doing, and
it is costing those states not insignificant amounts of money.
You pointed out some of those. The state of Indiana, their
pension system said it is going to cost an additional $6.7
billion to comply with their anti-ESG law. The state of Kansas,
it is about $3.6 billion. The state of Kentucky, the Kentucky
Pension System said if forced to comply with their state's
anti-ESG law, they would not be following their fiduciary duty.
Mr. Raskin. But they would rather be broke than woke. I
yield back to you, Mr. Chairman.
Chairman Comer. The Chair recognizes Mr. Gosar of Arizona
for five minutes.
Mr. Gosar. Attorney General Reyes, you just heard that
comment about science. This is about data. Can you dispute
that?
Mr. Reyes. Thank you. A couple of things I want to comment
on. I think my colleague mentioned that more data is all good,
right, and that more date cannot hurt. I disagree with that
because I think there can be bad data if it distracts or, in
some cases, even distorts the import and the focus of what
fiduciaries should be solely laser focused on if it is not
benign data. I will give you an example.
Standard & Poor's issued ESG indicators alongside the
creditworthiness for states. In a state like Utah that has a
Triple A credit rating, Standard & Poor's would point out, in
one instance, the issue of drought without taking into
consideration a whole other host of mitigating factors that
Utah has anti-drought measures. By itself and without the
context, Standard & Poor's all of a sudden makes it look like
the most important factor is not Utah's creditworthiness over a
long history, a Triple A credit rating, but one particular
factor of drought. And in that instance, it illustrates my
point of distortion.
My colleague used the fantasy football analogy, and all
data is good data, I guess, in kind of a Moneyball sense.
Again, I would take issue with that. To use football as an
example, if all of a sudden, we started crowning the Super Bowl
champion not by who scored the most points in the game but by
who had the most green arena or who had the most
environmentally friendly equipment, I think that data would be
destructive. I think that is something that is not necessarily
the indicator that we are looking for.
And in this instance, again, I want to point out that we
are contesting the process. And you can have all the data in
the world, but when that data is driven to one particular
outcome, and it is a predetermined outcome, and there is a
cabal of players who are all pushing toward that one outcome,
then the data is just window dressing to achieve that
particular outcome.
Mr. Gosar. It is manipulated. Would you give me that?
Mr. Reyes. Yes. I want to quote from NZAM, which is, you
know, has $59 trillion AUM, assets under management, and this
commitment is that its ambition for all assets under management
to achieve net zero emissions by 2050 or sooner. That is all of
their assets, and it says this: ``The transition to net zero
will be the biggest transformation in economic history. Our
industry's ability to drive the transition to net zero is
extremely powerful. Without our industry on board, the goals
set out in the Paris Agreement will be difficult to meet.''
Again, I could read chapter and verse of many other public
statements like this. This just demonstrates the concerted
effort by all of these organizations to push a particular
outcome, regardless of what the data may or may not----
Mr. Gosar. I would cite a quote. BlackRock's former CIO for
sustainable investment even said in an article for Medium in
2021 that ESG investing ``provided for the opportunity for a
bump in what were otherwise plummeting fees as competition had
grown in recent years.'' So maybe if we went back to the Fisher
Investments, which says, ``When our clients do better, we do
better,'' instead of having these commissions on here. Do you
think that is an opportunity to get things right?
Mr. Reyes. I definitely think that is an opportunity,
Congressman, and let me also mention something that was said,
``just because it is not mandated.'' I think that was a
reference. This data, you are not forced to look at it. Just
because it is not mandated does not make it any more legal. You
know, if it is allowed, again, it is data that, you know,
distracts from a fiduciary's sole responsibility to maximize
shareholder value.
Mr. Gosar. I got one more thing. You brought up FERC in
regard to energy. So, are you aware that we were dangerously
close to having a nationwide blackout earlier this year?
Mr. Reyes. Yes.
Mr. Gosar. And what did that play in that investment
portfolio in regard to where we get our energy, intermittent
versus baseload energy?
Mr. Reyes. That is what several FERC Commissioners
testified to just last week in a Senate hearing, Congressman.
That effort to transition to cleaner energy is happening so
fast, too fast, that it would have catastrophic effects on
reliability and security of our electric grid.
Mr. Gosar. We are outpacing, out pushing our science, and
you have to have dependable science that is peer reviewed and
is repeatable. So, thank you very much. I yield back.
Chairman Comer. The gentleman yields back. The Chair
recognizes Ms. Ocasio-Cortez from New York for five minutes.
Ms. Ocasio-Cortez. Thank you. Thank you very much, Mr.
Chair. Mr. Frerichs, if you had to describe your job to a
layperson, how would you describe it in one or two sentences?
Mr. Frerichs. As the chief investment officer, my job is to
maximize returns for the state of Illinois and our
beneficiaries.
Ms. Ocasio-Cortez. And your beneficiaries are the citizens
and folks who reside in the state of Illinois, correct?
Mr. Frerichs. The citizens of the state. They are the
participants in college savings plans and retirement savings
plans and retiree pensioners.
Ms. Ocasio-Cortez. So, everyday people saving for college,
saving for retirement, and who really just want to make sure
they can put their dollar in a long-term investment that is
stable, correct.
Mr. Frerichs. Most of these people put their money, and
they expect not to look at the next quarter, but we look at
next quarter century.
Ms. Ocasio-Cortez. And that is a distinction between what
we see sometimes on Wall Street or in other types of short-term
investment where you really just want to look at what is going
to make you money by the end of the year or the end of a
quarter, correct?
Mr. Frerichs. Frequently, a CEO might be motivated by a
bonus trying to hit a point for the next quarterly profit
report, but we want to make sure they are putting the company
on a sustainable path to be profitable for the next 10 or 20
years because that is what families saving for college and
people saving for retirement care about.
Ms. Ocasio-Cortez. Yes, and in the course of your work,
have you noticed that short-term profit-seeking behavior is not
always consistent with long-term returns for everyday people?
Mr. Frerichs. Correct, the example we used with Purdue
Pharma. When they sold highly addictive drugs to Americans,
they made money hand over fist. It is a great business model to
sell an addictive drug to someone----
Ms. Ocasio-Cortez. Mm-hmm.
Mr. Frerichs [continuing]. Until when those people start
dying off. Their relatives engaged in class action lawsuits
that sank that company, or you can have a railroad company that
determined we can make more money by cutting staff by 30
percent. We can add more cars to the rail to make more money--
--
Ms. Ocasio-Cortez. Mm-hmm.
Mr. Frerichs [continuing]. And we do not spend time moving
the cars around to distribute load, and then when that railroad
has a derailment in Ohio----
Ms. Ocasio-Cortez. Mm-hmm.
Mr. Frerichs [continuing]. It cost that company real
dollars because it cost investors, shareholders, and
beneficiaries.
Ms. Ocasio-Cortez. Yes, and it is interesting that you
bring that up, Mr. Frerichs, because I think what we are seeing
here is that the other side of the aisle is making the argument
here that we should just look at the balance sheets, the short-
term returns, and the short-term investments in order to make
long-term financial decisions. But the irony of that is that
this Committee right now and, in the past, has been charged
with investigating companies that have abused the public by
deliberately leaving critical information off those balance
sheets. You have seen that in your work, haven't you, Mr.
Frerichs?
Mr. Frerichs. We have all seen this. I heard talk about bad
data. There was bad data that sunk Enron. This had nothing to
do with ESG. You can look and find bad data anywhere. It is the
job of an investor to sort through that data and look through
multiple lenses.
Ms. Ocasio-Cortez. Right. We just lived through this with
SBF and FTX. We just saw this two years ago. We went through a
multi-installment investigation of Dupont's poisoning with
respect to PFAS in water. Veterans' communities, communities
that live around military bases, airports, et cetera, dealing
with reproductive cancers, testicular cancers from information
that was withheld from those balance sheets. Norfolk Southern
and the train derailment in East Palestine, those communities
are struggling to access information that this company is
hiding because it is not necessary to put on their balance
sheets. Right now, we are investigating Abbott for baby formula
and the issues that were happening with infants dying in baby
formula, and that, too, was kept off balance sheets but also
had financial impacts on the performances of those companies.
They had to take that production offline.
And so, the argument here is that our investment managers
in different states should not take this information into
account when making investment decisions for the public. Mr.
Frerichs, can you really do your job if you are just looking at
short-term returns, if your job is for the long-term financial
health of people saving for college and retirement.
Mr. Frerichs. No. As a fiduciary, for family saving for
college, for people saving for their retirement, you know, they
do not really care so much if a company is profitable next
quarter. They care if it is profitable for the next 10, 20
years, or quarter century.
Ms. Ocasio-Cortez. And so, when we talk about where this
push is coming from, why now? Why is this happening?
Mr. Frerichs. This is happening because the nature of
valuing companies has changed. We still do traditional
financial analysis, but we layer on another level of analysis
to deal with these risks, and they are material. They may deal
with human capital, they made deal with workers, they may deal
with the environment, but they have real-world consequences on
the bottom line of these corporations. And if we do not have
access to that information, it is like investing with a
blindfold on.
Ms. Ocasio-Cortez. Thank you very much, and I yield back.
Chairman Comer. The gentlelady yields back. The Chair
recognizes Mr. Armstrong from North Dakota for five minutes.
Mr. Armstrong. Thank you, Mr. Chairman. A lot of the
testimony brings up many of the problems of ESG in the world of
finance. Americans rely on a sophisticated financial investment
system every day to plan for their future, yet the complexities
of this system allow ESG causes to take precedence over the
most important thing of all, which is the bottom dollar. The
purpose of investments is to grow our financial security not
shrink it. As you and my colleagues have pointed out,
investment in ESG funds does not bring higher returns. I would
like to focus on a little bit on understanding of what duties
proxy advisories currently have and how Congress can actually
ensure economic interest legally take precedent. I got the two
different sides of glasses, so.
Mr. Marshall, in a few sentences, can you talk to me a
little bit and define proxy advisors and proxy voting?
Mr. Marshall. Well, you have seen my colleagues reach out
to the two proxy advisory firms to be very critical of the
nature of how they do business. Really, I think much of the
fundamental discussion we are having today is what is a
fiduciary and what does that fiduciary responsibility to those
hard-earned Americans who have given their money to be
invested. One thing that is clear is that proxy advisors are
acting outside of the directive of those particular investors
but instead are making their own independent value judgments
about how they vote with regard to certain shareholder
initiatives.
Clearly, they are connected through various alliances to
not only deal with global energy policy but also a set of
preferred societal values. And we see various shareholder
initiatives around issues that do not relate to the bottom
line, do not relate to the return for those particular
investors, but instead purport to be a political agenda. Then
they are acting outside of the scope of their responsibilities
and breaching their fiduciary duties.
Mr. Armstrong. Mr. Reyes, what is robo-voting, how does it
magnify the power of proxy advisor recommendations, and should
Congress consider restricting its use?
Mr. Reyes. Robo-voting, automatic voting, has given even
more power to the proxy advisor duopoly that is ISS and Glass
Lewis. That is part of what we would ask you, Congressman, to
look at with regard to proxy voting. The market for proxy
advisory firms, as I mentioned and General Marshall mentioned,
is dominated by two players, Institutional Shareholder
Services--ISS--and Glass Lewis, and their combined market share
is approximately 97 percent. So, you are looking at predominant
market players who influence many of the institutional advisors
and asset managers for whom they provide supposedly objective
advice for.
A study has shown, though, that a significant number of
institutional investors simply follow the voting advice of
proxy voters. This is like automatic straight-ticket voting. It
is common sense that proxy advisory firms should focus on
providing objective advice related to maximizing value of
shares in the companies that are the subject of shareholder
proposals and board of director elections. Unfortunately, for
these two particular advisors, they, again, have very public,
purposeful statements about what their end goals and objectives
are, including retiring coal plants, including transitioning
away from fossil fuels and getting to net zero Paris 2015
goals.
It is difficult to see and to imagine that they can be
entirely neutral and provide objective opinions for those for
whom they are serving when they have such strongly stated
goals. And when they start every shareholder vote, I think one
estimate was they have 38 percent or so of the votes already
locked in. And so, it is very difficult to overcome their
predisposed decision-making process. Those are all issues that
we would like for you to take up in a further hearing with
regard to proxy voting.
Mr. Armstrong. And, Mr. Marshall, if proxy voters are not
acting in the best interest of their shareholders, what current
mechanisms are in place to hold them accountable, and what
should be accountable?
Mr. Marshall. One thing that exists for AGs is under our
consumer protection laws, Deceptive Trade Practices Act. I
think one of the things that you have seen already is
Republican Attorneys General have been active on the
investigative side, using both our consumer protection laws as
well as the antitrust laws. Multiple investigations are now
pending, and we have the opportunity to be able to report back
on those investigations. But as well, I think General Reyes has
outlined for this Committee various ways that this body can act
to be able to rein in what we believe is an unlawful practice.
Mr. Armstrong. Well, as somebody who served in state
government and the Federal government, I appreciate the fact
that sometimes you can move more quickly than we can. With
that, I yield back.
Chairman Comer. The Chair recognizes Ms. Bush from Missouri
for five minutes.
Ms. Bush. Thank you, Mr. Chairman. St. Louis and I are here
today for a timely and important hearing to defend the planet
itself. The acronym ``ESG'' has been used so much today already
that I would like to remind everyone what it stands for:
``environmental, social, and corporate governance.'' The
relationship between the activities of giant corporations, like
Microsoft, Apple, and eBay, have an immeasurable impact on our
society and on our environment.
By now, we all know that the health of our planet is
fleeting. All you have to do is step outside, feel the seasons
getting shorter and the temperatures getting higher. You just
have to turn on the news to see the latest natural disaster
devastating communities. You just have to listen to the
scientists and client climate experts who are telling us point
blank that it is now or never. Act today or wish you had
yesterday.
My hometown of St. Louis ranks among the highest across the
country in rates of asthma, with rates significantly higher for
Black residents than White residents. ESG principles are the
bare minimum corporations can abide by to protect the
communities that serve as their domestic headquarters in cities
like St. Louis. The cost of doing business should not be a
lifetime of pollution for small town and cities across this
country.
Mr. Frerichs, do Republican attacks on responsible
investing practices actually increase the waste and
mismanagement of taxpayer dollars, yes or no, and if so, how?
Mr. Frerichs. I think attacks that limit our ability to
consider all factors to have access to data costs us, and this
has been documented in other states. I think there is a
misunderstanding of what proxy advising firms do. The secret
right there is in the word ``advisory.'' They do not make these
votes. The fiduciaries make these votes, and if a fiduciary
decides to just turn it all over to someone else, that is their
choice, but a good fiduciary will rely on their advice and
other sources of information.
You know, we are part of several coalitions we get
information from. The example I like to use is we are trying to
get a good clear picture of these corporations and their
profitability over the long term. Now, you notice I wear
glasses. I did not always wear glasses, but the nature of my
eyes changed over the last 30 years, and I had to take steps to
see better. And when I went to go see an optometrist, they gave
me a choice of two different lenses and said which helps you
see better.
ESGs are different lenses to see. I say, OK, well, the
first lens help me see better. They will show me two different
ones, and eventually, after looking through several different
lenses, we will get a much clearer picture. That is what ESG
data does. It helps us to have a better picture about the long-
term profitability of these companies.
Ms. Bush. Thank you for that. I ask unanimous consent to
submit into the record a study by Wharton Business School
professor, Daniel Garrett, and the Federal Reserve economist,
Ivan Ivanov, on the cost of the 2021 Texas law to limit
responsible investing.
Chairman Comer. Without objection, so ordered.
Ms. Bush. Thank you.
Ms. Bush. Mr. Frerichs, could you briefly summarize the
findings of this analysis for us?
Mr. Frerichs. Yes. Back in 2021, the state of Texas passed
legislation limiting the number of firms they could use for
debt issuance, and because they limited some of the largest
debt issuers, there was less competition. I find this difficult
that I am the one defending the free market and the ability to
have competition and access to data and for shareholders to
have rights because I think I heard earlier someone mentioned
that asset owners who own utility stocks are telling them what
to do, as if that is a bad thing. They are owners of these
companies. What they found is by limiting competition, it was
costing the taxpayers of the state of Texas an initial $300 to
$500 million a year.
Ms. Bush. Thank you for lending your expertise. Strong
labor unions like SEIU and AFL-CIO have fought long and hard to
ensure large corporations and bad actors are being held
responsible for harming workers. Workers should be able to
determine if their state pension funds are being invested
responsibly, and ESG principles are an important first step.
Now unions are on the front lines of the fight to hold
corporations accountable for their continued pollution of our
communities. Whether fighting for paid sick leave, livable
wages, workplace safety standards, and now ESG principles, we
must support strong government regulations and oversight into
all activities of large corporations.
The Federal Government has an obligation to provide
resources and solutions to the climate crisis at every
opportunity. Congress must ensure that with each piece of
legislation we put forward that there is some component to it
that addresses the climate crisis. Thank you, and I yield back.
Chairman Comer. The Chair recognizes Mr. Grothman from
Wisconsin for five minutes
Mr. Grothman. Sure. Mr. Marshall, can you give some
examples of decisions that a business would be kind of muscled
into doing because of strong ESG sort of policies being
implemented by, say, major pension funds?
Mr. Marshall. Let me just speak to specific examples in
Alabama that we have concerns about. The agriculture industry
is obviously very important to us. One of the things being
targeted, for example, is farmers' use of certain types of
fertilizer, how it is that they use their land itself, and the
products they use to be able to produce what food goes on to
the tables of families across our country. So, imagine that a
farmer is dealing with a member of Net Zero Insurance Alliance
who comes to that farm and says, as part of our underwriting,
we think that you need to be able to change the fertilizer that
you are using. We need to be able to change your land
management, or else we are not going to insure you, or we are
going to make it cost-prohibitive.
Mr. Grothman. Could you see a situation in which, say, a
bank is kind of muscled into giving out more loans to people
who have not saved money, for example?
Mr. Marshall. Congressman, I think we could not only see
that, but we could also see the opposite, right? We know that
the Net-Zero Banking Alliance group boycotts certain industries
as well as limits funding of certain projects, so that not only
could we see a bank coerced to lend in ways they would not
previously but also see the exact opposite, and that is to keep
capital from other industries that are suddenly disfavored.
Mr. Grothman. OK. And that could be both individuals who
perhaps have saved a lot of money. Maybe we do not want to give
them loans as much. We know recently we have had situations on
a nationwide level in which we try to penalize people who have
down payments for things. Will this perhaps affect who people
hire? Like right now there are certain disfavored groups in our
society. People do not like men. People do not like, you know,
people with European background, that sort of thing. Could this
be something where you are encouraging businesses not to hire
or promote people or have on their board of directors people
from unfavored groups by people who view people as a group and
not as an individual?
Mr. Marshall. And also, the concern about hostile workplace
environments. There is a great push by ESG proponents to have
corporations take policy decisions about societal issues that
are occurring today, and to the extent that you are an employee
of a certain company that believe very differently than the
public position that that corporation has taken, taken as a
result of being bullied by ESG proponents, then that concern
would be whether or not that employee faces potential harm.
Mr. Grothman. Could you give me an example?
Mr. Marshall. Sure. Let us assume that a company has taken
a position on the issue of abortion and said that they believe
that abortion should be lawful, and yet there are fundamentally
employees at that company that believe the exact opposite. No.
1, they are going to be stigmatized if, in fact, they express
their particular views, but also the concern is whether or not
they are going to be denied opportunities for employment and
advancement.
Mr. Grothman. So, I will just share the wealth here, Mr.
Reyes. Would that result in people being discriminated against,
say, for a place on a board of directors based on political
viewpoint?
Mr. Reyes. Yes, and that has been stated by these
organizations. They are not shy about it. They are very
forthright, and they said that we will oppose, and we will not
support directors with certain social or environmental
backgrounds.
Mr. Grothman. What type of potential directors would be
hated by this group?
Mr. Reyes. Again, any number of them who do not support,
for example, on the social side, racial discrimination audits,
and I will give you an example. There was a Traveler's
Insurance case where a group of activist shareholders, I think
it was Trillium Group, forced a shareholder vote on an audit
that they demanded, which was a racial profiling audit, that
would require Travelers Insurance Company to potentially
violate state laws in numerous states if resolution passed.
Mr. Grothman. So, these are the type of people who judge
people by where their great, great grandparents came from, and
they----
Mr. Reyes. Yes. The irony of that is that what they were
supporting actually violated anti-discrimination laws, so.
Mr. Grothman. Wow. And as the result, companies may have to
or will feel pressured to hire people based on these criteria,
let us call it ancestral criteria. Is that right?
Mr. Reyes. I think that is a fair assumption, Congressman.
Mr. Grothman. OK. Thank you very much.
Chairman Comer. The Chair recognizes Ms. Stansbury from New
Mexico for five minutes.
Ms. Stansbury. Thank you, Mr. Chairman. As a social
scientist who has worked on climate and sustainability issues
for many years, in fact, all of my career, I actually welcome
the discussion today on sustainable investing. As we know, it
is crucial to the future of our planet and also our economy,
but obviously that is not what this hearing is actually about.
I have watched and listened today and seen as this hearing has
devolved into yet another crusade in the political culture
wars. But I am disappointed, Mr. Chairman, to see the use of
this Committee's precious time to air yet another dark-money-
funded, conspiracy-laden attack on American freedom. But I am
surprised to see that in this case, it is an attack on the
market itself.
It is amazing to me to see the kinds of attacks we have
seen on American freedom by the Majority, attacks on our
bodies, banning books, and now we are talking about banning the
way that businesses are able to invest their own capital in
public bodies, but what is especially amazing about this is how
radically out of touch it is with the American public. And, in
fact, what is particularly insane about these bans on ESG is
how out of touch they are with voters themselves, including
Republican voters.
And, Mr. Marshall, I know you have been at the forefront of
this effort, but I want to ask you are you aware that the
majority of Americans and Republican voters are actually
opposed to ESG restrictions?
Mr. Marshall. I can tell you that I have had multiple
comments from individuals throughout my state, the 5 million
almost Alabamians that I represent.
Ms. Stansbury. Thank you, Mr. Marshall. I am going to
direct your attention to this chart behind me.
[Chart]
Ms. Stansbury. A recent poll that was released in Politico
shows that the vast majority of Americans are opposed to
restrictions on ESG. In fact, 63 percent of American voters
overall and over 70 percent of Republican voters--70 percent of
Republican voters--are actually opposed to restrictions on ESG.
But it is not just the public. It is American businesses as
well--corporations, investment firms. Mr. Marshall, are you
aware that the vast majority of American businesses are also
opposed to these restrictions?
Mr. Marshall. Congresswoman, would you like me to be able
to answer the first question that you asked me?
Ms. Stansbury. Mr. Marshall, are you aware that the vast
majority of American businesses are also opposed to these
restrictions?
Mr. Marshall. I am going to answer the first question that
you cut me off on, which is that as I have gone around----
Ms. Stansbury. Thank you, Mr. Marshall. In fact, Mr.
Marshall, media outlets, such as Fortune, Forbes, the
Washington Post, have recently published articles warning
American investors about these attacks on ESG and explaining
why they are bad for business. Now, let us talk about why they
are opposed, because profitability fundamentally depends on
risk management, and, Mr. Frerichs, you know this because you
are an asset manager. And corporate America understands the
real and significant risks posed by global climate change and
the other social and environmental factors that are presented
as part of ESG factors and data as they are presented in
investing.
So, my question is why on earth is the GOP waging a war on
ESG, especially when it is so completely unpopular with
American corporations, the market, investors, American voters?
In fact, 19 states have actually moved under extreme governors
and state officials to try to ban ESG investing. We are talking
about legislation, executive orders, and the very lawsuit that
we are here discussing today. So, my question is, why is this
happening? And I think, Mr. Frerichs, as you have indicated, I
think, in your testimony, we have to follow the money, and the
reality is, is that this is a well-coordinated and political
attack. Is that not true, Mr. Frerichs?
Mr. Frerichs. It would seem that the fossil fuel industry
is leading a charge here. We had talks about how banks are
muscling companies. We have seen that. We have seen banks being
muscled. Legislation in Texas is muscling banks to invest in
the fossil fuel industry. Banks like to be diversified, and if
they decided that they wanted to invest in renewable resources,
like biofuels from Iowa, or wind turbine blades from Ohio, or
solar panels being installed in Arizona, they would be punished
for that. That is the real shame here.
Ms. Stansbury. Right. So ESG has become another boogeyman
in the culture wars. This is not about fiscal responsibility.
You know, it is evident. We are sitting here in the very week
that we are debating a potential default on the American debt
ceiling, and yet the GOP is claiming that this is about fiscal
responsibility and fiduciary responsibility to shareholders and
the public. That is not what this is about. It is a well-
funded, dark-money-funded culture war attack not only on the
American economy but on the American people. And with that, I
yield back.
Mr. Sessions. [Presiding.] The gentlewoman yields back her
time. The gentlewoman from Colorado is recognized for five
minutes.
Mrs. Boebert. Thank you, Mr. Chairman, and thank you to our
panelists for being here today. As we have heard today, there
are numerous concerns related to so-called environmental,
social, and governance policies being indoctrinated into
accounts by woke asset managers. Today's hearing will help us
better understand what Congress can do to ensure that
stakeholders will not encourage woke corporate activism as we
have seen recently with Anheuser-Busch, Disney, and even Nike
because, as we all know around here, when you go woke, you go
broke. So, Attorney General Reyes, for background, could you
elaborate on how asset managers can violate their duties by
signing ESG pledges?
Mr. Reyes. Sure. There are a number of ways. There are
Federal laws that could be implicated. There are state laws,
including state consumer protection laws, state securities
laws. There are common law, contractual agreements that
fiduciaries can violate. All of those different laws come into
play, and one of the reasons why we filed a lawsuit against the
current Administration's Department of Labor rule weakening the
fiduciary role and the duty and the responsibility of
fiduciaries is because we think it, among other things,
violates major questions, doctrines, violates the APA, the
Administrative Procedures Act. So, all of those different ways
are legal reasons why we are concerned, Congresswoman.
When you hold yourselves out as being objective, and you
represent to your customers and your shareholders that you are
being objective, then you must live up to that and not have a
predisposed, predetermined end goal in mind. And I will make
one comment, my colleague and my friend, the good Treasurer,
mentioned proxy advisors do not vote the shares. He is right,
but in many ways, they are de facto voters because many of
those fiduciaries have so many thousands of different
investments that they rely almost solely on the proxy advisors.
And when the fiduciaries are part of the same horizontal
agreements as the proxy advisers are, they are all part of one
and the same scheme, there really is no free market in that.
They keep talking about free market, and that is why we are
here because there is nothing free about the course of nature
of these arrangements.
Mrs. Boebert. And, Mr. Reyes, you state in your testimony
horizontal organizations are made up of asset managers, banks,
and insurance companies. Now, I am aware several State Attorney
Generals are investigating several of the Net-Zero Banking
Alliance groups, including JPMorgan Chase. What have those
investigations found to date?
Mr. Reyes. Not ready to disclose all of our findings yet,
but I will say comfortably enough that we are continuing our
investigations, and we hope that you would----
Mrs. Boebert. So, Mr. Reyes, considering the Silicon Valley
Bank has collapsed and JP Morgan Chase bought the bank, has
there been any indication that there has been any involvement
in ESG policies while reestablishing the bank?
Mr. Reyes. There may be, but I am not willing to comment on
that based on our investigation.
Mrs. Boebert. Thank you so much. Attorney General Marshall,
as the Department of Labor under the Biden Administration has
considered requiring fiduciaries to consider ESG in employee
retirement savings decision, several 401(k)'s and thrift
savings plans allow managers to use their voting rights on
behalf of these retirement accounts. A prime example of this is
BlackRock, a primarily left-wing activist fund that uses its
status as the fiduciary for several investment funds to coerce
companies into introducing these ESG politics into their
retirement account savings. How can Congress help ensure that
these companies are not introducing ESG policies into their
investment funds and, instead, are maximizing returns for
future seniors that will need to live off of this money in
these accounts?
Mr. Marshall. Yes. Congresswoman, one thing that we heard
earlier from one of your colleagues is how partisan this issue
is. This body has demonstrated through the Senate, by
attempting to overturn the new Safe Harbor Rule under ERISA and
saying that it was an improper way to consider the investments
for 152 million Americans and their retirement accounts. This
body can clarify clearly under ERISA the role of a fiduciary,
what that means for the investment return of the individuals
who have invested their accounts, and make it clear that
objective criteria, not subjective ESG criteria, are used for
making those decisions.
Mrs. Boebert. Thank you very much for that suggested
solution, and, Mr. Chairman, I yield.
Mr. Sessions. The gentlewoman yields back her time. The
gentlewoman from Ohio is recognized for five minutes.
Ms. Brown. Thank you, Chair and Ranking Member, and our
witnesses. I continue to be surprised by the position of my
friends on the other side. Aren't the values of free market a
fundamental view of their Party? Environmental, social, and
governance investing is one critical tool that businesses use
to make financially smart investments. This type of investing
emphasizes corporate models that are both financially smart and
socially good, which is truly a win-win.
One aspect of corporate models that is too often overlooked
is the governance and social strategies component. These
strategies often center around diversity in the work force,
both at the executive levels and within a particular
organization and throughout the broader industry. The inclusion
of people of all backgrounds, especially those from
marginalized communities, is an essential part of America's
corporate success. We thrive as a Nation when every one of us
is empowered and has an opportunity to succeed. Diverse voices
at the table make companies stronger and their products, goods,
and services more inclusive and effective.
According to a 2019 McKinsey analysis, companies in the top
quartile for ethnic diversity on executive teams were 36
percent more likely to have above-average profitability.
Another study shows that employees are 5.4 percent more likely
to want to continue working at a diverse company. Clearly,
businesses have a moral obligation as well as a financial
incentive to make sure there is a seat at the table for
historically marginalized groups, but there is still so much
work to be done.
So, Secretary Marshall or Secretary Reyes, do you know what
percent of the 5,403 board members of Fortune 500 companies are
women of color?
Mr. Marshall. Congressman, I do not.
Mr. Reyes. No, ma'am.
Ms. Brown. The answer is seven percent. Moving on, this
year, the Pew Research Center published a report on Black-owned
businesses in the United States which continue to face systemic
structural barriers to equal opportunity, including lack of
investment. I hope you all will have a chance to read it, and I
ask unanimous consent that this be entered into the record.
Mr. Sessions. Without objection.
Ms. Brown. Thank you so much.
Ms. Brown. Secretary Marshall or Secretary Reyes, can you
tell me the percentage of business nationwide that are Black-
owned?
Mr. Marshall. Congressman, I cannot.
Mr. Reyes. No, ma'am.
Ms. Brown. Black-owned businesses make up only three
percent of classifiable companies despite the Black Americans
making up 12.4 percent of the U.S. population. Mr. Frerichs, in
your experience as Illinois's top investor, how does diversity
at all levels of a company help investors meet their fiduciary
responsibilities and position themselves for success?
Mr. Frerichs. Thank you very much for that question. The
research has been fairly clear, and this is not by a left-wing
organization--McKinsey is not a left-wing organization--that
diversity is good for boards. I heard comments made earlier
about discrimination against people from a certain ethnic
background. There are still plenty of White men serving on
corporate boards. The vast majority are, but research has shown
that homogeneous boards underperform diverse boards, and it is
not just the research. It is common sense.
If you bring people from the same backgrounds, the same
educational schools, the same cultural backgrounds together,
you are going to find a lot of groupthink. A good board does
well when there is discussion and back and forth and
differences of opinions, and so diverse boards reduce
groupthink and produce better results.
Ms. Brown. Thank you, and I would say that answer
demonstrates the need for increased diversity both within
individual corporations and throughout the broader business
sector. Yet, unfortunately, punishing companies for these
private corporate choices has become an element of the
Republican platform from D.C. to Disney. While historically
marginalized communities continue to face unique economic
barriers, Republicans oppose corporate freedom to implement
strategies for social investment, which even benefits the
bottom line. In fact, the Republican platform appears to center
around taking away the choice, the choice to promote diversity,
equity, and inclusion, the choice of a woman to have control
over her own body, and the choice to read a book and live
without the fear of gun violence.
I urge my friends on the other side of the aisle to
reconsider these misguided priorities, and with that, Mr.
Chairman, I yield back.
Mr. Sessions. The gentlewoman yields back her time. The
distinguished gentleman from South Carolina is recognized for
five minutes.
Mr. Fry. Thank you, Mr. Chairman. Thank you for having this
hearing today. Thank you to our witnesses for your time.
Under Federal and state law, asset managers owe fiduciary
duties to their clients. What does that mean? Well, it
essentially means that they put their clients' interests first.
This is a concept that is old as time. It has become clear,
however, that asset managers may have violated that fiduciary
duty, based on your findings, to their clients through signing
radical ESG pledges. Attorney General Reyes and Attorney
General Marshall, you and several other Attorneys General,
including Alan Wilson from South Carolina, penned a letter to
53 asset managers. In this letter, you said that ``state and
Federal laws require these asset managers to act as a fiduciary
in the best interests of their clients in exercising due care
and loyalty.''
So today, I want to take a quick look at the history of
fiduciary, starting with the basics. The Bible says that no one
can serve two masters. The Romans defined as a ``fiduciary'' as
a person holding the character of a trustee or character
analogous of a trustee in respect to the trust and confidence
involved in it and the scrupulous good faith and candor which
it requires. The case of Keech v. Sandford, a 1727 English
trust law, holds that a trustee owes a strict duty of loyalty
and care so that there can never be any possibility of a
conflict of interest. Under ERISA, a person who provides
investment advice has that same fiduciary obligation to provide
the advice in the sole interest of the plan participants.
It is clear that the history of fiduciary is not a new
concept, so why are these asset managers now struggling with
that duty? When someone invests their money, they have the
intention that this money will grow and that they will get a
return on that investment. However, these asset managers are
throwing money in support of ESG initiatives that are contrary
to those who have those holdings. Attorney General Reyes and
Attorney General Marshall, will asset managers be forced to
choose between their legal duties to achieve financial returns
and ESG policy goals, and can you outline that?
Mr. Marshall. I think clearly there is a conflict, and one
of the things that I would identify previously is the role of
pension funds in states. And we have had two of our Attorneys
General, both in the states of Kentucky and Louisiana, in
examining the question of fiduciary duty, concluded the
consideration of ESG factors would, in fact, violate state law.
The laws in Kentucky and Louisiana are very similar to the laws
throughout our country, very similar to the way that this body
has defined ``fiduciary'' under ERISA and has identified that
as the sole interest duty of loyalty. Very specifically, the
Michigan Supreme Court many years ago said business
corporations organized and carried out primarily for the profit
of stockholders.
The role of asset managers is to maximize the return on
that investment. Again, particularly for the hardworking
Americans who have invested their retirement dollars, their
concerns principally is what is going to be there when I am
done? It is not necessarily all, and some of the factors that
are subjective in ESG, but, instead, to those objective factors
that qualify to determine what investments should be
recognized.
You know, interestingly, my colleague from Illinois
referenced glasses and an optometrist that had given him the
glass prescription. An optometrist uses devices to objectively
determine what your vision is to be able to make sure that you
have the right glasses, that you are not using the wrong ones.
ESG criteria, very differently, are not objective. They are
subjective, and one of the reasons why we know that is the
rating agencies themselves cannot agree on what the factors
should be, and they also score individuals quite differently
depending on their subjective view of those companies.
One thing that is also clear is that certain subjective ESG
factors are in conflict. For example, let us take solar power,
that if you have a company you want to be able to score well
because they have converted to solar energy, we also have to
recognize that that solar energy is coming from materials that
are manufactured in China where forced labor practices are not
acceptable. Which one do you favor more?
Mr. Fry [continuing]. Attorney General, and Attorney
General Reyes, I want you to answer this one if you can for me
because I am crunched for time. But are asset managers required
to tell their clients when they enter in these ESG-related
pledges? I mean, doesn't that seem to be kind of a problem
because my understanding is that they do not have to disclose
that.
Mr. Reyes. I am sorry. Could you repeat? I know your time
is up, but I did not----
Mr. Fry. Are asset managers required to tell their clients
when they enter into these ESG-related pledges?
Mr. Reyes. Not currently, and that would be something that
the Trump rules that the Department of Labor ruled just
changed, previously required. If it was a tie and it is an
intricate answer, but yes, there had to be transparency and
disclosure and an explanation. Those rules have now gone away
because of the current Administration's hostility toward that.
So, it would be advisable, but there is not a requirement per
se. You could read into their fiduciary duty, and I think
implicitly, there ought to be, but right now there is no
statutory duty.
Mr. Fry. Thank you both. Thank you, Mr. Chairman. With
that, I yield back.
Chairman Comer. [Presiding.] The gentleman yields back. The
Chair recognizes Ms. Porter from California for five minutes.
Ms. Porter. Thank you very much. Attorney General Marshall,
we have different political views, but I am going to predict
that we might be able to agree on something right at the
outset. I think the United States should have the strongest
possible capitalist economy that it can. Do you agree?
Mr. Marshall. I do.
Ms. Porter. All right. And capitalism is a lot like
democracy. You get choices, and just like a democracy lets you
choose between different candidates who may have very different
political views, capitalism is supposed to let you choose
between more than one product, service, or investment that
meets your needs. Do you agree that choice is a fundamental
premise of capitalism?
Mr. Marshall. I do not disagree.
Ms. Porter. All right. ``Do not disagree.'' I am going to
take that as agree.
Mr. Marshall. I will say it again. I agree with you.
Ms. Porter. Thank you. Mr. Marshall, when you buy a car,
what criteria do you look at to make your final decision? What
is important to you?
Mr. Marshall. The quality of the vehicle and the cost.
Ms. Porter. OK. The car that is best for you may not be the
car that is best for me. I drive a minivan, and you maybe would
not be caught dead in one. For all I know, maybe you are a
Tesla guy.
Mr. Marshall. I drive a pickup, Congressman. Let me make
that clear.
Ms. Porter. Well, I was going to get that. I have a lot of
constituents who buy low-emission vehicles. You may have a lot
of constituents who buy trucks to use for towing or hauling.
The thought process behind shopping for a car is not so
different from the thought process that goes into investing in
a company. You gather information to see if you are getting
what you want as a consumer, or, in this case, an investor. Mr.
Marshall, what kind of information would an environmentally
conscious investor be looking for? Let us assume that these
investors exist. What would they be looking for to make an
investment that meets their needs?
Mr. Marshall. I could not answer that question for you. I
do not know exactly how you define what it is you are talking
about.
Ms. Porter. OK. So, I think they are going to be looking
for information about what the company's policies are to
mitigate climate change risk, how they are addressing
fluctuating energy costs that might be related to changes in
market prices and availability of fossil fuels. They might be
looking at how water shortages caused by drought might affect
their business model, how supply change interruptions caused by
climate migration. There are any kinds of things they could be
looking for. The point here is that a lot of investors want to
know more than just dollar and cent disclosures when they are
making the decision to invest or buy. Maybe you do not. Maybe
all you want to look at is the dollars and cents. But
environmental, social, and governance disclosures give those
investors the option to take that information into account.
And it is not just progressives. Plenty of conservatives
have dumped their stock in Disney or stopped buying Bud Light
because they think that they are too woke. Mr. Marshall, if a
company became less woke based on market pressures, would you
take legal action against them as AG?
Mr. Marshall. You would have to give me a little more
information to know whether or not we could.
Ms. Porter. If Disney changed its policy on LGBTQ+
Americans, would you sue them? If they changed their policy to
fail to protect LGBTQ Americans, would you sue them?
Mr. Marshall. I think the analysis for us would not
necessarily be whether or not that individual company changed
its policy. The question is whether or not they were compelled
to do so for otherwise unlawful reasons. It is one of the
reasons why you see currently that there are active antitrust
investigations involving multiple players on the ESG front,
including Climate Action 100+ and the Net Zero Bank Alliance.
Ms. Porter. OK.
Mr. Marshall. Can I finish, please?
Ms. Porter. Yes.
Mr. Marshall. Very quickly.
Ms. Porter. Mm-hmm.
Mr. Marshall. And our evaluation there is whether or not
their actions incur corporations to make decisions that
otherwise would not be appropriate for them to make.
Ms. Porter. OK. So, let us break this down. It is very
important to be clear with the American people. The Labor
Department's rule does not impose a mandate. It permits
fiduciaries to consider ESG standards if they believe those
considerations are prudent in their decision-making and what
the information is they want to provide investors. There is no
mandate under the Department of Labor, and I think these
antitrust concerns are, at best, misplaced.
There is simply no evidence that there is a violation of
the Sherman Act going on. There is no evidence that this is
what is happening. It is up to each of these companies. These
initiatives are no different than other initiatives that
corporations have that come together. These are private actors
making their decision. It strains credulity for me to hear
people suggest that BlackRock is some kind of leftist commie
organization. For crying out loud, BlackRock is about
delivering value, and in doing that, they are looking at a lot
of different kinds of propositions about value, including good
governance, including the effect that climate change may have
on their bottom line. That is the whole point.
This is about freedom. That is what we are talking about.
Capitalism delivers freedom, and that happens when markets let
people choose what they want. That is all that you are trying
to block here. You are trying to block people from looking at
disclosures that they find valuable. If they do not find them
valuable, do not look at them. And I think capitalism is about
choices. I heard you say you do, too, so I hope you will
reconsider your policy. I yield back.
Chairman Comer. If you want an opportunity to respond, we
will----
Mr. Reyes. A bathroom break----
Chairman Comer. The Chair recognizes Mr. Palmer for five
minutes.
Mr. Palmer. I thank the Chairman, and I thank the witnesses
for appearing today. Attorney General Marshall, Alabama's
economy depends on robust industries: agriculture, timber,
energy, auto manufacturing, aircraft manufacturing. How would
the ESG initiatives potentially harm the state economy and
impact consumers, not only in Alabama but nationwide?
Mr. Marshall. I think first and foremost, Congressman, is
on energy prices. If you look, particularly what has driven
inflation and what has hit Americans in the pocketbook,
including Alabamians, it has been an increased cost of energy,
part of that attributable to decreased investment in what is
currently producing the energy in our country itself. But
beyond that, particularly, for example, within agriculture, it
is going to be the attack on agriculture as it relates to their
responsibility, according to the left, for increased carbon
emissions.
Let us take, for example, our cattle industry. As you well
know, that is a significant portion of our agriculture economy.
We also know from data the cows themselves are the largest
emitters of methane gas. And the question is going to be, do we
find farmers discriminated against in their banking
relationships. Do we see farmers discriminate against in other
financial relationships that impact their ability to do their
job? The reality is, Congressman, I do not think many in my
state are ready to give up their hamburger. I do not think they
are wanting to put tofu on their grill. The issue is whether or
not we can produce the food products this country needs and to
be able to do it in a way that we can make it affordable to
Americans.
Mr. Palmer. I do not think I am willing to give up my
pickup or many of my friends who drive pickup trucks are
willing to do that either. I want to point out something here.
In this headlong rush to eliminate hydrocarbons from our
economy, it is really insane. The very things that you have to
have to build a renewable structure--cement, steel, plastics--
the majority of that is produced in China, but it all requires
enormous amounts of natural gas. But there is one other thing
that I would like to point out: over 80 percent of the cost of
fertilizer that is necessary for food production is natural
gas, and if we eliminated natural gas from that process, it
would cut world food production in half. And what we are seeing
with ESG-driven investments, I think, is not only a threat to
our economy. It is a threat to our food supply in many
respects, but it is also a huge help to China.
I made this point this morning in a speech that I gave that
this headlong rush to renewables Europe engaged in created the
energy crisis, not the war in Ukraine. The war in Ukraine
exposed it, and if they were to go 100 percent renewable, they
would no longer be relying on Russia or United States or
anybody else for natural gas, but they will be reliant on
China. And that is one of the big concerns that I have about
this big push to ESG is how this empowers China. Would you
agree with that?
Mr. Marshall. I do agree with that. And interesting, if you
look at the history of energy transformation, our country has
been driven by two sources, one which is economic and the other
is through technology, and it has usually taken a century or
more for that to be able to take place. The current change is
not driven by any action that this body has s taken, but
instead it is by global elites who believe there ought to be
global energy policy, not Congress acting, not those that are
accountable to the people, but, in fact, it is those outside of
our country dictating what our policy should be. And it is
benefiting China, who, by the way, is not tied into the Paris
Accord, as many of our developed countries are, and it gives
them an unfair competitive advantage over American companies as
well by access to cheap energy.
Mr. Palmer. Well, as I have pointed out in another hearing,
China's objective is not to save the planet from climate
change. China's objective is to rule the planet as the world's
sole superpower, and they want to do that by 2049. And we have
this artificial target of trying to achieve net zero by 2050,
which under no engineering scenario, no technologies scenario
is achievable. So now we are getting down where ESG is not only
a threat to our economy. It is a threat to our national
security. That is my opinion.
I believe that as we continue to divest ourselves from our
hydrocarbon infrastructure and go more to renewables, it will
make us reliant on China for the very materials that we need to
sustain our energy infrastructure for our economy and our
national security. Would you agree?
Mr. Marshall. I would agree. I think we should have learned
our lesson during COVID when we saw how dependent we were on
products produced outside this country when we needed them
during the pandemic.
Mr. Palmer. Mr. Chairman, I want to, again, thank the
excellent witnesses, particularly the gentleman from Alabama. I
yield back.
Chairman Comer. Thank you. The Chair recognizes Mr. Garcia
of California for five minutes.
Mr. Garcia. Thank you very much, Mr. Chairman, and I want
to thank all of our witnesses for their service. Thank you for
being here. I know, for me, I am not here to particularly
defend any sort of corporate strategy or investment. I think
most of the Democrats, and the Democrats on this Committee are
really focused on supporting people, and we are not here to put
working people above big corporations. And companies we do know
also want to consider certain goals that they have when they
are investing, whether it is because climate is obviously
changing, and it is having an impact. Companies obviously
prioritize diversity because America is actually more diverse,
and it helps them do business in a diverse society. So, these
are decisions that make financial sense, and I think
corporations are making these all the time.
I think we should also be as honest about what we are
actually doing here. I think the Majority is clearly trying to
score political points with some sort of panic around whatever
wokeism is. I am not even sure what wokeism still is or how to
actually describe it. We have many business leaders in the
community that are criticizing this Republican far-right agenda
that is ignoring climate change and that really is not
operating in any sort of reality but in some sort of Fox News
bubble and ecosystem.
So, the far right wants revenge, and they want to revenge
on corporations, on working people, on everybody. The interest
campaign that is happening across this country and certainly
here in this Committee is also heavily orchestrated and what
and wide reaching. ESG efforts have a lot of ties to dark money
also across this country, and I want to just give an example.
I want to ask unanimous consent to submit for the record A
February 2023 article from the group, Documented, which
describes a private anti-ESG dinner on June 1 of last year
during an annual Heritage Foundation meeting. So, if I can
please have that article submitted for the record. Attendees at
this dinner included representatives of Consumers Research,
which is an anti-Union and anti ``woke organization.'' Now, Mr.
Frerichs----
Chairman Comer. Without objection, so ordered.
Mr. Garcia. Thank you, sir.
Mr. Garcia. Mr. Frerichs, a dinner like this, what does
this tell you about coordination behind these kind of anti-ESG
attacks?
Mr. Frerichs. I think that it is not a surprise. We see it
when letters are signed that there is someone behind it.
Mr. Garcia. Thank you, and at the heart of these anti-ESG
campaigns is also a name that should be very familiar to the
American public, and that is longtime conservative activist,
Leonard Leo. We all know that Leonard Leo spent his career
installing conservative justices to the Supreme Court in an
effort to overturn Roe v. Wade and so much other progress
across this country. You also may remember Mr. Leo from recent
press reports that have said that he asked Kellyanne Conway and
her polling firm to ``give Ginni Thomas another $25,000.'' He
emphasized that the paperwork should have ``no mention of
Ginni, of course.'' Now, we know that Mr. Leo has set his
sights on our democracy, on our Court. He has amassed $1.6
billion to do it, and so this is incredibly problematic for us
as a country, and this is actually what this Committee should
be looking at.
I also want to note an October 2022 article by the New York
Times, and it notes that Mr. Leo's network and his campaign to
push some of the country's biggest corporations on making
investments pushing environmental, social, governance causes,
all links back to this kind of anti-ESG movement that is
happening and that we are discussing today.
So again, Mr. Frerichs, as your perspective as Illinois
State Treasurer, how do orchestrated campaigns, clearly as this
one, also that have folks like Mr. Mr. Leo involved, how does
it actually hinder the free market that our Republican
colleagues seem to always be uplifting and care so much about?
Mr. Frerichs. When they pass legislation that prohibits
disclosure of information, that hinders our ability to make
good decisions. When they pass legislation that punishes
certain companies from making business decisions, it costs
taxpayers in their states, and it is it is not insignificant
dollars. We have documented billions and billions of dollars
this legislation is going to cost American taxpayers.
Mr. Garcia. Thank you for that. Now, you signed a letter,
along with 13 other State Treasurers, opposing anti-ESU
legislation and noted that these radical bans have very real
consequences for taxpayers. You have discussed a lot of this
today at this hearing, and I appreciate that. The letter warned
that if these anti-ESG bands succeed, ``There will be two kinds
of states moving forward: States focused on short-term gains
and states focused on long-term beneficial outcomes for all
stakeholders,'' and you have alluded to this earlier today. Can
you explain one more time, because I think this is a really
critical piece of what you have focused on today, what exactly
do you mean by this part by this quote, in particular?
Mr. Frerichs. So, when we are investing college savings
funds or retirement savings, I am not so much interested in the
quarter profitability for a company but their ability to be
profitable for the next quarter of a century. That is because
as a fiduciary, I am looking out those beneficiaries' long-term
interests. We are not day traders. We do not hop in and out of
these companies. We are universal investors, and rather than
trying to boycott certain companies, we try to work with them.
Mr. Garcia. Thank you. Thank you, sir, and I just, you
know, I hope that the next Committee meeting, we can actually
investigate Mr. Leo and his anti-ESG campaigns and support that
is happening and are causing destruction across this country.
And with that, I yield back.
Chairman Comer. The gentleman yields back. The Chair now
recognizes Mr. Burchett from Tennessee for five minutes.
Mr. Burchett. Thank you, Mr. Chairman. I appreciate you all
being here, and I apologize that I am the 435th most powerful
Member of Congress, and that by the time they get to me,
sometimes my questions have already been asked. So, when I ask
you a question that you have been asked for the third time, I
expect each you to look at me with great respect and realizing
that that is an incredibly important question at that time, and
I appreciate that. So, thank you, guys.
How do you say your name?
Mr. Frerichs. Frerichs.
Mr. Burchett. Frerichs. You are allowed to smile when a
Republican says something. You will not get any trouble, I
promise.
Mr. Frerichs. Sure.
Mr. Burchett. You are good, brother.
(Laughter.)
Mr. Burchett. From me anyway. Mr. Reyes. Did I say it
right, Mr. Reyes?
Mr. Reyes. Yes.
Mr. Burchett. Yes, sir. Mr. Reyes, could you explain to me
asset managers' fiduciary duties to their clients?
Mr. Reyes. Again, maximize shareholder value, shareholder
profit or return. And, again, and just to follow on the last
comments by the Congressman, if you will allow me. We want, as
Republicans and Republican AGs, climate debate. We want
discussion, we want dispute, we want determination, but we want
that here in Congress. And I am not sure why anybody on either
side of the aisle would want to abdicate, would want to allow
anyone else to usurp your power in Congress to make these
rules. This is the frustrating thing about all of this. This is
not just about ESG information and facts. It is about ESG
policy being pushed, again, by a process that totally bypasses
Congress and undermines our democratic system.
Mr. Burchett. Thank you.
Mr. Reyes. And let me say this, Congressman. If the
policies that we are talking about are so self-evident and so
popular, as has been referenced before, with the American
people, let them stand on their own merits here in Congress.
Let them be passed into law. Do not let them be forced through
a market that is anything but free with these ESG horizontal
agreements.
Mr. Burchett. Along those same lines, could there be a
scenario maybe that asset managers would have to choose between
ESG initiatives and maybe their fiduciary duty to some of their
clients?
Mr. Reyes. Absolutely. Those are times competing interests.
Sometimes they can be aligned. Sometimes you can have social
good. You can have stakeholder capital along with shareholder
all aligned, but at other times, they are definitely in
conflict.
Mr. Burchett. What kind of risk could these clients face if
some of these asset managers perhaps would choose an ESG policy
over maybe a financial return?
Mr. Reyes. Well, again, the risk short term is, as I have
referenced earlier, a capital risk, a diminution in the value
of their investments, but the long-term risk is broader, and
that is the concern that we have. The more existential threat
is to our system and government, you know, foundations.
Mr. Burchett. OK. I wonder is it true that over 300 asset
managers signed onto the Net Zero Asset Managers Initiative.
Mr. Reyes. I believe that is correct or more.
Mr. Burchett. OK. And do they control, I think, over $59
trillion possibly an asset?
Mr. Reyes. AUM. I believe that is right. I think that was
in my written statement.
Mr. Burchett. OK.
Mr. Reyes. I believe that is correct, Congressman.
Mr. Burchett. Yes, and are you also aware that the largest
asset manager in the world was BlackRock, and they signed on to
the NZAM Initiative?
Mr. Reyes. They did, and State Street and Vanguard, it is
about $26 trillion in assets, which is more than the U.S. GDP.
Mr. Burchett. Right. One of the initiatives of NZAM is to
achieve zero emissions by 2050, in accordance with the Paris
Agreement. Is that accurate?
Mr. Reyes. Yes, sir.
Mr. Burchett. OK. Would you consider that to be a radical
investment strategy?
Mr. Reyes. Yes, sir, given the----
Mr. Burchett. I realize ``radical'' is a little strong,
but----
Mr. Reyes. The lack of certainty that this would even
become a law, that there are going to be requirements, there
are a number of reasons why I would say that, yes, that is a--
--
Mr. Burchett. OK. Mr. Marshall, would you agree with that?
Mr. Marshall. I would, Congressman. I also agree that you
get more questions per capita in five minutes than anybody else
on this panel.
Mr. Burchett. Yes, sir. Well, I work on that, and I
appreciate you being from Alabama. I know that is a two-year
school being in Tennessee. It is a fully accredited four-year
school, and----
(Laughter.)
Mr. Burchett. I forget, do you all play football down
there? I cannot remember.
Mr. Marshall. Mr. Chairman, can I beg----
Mr. Burchett. You are out of order.
(Laughter.)
Mr. Burchett. OK. Mr. Marshall, under the Climate Action
100+ Initiative, the signers pledge to ensure 166 targeted
companies take necessary action on climate change. Does that
sound right to you all?
Mr. Marshall. That is my understanding.
Mr. Burchett. Are any of these signers, do you think they
are aware that they have a combined $68 trillion in assets
under management?
Mr. Marshall. I think they understand it because they
exercise that amount of money to be able to coerce policy
changes for companies as a result of that.
Mr. Burchett. OK. And those are in alignment with the Paris
Agreement. I am out of time. I appreciate you all very much
putting up with this. I know you come in here thinking, whoa, I
am going before Congress, and I do not think we are even
feeding you all, but anyway, that is all right.
(Laughter.)
Mr. Marshall. Thank you for your hospitality.
Mr. Burchett. It is the Democrats' job to feed you all, so
thank you.
Chairman Comer. The gentleman yields back. The Chair
recognizes Mr. Frost from Florida for five minutes.
Mr. Frost. Thank you, Mr. Chairman. Less than two weeks
ago, my home state of Florida became one of the first states to
pass a law targeting ESG factors and investment
recommendations. Just like other anti-woke witch hunts, the
Florida Legislature and Governor are hoping to take their
campaign of environmental negligence, social oppression, and
incompetent governance to the national level. Florida Governor
Ron DeSantis signed this bill into law even after business
leaders, legislators, and public officials warned that similar
legislation could hurt investors' bottom line and perpetrate
systematic justices. In January, a consulting firm estimated
that just for Florida alone, prohibitions against responsible
investing could cost taxpayers more than $300 million, and when
a company chronically employs people of color in its lowest-
paying roles or spills toxic pollutants into the Gulf of
Mexico, I believe they become a greater financial risk. They
also become more of a risk to the people of the state.
Americans do not want to sponsor bigotry, corruption, and
the destruction of our climate, and it is not just everyday
Americans. Many different folks have been talking about this in
the business community. It never ceases to amaze me how far the
Republican anti-woke agenda can get from what Americans
actually want. Mr. Frerichs, thank you so much for being here.
Are you familiar with the November 2022 letter that Republican
AGs circulated related to responsible investment?
Mr. Frerichs. Vaguely.
Mr. Frost. Are you also familiar with the letter circulated
by 16 Attorneys General that eviscerated the Republican attack
against the effectiveness and importance of responsible
investing?
Mr. Frerichs. I have not read both letters recently, but I
am aware of both of them.
Mr. Frost. Mr. Chairman, I request unanimous consent to
enter into the record a letter from Attorneys General that
clearly outline that responsible investing is sound fiscal
policy.
Chairman Comer. Without objection, so ordered.
Mr. Frost. Thank you, Mr. Chair.
Mr. Frost. A bill similar to the Florida bill was
introduced in Kansas. That bill was projected to cost $3.6
billion over 10 years and lower pension system returns. That
bill was met with so much backlash from stakeholders, that a
Kansas legislator was forced to drop the toughest version of
the bill. In Indiana, after researchers reported that an anti-
ESG bill would cost its pension system $6.7 billion over 10
years, lawmakers were also forced to rewrite the bill before it
could pass. Similar pushback stalled efforts like this in North
Dakota as well. Mr. Frerichs, why do you think these bills are
facing so much backlash even in Republican states?
Mr. Frerichs. I think they are facing backlash because they
are anti-free market. They are going to cost the taxpayers
money. It is being pushed by a special interest out there. You
know, I heard talk about we want Congress to make these
decisions. If Congress is going to make the same decisions that
are costing these states billions of dollars, they will cost
this country trillions of dollars. I would say what happened to
the argument of states' rights? In Illinois, we want the right
to consider all of this data. If another state does not want to
and they want to get lower returns, that is their choice. We
believe in choice. Do not take away our choice.
Mr. Frost. Yes, I ask myself the same questions about
rights of local government and states' rights. You know, in my
state of Florida, that has completely gone out the window. This
is not your father's Republican Party. If states like Florida
or Texas blacklist the largest municipal bond underwriters--
mind you, these bonds fund some of the most basic functions of
cities like in Orlando--this could impose a hidden tax
amounting to hundreds of millions of additional dollars on
those trying to engage in good business practices. Who would
ultimately bear this hidden tax?
Mr. Frerichs. The taxpayers in the state of Florida. If
nothing is done in terms of climate change, there is great risk
to the homeowners of Florida, especially along the coasts.
There is risk to farmers in Florida. I heard people say that
they care about agriculture. Climate change is a real risk. We
have seen an increase in storms in some states, an increase in
droughts, in others, recent flooding. But all of this disrupts
our agriculture, which feeds this country. These are things
that need to be considered.
Mr. Frost. Exactly. We have seen an increase in storms, and
we have seen those same storms become longer and worse in
devastating effects. Entire cities in Florida were decimated
due to the hurricanes last year. These anti-ESG laws benefit no
one, not everyday Americans who want to see our financial
sector invested in for what is good for America, not
stakeholders, and, once again, Republican lawmakers are trying
to restrict individual liberty and force compliance with
policies that the majority of Americans oppose. This is
especially shown by the backlash that many of these bills have
faced in both Democratic-and Republican-controlled states.
Thank you so much for your time, and I yield back.
Chairman Comer. The gentleman yields back. The Chair
recognizes Mr. Fallon from Texas for five minutes.
Mr. Fallon. The new rule by the Biden Labor Department--
thank you, Mr. Chairman--to allow ESG to be taken into account
and prioritized over fiduciary duty not only violates current
law but also common sense. So, what is more powerful? I thought
we were proud to be a rule of law Nation, so the rule of law
should be more powerful than the law of rule. Retirement, I
mean, it is pretty straightforward. Under Federal and state
law, asset managers owe a fiduciary duty to their clients.
Essentially, this means that they put their clients' interests
first. When asset managers enter into ESG pledges or
commitments, they violate their fiduciary duty and instead
place undue risk on their clients' investments. If you have a
retirement plan, a fiduciary must make investment decisions and
exercise shareholder rights based on solely whether or not they
enhance retirement savings. That is straightforward. That is
simple. It is clear, and it is smart. Quite frankly, anything
else is an attack on capitalism.
So, we had a chart here earlier from one of my colleagues
that had ESG investments all really high, and the traditional
investments were lower. So that was compelling. Is it true
because if it was, it would seem that it would already fit into
the definition that I just read about being and acting in your
clients' best interest, but unfortunately, it is not.
Bradford Cornell of UCLA and Aswath Damodaran of New York
University reviewed shareholder value created by firms with
high and low ESG ratings and scores provided by professional
rating agencies, and their conclusion was, ``Telling firms that
being socially responsible will deliver higher growth profits
and value is false advertising.'' What they found at the micro
level was also on the macro level over the past five years.
Global ESG funds have underperformed in the market by 250 basis
points, 6.3 percent as opposed to the 8.9 percent you would
have received under traditional investments. This means that an
investor that is going to put in $10 grand comes out with
$13,500 instead of $15,250.
So, it is interesting to note, too, a new report from
researchers from the Universities of Utah, Hong Kong, and Miami
found there is no evidence that socially responsible investment
funds improve corporate behavior. Now, why is that, and that is
very simple. The production of goods and services declines only
when people stop buying them, not when others stop investing in
the companies that produce them. This is merely another attempt
by the far left to perform an end around of current law,
meddling in free markets to compel behavior and achieve their
dreams of a non-existent socialist utopia.
What you get, and you are paying for it, what you get is
more risks, more danger, less stability, and fewer returns. And
the ESG ratings, by the way, themselves are all over the board,
so consider this: broadly accepted financial accounting
practices have enabled competing rating agencies--competing,
competitors, like Fitch and S&P and Moody's--to reach similar
credit evaluations 99 percent of the time. ESG counterparts
cannot say the same thing. MSCI and Sustained Analytics, they
only reach the same ratings 54 percent of the time, just about
1 in 2. So, the ratings are incredibly discretionary.
Attorney General Marshall, is this the role of the Federal
Government? Should Joe Biden be able to gamble with retirement
funds and pensions of the American worker?
Mr. Marshall. No, and we have heard during this hearing
today that this a Republican issue. In fact, dealing with ERISA
has been a bipartisan issue that the Senate showed very
strongly when they voted overturn the rule that the Department
of Labor had advanced, as well as the one that we are currently
litigating. The concern has to do, what does it mean to be a
fiduciary, and what are we doing to be able to protect the
hard-earned dollars and investments of American workers.
Clearly, this Administration has gone too far.
Mr. Fallon. Attorney General Reyes, Federal, state, and
local governments defined benefit plans make up $7.6 trillion
of the $33-and-a-half trillion of the U.S. investment
retirement market. How does funneling these workers' retirement
funds toward varying lobbying efforts impact these governments'
ability to function independently?
Mr. Reyes. I am going to quote from the Vanguard CEO when
he pulled Vanguard out of the NZAM. He said, ``We cannot state
that environmental, social, and governance investing is better
performance wise than broad index-based investing,'' said
Buckley. ``Our research indicates that ESG investing does not
have any advantage over broad-based investing.'' This ERISA
rule, again, critically important to 152 million working
Americans. That is out of a total of 158 for $12 trillion of
their hard-earned dollars. And, again, as you noted earlier,
Congressman, the rule is violative of ERISA on its face, and we
believe defective for a number of other reasons that we are
confident we will prevail on in court.
Mr. Fallon. Thank you. Thank you, Mr. Chair. I yield back.
Chairman Comer. The gentleman yields back. The Chair
recognizes Ms. Balint from Vermont for five minutes.
Ms. Balint. Thank you, Mr. Chair, and thank you, gentlemen,
for being here. I am sure it has been quite grueling to get to
this point. So, I want to just say I am a former public school
teacher, and I earned a state pension through that work, and I
really see my job today as trying to explain to Vermonters why
the topic of today's hearing matters to them. So, if you have a
public pension or retirement plan, or if your retirement
savings are invested in the market, this matters to you, and
considering environmental, social, and governance factors in
investment decisions, I believe, is just good fiduciary
practice. And, in fact, considering ESG factors, also known as
responsible investing principles, are part of an asset
manager's fiduciary duty to their clients, who are regular
people. They are teachers, first responders, nurses.
Mr. Frerichs, how would you define an asset manager's
fiduciary duty to the layperson? How do you explain it to
regular people who may be watching this?
Mr. Frerichs. To make investments, to get the greatest
return for the time period that the pensioners, so the
beneficiaries, would need them.
Ms. Balint. So, would you say an asset manager has a
responsibility always to act on behalf of the client's best
financial interests when they are managing their accounts?
Mr. Frerichs. Most certainly.
Ms. Balint. Would you agree that an asset manager's
fiduciary duty requires the consideration of issues that affect
a company's financial performance and its bottom line?
Mr. Frerichs. Correct. I would.
Ms. Balint. And so, you said earlier, and I thought this
was great. You said we are not day traders, right?
Mr. Frerichs. Yes.
Ms. Balint. We are looking for investments in the long
term, and certainly I think about that with my pension. I want
to make sure that whoever is managing those investments is
thinking about factors over the long term. So, to make it
extremely clear for everyone, how do ESG factors help an asset
manager assess investments because that is what we are talking
about here: am I making the right investments? Flesh that out
for us, if you could.
Mr. Frerichs. These factors all deal with risk. We are
universal investors. When you are investing hundreds of
billions of dollars, you do not sort of pick and choose a
couple of companies out there. We try to engage with do the
companies we invest in and make sure they continue to be
sustainable over the long run. We want these companies to be
profitable, but if you make short-term decisions, now if you
trying to be profitable this quarter, there are easy levers to
pull. You can stop spending on R&D, you can lay off employees.
You can raise prices, and that will make you profitable in the
short run, but in the long run, your customers with those
increased prices may leave you. Those employees that you laid
off, the remaining ones may be despondent. They may be
demoralized. They may slow down. They may go on strike. If you
stop investing in R&D, your competitors will overtake you in
the future. And so, the question is the timeframe.
Ms. Balint. Mm-hmm.
Mr. Frerichs. Do we want companies making decisions for the
short run or for the long term? And as someone in charge of
managing college savings funds, retirement funds, pensions, we
invest for the long run.
Ms. Balint. And the other thing that I thought was really
interesting is, as a colleague said earlier, this is not a
mandate, right? This is about----
Mr. Frerichs. No.
Ms. Balint [continuing]. Being permissive. So, do
Republican efforts to prohibit the consideration--just the
consideration--of these factors create legal risks for
fiduciaries going forward?
Mr. Frerichs. Yes. Let me say investing is hard. There is
lots of information out there, lots of data you have to
consider. If someone does not want to do that work, that is OK.
I would say they are not doing their fiduciary duty if they do
not do that, but if they limit my ability to have access to
data, to consider all kinds of variables out there, they are
making it difficult for me to maximize returns for the
beneficiaries for the long run.
Ms. Balint. So essentially, they are taking tools away from
you that would enable you to make the best decisions on behalf
of your clients.
Mr. Frerichs. Correctly, and I am not trying to take any
tools away from them. If they do not want to look at these risk
factors, they do not have to. We do not mandate that, but what
state legislators are doing is they are mandating that our
asset managers that are advising firms cannot provide us with
this data, and that is dangerous. It is dangerous for
Americans. It is dangerous to pensioners. It is dangerous for
those teachers who are retiring on a small pension.
Ms. Balint. I am so glad that you just boiled it down
because that is what we are talking about here. We are saying
you cannot have the information that you need to make the best
possible decisions for your client.
Mr. Frerichs. Exactly.
Ms. Balint. It is absurd, right?
Mr. Frerichs. Yes.
Ms. Balint. OK. I just want to be clear. So, you know,
responsible investing means gathering information about and
considering ESG factors or mount others that help you
determine, you know, best choice for your client, and I just
want to say this is just such a dangerous path that we are
going down here. It goes along with the book banning that we
had earlier. Taking away information from people is not what
this government is supposed to be about. Thank you.
Mr. Frerichs. Thank you.
Chairman Comer. The Chair recognizes Mrs. Luna from Florida
for five minutes. Beforehand, I want to publicly say
congratulations on your great news.
Mrs. Luna. Thank you. It is like the best kept secret in
Washington. I am expecting, so, yes, thank you guys.
Chairman Comer. And I thought it was interesting how many
Members of Congress have delivered a baby?
Mrs. Luna. I will be number 12, so it is .1 percent.
Chairman Comer. Twenty in the history of Congress.
Mrs. Luna. Twelve.
Chairman Comer. Twelve? Twelve ladies have delivered babies
while in Congress. I think that is a pretty interesting
statistic, so congratulations, and you are recognized for five
minutes.
Mrs. Luna. Thank you, Chairman. I want to start out by
saying I think investments made on behalf of the American
people by assets managers should serve in the interest of the
investor, not woke ideologies being pushed by corporate
financial institutions and to entities, like the SEC. Honorable
Reyes, I actually really liked how you kind of unloaded with
some facts, and so if I have time at the end of this, I want to
yield to just kind of let you speak on what you think it is
important for the American people to know, but if I could just
real quickly ask you a few questions. What are the challenges
faced by companies in dealing with increasing numbers of
shareholder proposals, especially those related to ESG metrics?
Mr. Reyes. Well, they are being forced to, themselves,
choose a path that may not be yielding the best returns to
their own investors. They may be forced to make choices that
push their own customers away from their own products. I mean,
there are a whole host of different problems that this type of
pressure can have on a particular company. And then on the
other side, there are a lot of problems, as we have already
discussed extensively, with investors and the potential loss
of, you know, capital investments. All of those things are
problematic, Congresswoman.
Mrs. Luna. How often are clients informed that their asset
managers are prioritizing ESG metrics over their financial
return?
Mr. Reyes. Asset managers are required to disclose what
they are investing in, but I do not think it is readily
apparent to most people that their investments are necessarily
being invested with an ESG bent, right? So again, transparency
laws and requirements would behoove, I think, the whole
process, and that is what we are here, again, to talk about.
Not the policy, but the process, how this is being effectuated.
Is it being done fairly and in a free market, or is it being
done coercively?
Mrs. Luna. I think it is very interesting that obviously
there are many things that my colleagues across the aisle and I
probably disagree on, probably agree on some and mostly
disagree on most. But I think it is very interesting that in
this type of situation that you have people that sometimes
blindly trust and really do not know that they might
necessarily be investing in something that goes against what
their moral principles are, whatever it might be.
Mr. Reyes. Yes, I do not think most of us even understand
the power that we have to vote our shares. The vast majority
Americans are working hard and trying to raise families and not
paying attention, so that is part of the problem. They rely too
heavily on proxy services or their asset manager to make those
decisions for them. Again, let me make this point,
Congresswoman. We have never disputed your own ability to
invest whatever assets you have the way that you want to,
including an ESG program, but when you are an asset manager
investing on behalf of others, it is an entirely and wholly
different circumstance, and you have to live up to that
fiduciary duty.
Mrs. Luna. So, we have about two minutes left, and I want
to yield the rest of my time to you. What is the most important
takeaway for the American people to know from this hearing
today?
Mr. Reyes. Well, again, I would like to point back to the
three things that we talked about. One was the DOL rule, but we
have already covered that, I think, sufficiently. The second,
going back to why the SEC would not exclude a shareholder
proposal that violates state laws against anti-discrimination
laws, and that is something that I hope that the Committee will
take up and have a hearing on. The ICC could have easily
excluded that. They chose not to, and, again, this is in the
context of proxy groups. It was because of, my contention, the
pressure of a proxy service that the shareholders garnered
enough votes. They did not win, but they came a razor's edge of
prevailing, 47 percent, to literally put their own company in
harm's way by violating a number of state laws. So, that is
one.
The other is, going back to FERC, and if this Committee
would look at organizations like NZAM and Climate Action 100+,
again, $68 trillion, $59 trillion AUM, and view them to see if
they are a holding company, as we believe they should be
construed under FERC. They are acquiring more than $10 million
and other utilities. It is problematic because if they are a
holding company, then they are violating a number of FERC
regulations, including owning more than 20 percent of a
particular utility. They own multiple utilities in excess of 20
percent. FERC requires asset managers to be passive, and these
horizontal organizations are anything but passive. They are
bluntly and very self-aggrandizingly clear about what their
intent is, and that we believe also violates FERC's
prohibitions on asset managers being not passive and trying to
operate the utilities.
So those are the areas, again, that I would like for the
Committee to be able to take up. Again, appreciate your time.
Congratulations to you. I have six kids of my own, and this is
the best news I heard all day.
Mrs. Luna. Thank you, Chairman. I yield my time.
Chairman Comer. The gentlelady yields back. The Chair
recognizes Ms. Lee from Pennsylvania for five minutes.
Ms. Lee. Thank you, Mr. Chairman. Every day, it seems like
there is a new acronym that my Republican colleagues are afraid
of or fear mongering and driving up some fear around. I am
having a really difficult time keeping up with them, so I think
like some of my colleagues before me, I hope that we can use
this time to kind of get to the heart of what this is about.
Mr. Frerichs, I was wondering if you can help me with a quick
hypothetical, and, of course, please forgive me if any of this
is a bit repetitive, but we are all just trying to figure out
how to deliver this information best to our districts.
So, let us say I am a first-time investor looking to start
my retirement fund, and we are discussing how to invest the
money I have earned, or I have saved. Excuse me. Yes or no,
would you consider the average earnings over the past few years
of a company and the growth of the overall industry?
Mr. Frerichs. Yes, most certainly.
Ms. Lee. Would you look at it if the board had been
recently accused of fraud or mismanagement?
Mr. Frerichs. That would be a risk.
Ms. Lee. Would you consider how compliant a company is with
EPA regulations?
Mr. Frerichs. Oh, certainly. You might be able save money
by dumping chemicals illegally, but it will cost. You can
either pay now or you can pay later.
Ms. Lee. Thank you. Adding to that, why would you look at
all of those factors when advising me on how to invest my
money?
Mr. Frerichs. Because all of them will have an impact on
the returns you make.
Ms. Lee. Thank you. Having as many data points, it sounds
like, as possible minimizes risk and maximizes value, making
our retirement accounts stronger. The pandemic, rising
inflation, and stagnant wages have hit Americans hard over the
past few years. Across the board, people are saving less for
the future, so every single dollar counts. This Republican
crusade against responsible investing is putting Americans'
hard-earned savings at risk, and we cannot sit by and let that
happen. Mr. Frerichs, how will banning responsible investing
lead to worse returns for Americans relying on public pensions
for retirement?
Mr. Frerichs. Let me try to make an analogy here. We talked
earlier about buying cars. You know, there are many factors you
use in buying a car. You have got to look at the car, you got
to sit in the car, feel the car, smell the car, see if you like
it. You also might consider price. We also say that they should
publish miles per gallon. Now, this is like saying, no, no, no,
that is an environmental impact. You should not be able to know
the information on MPGs in your car. Miles per gallon will
directly affect your cost down the road. You ought to have
access to that. These factors that we talked about are similar
to that, and these efforts to deny us information on
environmental and social and corporate governance issues are
making it more difficult for us to be good consumers.
Ms. Lee. Thank you for that. Republicans would rather force
our public servants to throw away hard-earned money and extra
fees than simply allow financial professionals to invest
responsibly. They are willing to risk the retirement savings of
our teachers, our firefighters, our municipal workers, our
public servants, all to protect wealthy corporate interests.
Limiting responsible investing is not even a popular concept in
Republican-controlled state legislatures. As my colleague from
Florida before me mentioned, the Indiana bill as one such
option. Mr. Frerichs, who will be stuck paying the price if
Republicans are successful in restricting and banning
responsible investing?
Mr. Frerichs. It is ultimately on the pensioners, on the
beneficiaries of these retirement funds. If they are getting
reduced benefits, reduced interest returns, or they are paying
more additional costs, like they are in Texas or like your
colleague from Florida pointed out, ultimately it falls on the
taxpayers.
Ms. Lee. Thank you. Typically, responding to these extreme
conspiracy theories is not worth turning our attention away
from so many of the important issues facing our country, but
propping up their corporate buddies' interest at the expense of
Americans' retirement is despicable, and we just cannot let
that happen. Thank you, Mr. Frerichs and the panel. Mr.
Chairman, I yield back.
Chairman Comer. The Chair recognizes Mrs. McClain from
Michigan for five minutes.
Mrs. McClain. Thank you, Mr. Chairman, and thank you all
for being here today. I appreciate it. In my opinion, simply
put, ESG is politization of investing in and continues to be
weaponized by the radical left.
I pulled the definition. ``The primary responsibility of
fiduciaries is to run the plan solely in the interest of
participants and beneficiaries for the exclusive purpose of
providing benefits and paying plan expenses. Fiduciaries must
act prudently and must diversify the plan's investments in
order to minimize the risk of large losses.'' Am I correct in
that?
[A chorus of ayes.]
Mrs. McClain. That is the definition, right? So, I just
want to make sure we are all on the same page. Mr. Reyes and
Mr. Marshall, are asset managers required to tell their clients
when they enter into these ESG-related pledges?
Mr. Marshall. I think General Reyes has answered
specifically. The answer is no----
Mrs. McClain. No.
Mr. Marshall [continuing]. That there is not a direct
disclosure requirement.
Mrs. McClain. Right. So, I want to make sure that everyone
understands. I am an investor. I am going to invest in ABC
fund, right? But you have made an agreement or a pledge with an
ESG investment, right. That is based on your belief of what is
ESG compliant or whatnot, and you do not have to tell me that
you have entered into that pledge. Am I correct in that?
Mr. Marshall. Yes.
Mrs. McClain. OK. Could you imagine if we did that, like,
with pro-life or something? I think my colleagues on the other
side would actually go crazy. So, a follow-up to that, if you
are telling me that money managers can invest clients' money
into ESG-approved companies without the knowledge of investors,
yes, we can do that, right? So, I heard the left talk about
transparency. Is that a definition of transparent, not being
transparent with the investors on the pledges that you have
made behind their backs?
Mr. Marshall. Yes, I think one of the major issues for
Attorneys General is for our consumers, to make sure they are
fully informed on business transactions in which they engage.
Mrs. McClain. I mean, I am all for people to have choice in
where their money goes and what they look at, right? But if we
are going to be honest and we are going to be transparent,
wouldn't it make sense? What is the harm in saying, hey, I
entered into a pledge that requires me to do some ESG stuff?
What is the harm in that? What are we trying to hide? I do not
understand that. Why the lack of transparency?
Mr. Frerichs. I will say from Illinois' perspective, that
is not a problem. We publish all of our corporate engagements
online----
Mrs. McClain. So, everyone does that or just Illinois?
Mr. Frerichs. We do that in our office. That is the only
office I can control.
Mrs. McClain. OK, because I do not think, by the answer to
my first question, our asset managers, and perhaps I will
repeat it, are asset managers required to tell their clients
when they enter into ESG-related pledges. I believe the answer,
and we can check the record, was no. So, to me, that is lack of
transparency. Maybe I have a different definition of
``transparency,'' but go ahead, Mr. Reyes.
Mr. Reyes. Congresswomen, since you brought it up and maybe
it was a hypothetical that you were just throwing out, but if
truly there were a pro-life agenda and information in there
were indexes to establish what companies were doing to foster
pro-life or pro-Second Amendment, whatever----
Mrs. McClain. Pick one.
Mr. Reyes. Pro-life. Under the same arguments and logic,
having a larger work force would certainly help the economy and
in 18 years, you know, when you have a person of majority being
able to enter the work force, but certainly even sooner, than
2050 goals ostensibly, and even more impactful criteria, would
then my colleagues be equally open to considering all of that
information? I do not know, but it is a good hypothetical.
Mrs. McClain. I do not know either, but I have an opinion
on where I think they might stand. But at any rate, in my
opinion, ESG investments distribute money based on political
agendas. That is not their job. It is not up to them to have a
political agenda. Rather, their earnings are best returned for
savers. I mean, at the end of the day, rate of return needs to
matter because then we are going to go back when all of these
investments fail, and we are going to look at the investment
companies and say, well, you did not return your investment. We
have to be transparent with the American people, and if we
cannot be transparent with our ideological views, then what are
we hiding? And that is the purpose in this. Let us just be
transparent, and let us be transparent with a concept through
all of our investing. And with that, I am over, so thank you.
Chairman Comer. The Chair recognizes Ms. Crockett from
Texas for five minutes.
Ms. Crockett. Thank you, Mr. Chair, and before I begin, let
me first just say thank you so much. I sit on the Ag Committee,
so you were like feeding my soul as you were talking about the
struggles of our farmers because I have been listening to my
farmers talk about the droughts. And I am from the state of
Texas where we are enduring droughts, floods, as well as
freezes, so we have everything as a result of the thing that
really does exist called climate change. So, thank you for
that.
I am tired of my colleagues on the right using these
hearings as a tool for their 2024 campaign. Pretty soon, this
Committee's Majority will need to file with the FEC an in-kind
contribution. Instead of talking about how Speaker McCarthy's
manufactured crisis on the debt ceiling has led to declines in
the stock market, instead of talking about how investors are
scared about whether U.S. will pay its bills, today we are
talking about their fear of what my colleagues call radical
woke-ism.
ESG is not--I repeat--ESG is not radical or woke, and being
from Texas I can tell you where radical looks like because,
clearly, we have had some tragedies just this past week because
of radical rhetoric, if we are going to talk about what radical
looks like. ESG, like any financial information, is just good
business. It is another tool in the toolbox to consider
advantageous investments and business decisions. Asset managers
have a legal fiduciary duty to maximize profits, but it is
ignorant to say that to maximize profits you have to do it at
the expense of ESG. That is just false.
ESG impacts our investment strategies that incorporate
long-term risks to make long-term down payments as well as
returns on future breakthroughs. They allow financial
professions to manage and promote risk reduction for client
investments to maximize returns. I am surprised our Chairman is
opposed to this because just last week, he praised the GAO's
High-Risk List as a valuable tool for, ``Congress can make more
informed decisions.''
It is only responsible then that asset managers present all
information posing financial risk to clients to allow them to
make more informed decisions, especially Americans wanting to
responsibly manage their retirement savings. The asset managers
offer ESG information because large companies use ESG in their
business decisions and investments. Why? Because there are real
financial and monetary returns when ESG impacts are
incorporated.
Attorney General Marshall, yes or no, ESG risks have
monetary value that impact financial benefits and corporate
opportunities?
Mr. Marshall. I disagree with all of ESG criteria.
Ms. Crockett. Actually, if you look at Royal Dutch Shell's
annual reports dating back to 2005, it stated, ``Shell assesses
the underlying economic, political, social, and environmental
drivers shaping the markets and margins to evaluate commercial
opportunities and potential new business models.'' It has done
so in almost every report, if we look back at examples from
2010 and 2022. Even Fox News, who my colleagues love, a
publicly traded company, in its 2022 annual financial report
noted that environmental, including climate, social, and
governance matters, have costs that pose material adverse
effects on its business, financial conditions, and operations.
By Republican standards then, Fox and Shell are advancing
radical woke propaganda. I do not see efforts to cancel them or
call them out. As Attorney General Marshall said in his written
testimony, ``Global elites are using ESG, a woke economic
strategy to hijack our capitalist system,'' but I digress.
Attorney General Marshall, will you file lawsuits against Fox
for breaching its fiduciary duties, or is it just the
investment advisors publicly providing information on ESG that
you want to target?
Mr. Marshall. Fox does not have a fiduciary duty to the
citizens of my state.
Ms. Crockett. Just to be clear, ESG is not woke or radical.
It is just good business. Do not take my word for it. A New
York University economic study examined over a thousand reports
reviewing the relationship between ESG and financial
performance. It overwhelmingly found a positive relation
between ESG and financial performance for returns on assets,
returns on equity or stock prices. Why are we wasting valuable
time examining ideas that are not in the public interest and
which the public has no interest in?
I have 30 seconds left, and with that, I would like to
yield to the honorable Treasurer to just offer any thoughts,
any additional thoughts that you may have?
Mr. Frerichs. Yes. I will just say I heard talk about how
these ESG data, there is not agreement, that it is difficult,
it is all over the board. It is because we are looking at
different industry, and there are different risks in different
industries. Product safety is a big risk in consumer products.
Ms. Crockett. Yes.
Mr. Frerichs. In business services, it is not as big of a
risk. Climate change is a big issue for property insurance but
not so large and supplemental insurance.
Ms. Crockett. Absolutely.
Mr. Frerichs. I will repeat that investing is hard. You
have to consider different industries. You have to consider a
lot of different factors. A lot of people would like to just
outsource that. Maybe they do not like their choices, but we
take this very seriously, and when you pass legislation to deny
us that data, it makes our job that much more difficult.
Ms. Crockett. Thank you so much.
Mr. Frerichs. Thank you.
Ms. Crockett. With that, I yield.
Chairman Comer. The Chair recognizes Mr. Langworthy for
five minutes, from New York.
Mr. Langworthy. Thank you very much, Mr. Chairman, and
thank you to our witnesses for joining us here today.
Asset managers wield tremendous power and responsibility
over trillions of dollars of in assets, and it is important
that they make investment decisions based solely on financial
performance and risk management rather than being swayed by
political and social activism. Now, while some view ESG
policies and initiatives, like Climate Action 100+, is a noble
cause, it is important to remember that the companies targeted
by these initiatives are also vital to the American economy and
provide jobs and livelihoods to millions of our citizens. If
these initiatives are successful in imposing additional
regulations and restrictions, it could lead to significant job
losses and increased financial hardship for many Americans,
which leads me to my first question.
Attorney General Marshall, Climate Action 100+ has
identified companies targeted by asset managers, such as
Lockheed Martin and Procter & Gamble, which produce military
equipment and pharmaceuticals. If there were to be significant
change in the allocation of capital toward these companies, how
might it affect national security and public health in the
United States?
Mr. Marshall. Well, I think it absolutely could impact it
based upon the ability of those companies to fulfill their
mission. Congressman, one thing that has been talked about here
is the market, and what has been ignored by your colleagues on
the left is the fact that the market is not driving individuals
to boycott certain segments of industry. They are not asking
people to not be financed because of the particular jobs that
they do. That is driven by outside agencies, not the market
itself. We need to let the market prevail, and if we do so, we
have the opportunity to provide goods and services not only to
the people of this country, but also to be able to maximize the
value to investors.
Mr. Langworthy. Thank you. The list also comprises energy
producers and utility companies that rely on fossil fuels. If a
shareholder proposal were to mandate a company like Xcel
Energy, which provides natural gas and electricity to millions
of Americans, to entirely abandon fossil fuels, how might that
impact the customers and the employees of that company?
Mr. Marshall. Well, look at California, No. 1, by the way,
about whether or not we are going to have rolling blackouts,
whether or not we have reliable energy, and whether or not we
have affordable power that the citizens of my state can be able
to pay. When we have this radical transformation of energy
policy not dictated by the body in which you sit, but instead
by global elites, then there is not the opportunity to debate
what are the consequences of those decisions. We are already
beginning to see that, but yet, what may occur in the near
future, we still do not know.
Mr. Langworthy. These companies, whether or not ESG
advocates agree, are essential to the American economy. They
provide employment to hundreds of thousands of people as well
as essential services to millions. The International Energy
Agency concedes the technology to achieve a net zero by 2050
does not yet exist. Does an investment strategy ground in the
basis of that target increase risk to investors?
Mr. Marshall. I think absolutely, and particularly risk as
it relates to how it is that we are going to be able to provide
cheap energy, which has been the driver of this company across
the board to all Americans and all states.
Mr. Langworthy. America is already in an energy price
crisis, but if these major energy producers, they lose their
financial backing or they are forced to abandon fossil fuels--
either of the Attorney Generals can answer this--would you
expect energy prices to rise if they lose a significant
financial backing?
Mr. Marshall. Absolutely. I mean, first of all, the
technology is not to where renewables are going to supply what
already is being supplied by those plants that are fueled by
natural gas or coal. And if, in fact, we are unable to acquire
the resources we need for the power to be generated, which we
saw recently, that cause the increased price for consumers,
then America needs to be ready. We need to be ready to pay
higher prices and also have unreliable energy, which we have
been able to depend on for at least my lifetime, Congressman,
and for others as well.
Mr. Reyes. And on that point, again, Congressman, I will
reiterate what the FERC commissioners just gave us a dire
warning about the stability of the grid and the security of the
grid, given current circumstances.
Mr. Langworthy. And just in my closing seconds, Attorney
General Reyes, I know that many of the companies who do conform
to ESG initiatives, they are relying on rare earth minerals,
specifically resources that just are not readily available in
the United States. There is an overemphasis on companies that
rely on these resources, which primarily come from China. Does
that compromise American national security, in your opinion?
Mr. Reyes. It absolutely compromises our national security,
and, in addition, something we haven't mentioned earlier, there
are other issues about our Southern border security that ESG
also compromises. Thank you, Congressman.
Mr. Langworthy. Thank you very much, and I yield back, Mr.
Chairman.
Chairman Comer. The Chair recognizes Mr. Moskowitz from
Florida for five minutes.
Mr. Moskowitz. Thank you, Mr. Chairman, and I want to thank
the witnesses for being here today and attending what could be
called the Oversight Committee hearing on the death of the free
market. I mean, boy, how things have changed in the Grand Old
Party. I mean, it used to be about free markets, and it used to
be about corporate freedom, and it used to be small government,
and it used to be, you know, government out of businesses,
government out of the bedroom. Boy, has that pendulum really
swung here.
I mean, we want government everywhere. I mean, this is like
corporate socialism where we now want the government to tell
people that they have to invest in certain companies. Like
individuals cannot make the decision? I mean, it is a wild sort
of turn of events for the Grand Old Party. I mean, if Ronald
Reagan was here and he was listening to people talk about, you
know, that we need government to make sure that people have to
invest in companies that, you know, make guns, you know he
would not even recognize you guys.
But some of the witnesses, you know, when they were talking
about ESG, they talked about it as if it was a deadly weapon
that is going to destroy our country. You know, it is not. You
know, it is not a widely supported investment strategy used to
minimize and maximize returns, one that is shown to offer, you
know, greater long-term resilience, lower risks due to
factoring in all potential costs to society, but I want to
focus on this deadly weapon part.
You know, I am from Parkland where the shooting was at my
high school, Marjorie Stoneman Douglas, so if you want clear
clarity on what a deadly weapon is, I can assure you it is not
ESG. It is a kid with an AR-15 and unlimited ammunition walking
into my school and killing 17 people. So, let us have a real
sort of grip of reality of what investment strategy is or is
not versus what a deadly weapon is. You know, after the Marjory
Stoneman Douglas school shooting, you know, Walmart and Dick's
Sporting Goods announced that they would stop selling assault
rifles, and, you know, I applauded them for doing that. And if
I want to invest in a company because they have decided to make
a policy change, I should have that ability to do so or not do
so, by the way.
I am pretty sure I just saw, you know, some of my
colleagues, you know, going out and you know shooting Bud Light
cans because, you know, they did not like what Bud Light was
doing. Should we have government mandate that they got to go
invest in Bud Light because we want to support Bud Light? I
mean, that is what you guys are advocating. I mean, it is
really kind of crazy.
And so, you know, I do not know what we are doing here, Mr.
Chairman. You know, this is part one. There is going to be a
part two. I mean, part one was just so fascinating, I cannot
wait for part two. But, you know, this Committee has not taken
any action on gun violence. We want to talk about a deadly
weapon. This committee has not looked at all into AR-15s or
deadly weapons or school shootings or mass shootings. I mean,
do you think parents in this country care about ESG? No, they
care about dropping their kid off at a movie theater or at a
mall, you know, or at school. They do not care about ESG. You
know, this is stuff that, like, 10 percent of Twitter cares
about, OK?
And I just want to know when we are going to get serious
here. And so, Mr. Chairman, I ask when is this Committee going
to have a hearing on gun violence?
Chairman Comer. You were not here last year, but all the
hearings pertained to the Washington Commanders football team.
They pertained to the Equal Rights Amendment. They pertained to
abortion. They did not have a single hearing with a single
Biden Administration official. They did not have a single
hearing on anything relating to how tax dollars were being
wasted by this Administration. So maybe you should take the
lead and campaigning for your side of the aisle, and then if
you all win the majority, then you can have hearings on the
Washington Commanders football team again.
Mr. Moskowitz. Reclaiming my time, Mr. Chairman, you know,
that is fine. I was not here, but, you know, you are in charge
now, and mass shootings are completely out of control. And so,
you have the power to make the decision decide whether we
should have hearings on D.C. public urination or on mass
shootings. You are the Chairman. I am just a lowly Democratic
freshman, and so I implore that this Committee start to look at
mass shootings and the real weapons that are destroying
people's lives, which are AR-15s. Thank you Mr. Chairman.
Chairman Comer. The Chair recognizes myself for five
minutes. General Reyes, in the letter that you led with your
Attorney General colleagues, you said, ``The 2023 proxy season
will present multiple occasions on which asset managers will
have to choose between their legal duties to focus on financial
return and the policy goals of ESG activists.'' Can you provide
some examples that illustrate these occasions?
Mr. Reyes. Sure. Let me give you one very concrete example.
I alluded to it earlier, Mr. Chair, but that resolution
pertaining to Travelers Insurance----
Chairman Comer. Mm-hmm.
Mr. Reyes [continuing]. Is back up again for this season of
proxy proposals and for shareholder resolutions and voting, and
I did not get a chance to perhaps articulate clearly enough the
problematic nature of that situation. So, you have a very
activist faction of ownership, backed by one of the two largest
proxy voting agencies, pushing a particular agenda that they
have agreed upon to conduct racial audits, which may be
appropriate or may not be appropriate for other companies or
other industries but certainly are not appropriate for the
insurance industry.
The directors of Travelers have brought this to the
Securities and Exchange Commission pleading for relief to
exclude, which the SEC has the power to do, that type of proxy
proposal--excuse me--that type of shareholder proposal from
being even considered, but the SEC has sat on its hands and not
done anything to exclude that, so it is back up again. This
would require Travelers to then ask for information based on a
person's race.
Chairman Comer. Mm-hmm.
Mr. Reyes. They would solicit information for underwriting
purposes and for identification, which clearly violate numerous
different states' laws.
Chairman Comer. And I think that is a very good point that
I do not think my friends on the Democrat side of the aisle
understand. When they talk about ESG, they are just talking
about what mutual funds, pension managers can invest in, or
treasurers can invest in their pension funds. And Kentucky has
the second worst funded pension in America, but we will always
say thank God for Illinois because it was the one state worse
than Kentucky's. But what I do not think the Democrats
understand is this affects banking and insurance. It is not
just investing, and we have got a problem in our banking
industry right now, and, you know, we are not going to get into
that, but this ESG is a political movement that is gaining
ground. It is gaining ground on Wall Street, and it is
affecting consumers not just investors.
But you have previously described how the insurers face the
dilemmas by pursuing ESG goals. Do you think these insurers are
facing these ESG-related proposals that push for unlawful
altercations of underwriting activities?
Mr. Reyes. Well, clearly, it is the same resolution that
was proposed the previous year. They are just hoping that they
can win over another 3 or 4 percent and carry the day, which--
--
Chairman Comer. So what risk are the insurers exposed to
with the adoption of ESG factors in underwriting?
Mr. Reyes. They would be potentially liable----
Chairman Comer. Liability, exactly.
Mr. Reyes [continuing]. In dozens of states----
Chairman Comer. Money.
Mr. Reyes [continuing]. For breaking the law, or excuse me,
Mr. Chair, you alluded to banking. Although we have not seen
yet concerted efforts to de-bank solely based on ESG criteria,
that is not out of the realm of possibility.
Chairman Comer. It is not, and if we look at the website
for the San Francisco Fed, it was all about ESG policy, and
some of the banks, Silicon Valley sticks out in my mind.
Mr. Reyes. Well, we just sent a letter to JPMorgan Chase
with concerns over de-banking regarding religious liberties.
Chairman Comer. Right.
Mr. Reyes. And it is only one step removed----
Chairman Comer. Exactly.
Mr. Reyes [continuing]. To then migrate over. If they start
to see more and more insurance companies and asset managers
withdraw from some of these large horizontal agreements, then
you may see more pressure on banks to start de-banking.
Chairman Comer. Exactly. And I think that is of the utmost
importance. Mr. Moskowitz, I do not think, understands the
issue. He is thinking in terms of Wall Street, but this has a
potentially detrimental effect on our ability to bank and
insure. This significantly increases liability costs for many
industries, which will be passed along to consumers. I do not
think my friends on the other side of the aisle have fully
comprehended what inflation is and what causes inflation. But
you know, my time has expired here, but, you know, I am just
amazed at the defense of ESG policies and the defense of, you
know, why we have to have this type of radical political
ideology ingrained in our investing when we just had a press
conference and showed bank records that showed the Biden family
getting millions of dollars from places like China and Romania,
and I wonder what type of ESG policies China and Romania have.
You all probably cannot answer that, but maybe that is
something my friends on the other side of the aisle could look
into.
The Chair now recognizes Mr. Burlison for five minutes.
Mr. Marshall. Mr. Chairman?
Chairman Comer. Yes?
Mr. Marshall. Mr. Chairman?
Chairman Comer. Yes.
Mr. Marshall. I am sorry. Down here. This is General
Marshall.
Chairman Comer. Oh yes. Yes. I am sorry. I thought it was a
Member. Yes, General Marshall.
Mr. Marshall. May I briefly be excused?
Chairman Comer. Yes.
Mr. Marshall. OK. Thank you.
Chairman Comer. I am sorry. I am sorry, Mr. Burlison. It is
Ms. Holmes Norton next for five minutes.
Ms. Norton. Thank you, Mr. Chairman. When Chairman Comer
announced this hearing, he stated that he shared the concerns
of the Republican Attorneys General testifying today that ESG
principles are being used by progressives to shape corporate
behavior. This is a question for Mr. Frerichs. I disagree.
Instead of a mixture of political theater and disinformation,
Republicans are pandering to anti-ESG stalwarts, including Big
Oil proponents, by attempting to influence the criteria of
financial professionals.
ESG has wide-reaching support from climate activists to
investment industry to investors, all for different yet
legitimate reasons. Climate advocates support ESG principles
because they may accelerate the transition to a low carbon
economy and could help slow the climate crisis. The investment
industry supports ESG because integrating responsible
investment factors into the investment process can lead to
prudent risk management and potentially better retirement
outcomes for millions of Americans. Investors support ESG
because, as consumers, they demand to invest their hard-earned
money in companies that reflect their values and promote
governance. Mr. Frerichs, as the Illinois State Treasurer, you
are the main investor and asset manager for public funding in
your state. Do you support using ESG principles as part of
responsible investing for the state of Illinois?
Mr. Frerichs. Well, certainly we do. It is fundamental to
our risk analysis, which is our main responsibility for our
pensioners, for our college savers to make sure that they do
not suffer some of the risks that we have seen with collapses
of companies, like Enron, like Purdue Pharma.
Ms. Norton. Would you say there is widespread support for
ESG in Illinois across political spectrums?
Mr. Frerichs. I would say within the investment community,
there has been increasing support. A significant percentage of
investors, public asset managers out there consider this ESG
data in their investments. The only thing radical going on
right now, the only major change going on is this pushback. I
hear a lot of concern for banks being bullied or muscled or
told what to do, but I only know of one piece of legislation in
the state of Texas that told banks where they have to invest.
If you had asked me 30 years ago what I thought the odds of me
defending the free market against a Republican legislature
trying to have a planned economy mandating what businesses have
to invest in, I would have laughed, but that is where we are
today.
Ms. Norton. Well, Mr. Frerichs, support up for ESG is
derived not only from investors wanting to ensure their money
is going to worthy companies but also the financial benefits of
responsible investing. According to research, returns from
responsible investment taking into account ESG factors offers
greater long-term resilience and lower risk due to factoring in
all potential costs to society, such as climate change and
pollution. For example, companies that are less reliant on
fossil fuels are more likely to be considered good long-term
investments than companies that remain heavily dependent on
them. Similarly, corporations that are more diverse and more
reflective of the U.S. population are better suited to meet the
needs of consumer demands of an increasingly diverse
marketplace. Mr. Frerichs, can you explain why these types of
considerations are so important to investors?
Mr. Frerichs. Well, I could ask a question. Do you know
which companies out there were happy that they made efforts
over the last several years to carbonize? European countries
affected by Vladimir Putin's war against Ukraine and with a
rising spike in energy costs are happy they made those
decisions. They limited risk from things like that aggression,
but they also benefit from this climate transition. This is not
all about costs. There are opportunities that come with climate
change, and businesses that are positioning themselves to be at
the forefront there are businesses that are going to be
profitable in the future. Those are the businesses we want to
be investing in.
Ms. Norton. ESC is widely supported across the country and
the political spectrum. Countless investors and asset managers
have pivoted to focus on responsible investing because of the
benefits it provides for the world and Americans' wallets. I
yield back.
Chairman Comer. The Chair recognizes Mr. Timmons from South
Carolina for five minutes.
Mr. Frerichs. And for Congressman Timmons, I am not running
away, but I could also use a slight break. I will be back
shortly.
Mr. Timmons. Can you go in five minutes, please?
Mr. Frerichs. Sure.
Mr. Timmons. Sorry. I am literally only asking you
questions.
Mr. Frerichs. Great. OK.
Mr. Timmons. Sorry. I appreciate that. We will let you
leave right after this. So, I guess let us just talk about the
goals of ESG. The ESG movement is designed to protect the
environment. We all want that. It is to facilitate a cleaner
environment for generations to come, social. We want every
business and their teams to facilitate a working environment
that everyone is accepted, is paid a reasonable wage
appropriate with their skill set, and as governance. I am in
the military, I am in the Air Force, and we have talk about
this a lot. We want every decision-making room to reflect the
people that they serve, whatever those percentages are, so
those are the goals.
And so, you referenced two things that I just totally
disagree with have anything to with the ESG: litigation risk
for pharma and understaffing for whatever business you are
referencing. Those are not ESG. That is a legitimate thing to
take into account as it relates to the profitability of a
business. If they are going to get sued and lose hundreds
billions of dollars, that is going to affect their bottom line.
Understaffing, it could result in a worse/good product, which
could also subject it to major challenges in their
profitability.
So, and you also reference football being merit based, and
I would argue that professional sports might be the single most
merit-based because they want to win, but almost zero
professional team reflects the makeup of the people that they
serve, whether it is United States or whether it is local. So,
I mean, I do not see that as being relevant.
So, you also talked about the fact that this is important,
everybody wants to do this, but I am OK with Illinois doing
whatever you all want to do. But you currently have $140
billion deficit with your pension, and when you go into
austerity measures, you are going to come to Congress, and you
are going to say we have a massive deficit. We are going to
have to go into austerity measures. It is going to impact all
these people. It is going to be so sad. But I would argue that
the decisions you are making, specifically as it relates to
enforcing your proxy voting rights, I mean, I guess this is the
governance social component of it, but it is not merit based.
It is not designed to make a return on that investment.
And so, in a world where gender, where sexual orientation,
where race have become fluid--I mean, these are things that
change--how do you justify putting emphasis on that as it
relates to your proxy voting rights? How do you not see that
that is not merit based and that is going to result in a lower
return, and it is going to cause more problems than you are
having right now with your pension?
Mr. Frerichs. I have explained this before, and I will
explain because I think there is a misunderstanding of what ESG
is. ESG is data, and you said all those goals that I have.
Those are not my goals.
Mr. Timmons. So, there is no data----
Mr. Frerichs. My goals are to maximize returns for----
Mr. Timmons. There is no data that shows that if you have a
certain number of men and women or minorities on a board, that
that board is going to produce better results. I would actually
even argue that there is recent evidence that shows the
opposite. SVB and Signature Bank, most of their emphasis was
not on the nuts and bolts of banking. It was on diversity and
inclusion. It was on ESG, and they failed. And you know what is
the problem? My constituents, the people that I represent, have
to pay for it because the systemic risk measures that were
taken by Treasury and by the FDIC results in higher FDIC
premiums for the banks that I serve.
So again, I do not care what you do in Illinois, but do not
come to me when you bankrupt your pension. Do not come to
Congress when you bankrupt your pension and think we are going
to bail you out like we bailed out SVB and Signature Bank.
Mr. Frerichs. Not asking.
Mr. Timmons. Well, you are not yet. You are not yet----
Mr. Frerichs. Not asking.
Mr. Timmons [continuing]. Because you are actually
violating your fiduciary obligations to the pension by not
focusing on a return on the investment. You are focusing on
things like gender and race and sexual orientation, which that
has nothing to with merit.
Mr. Frerichs. Yes. I believe these recordings are
videotaped, and you will find, if you listen to my comments,
that those are, in fact, my requirements. My requirements,
returning a fiduciary duty. Silicon Valley Bank did not fail
because a focus on woke. It failed because they did not listen
to their risk managers.
Mr. Timmons. They did not have risk managers. I am sorry.
They did not have risk managers because they had three
diversity officers.
Mr. Frerichs. That is why they failed.
Mr. Timmons. But they had three diversity officers. Do you
not see the emphasis on ESG on diversity as being a problem----
Mr. Frerichs. You said there is----
Mr. Timmons [continuing]. To pursuing profit, which is
basically what happened there, and it is what you are doing.
Mr. Frerichs. You mentioned diversity on boards. There are
no quotas out there, but research has shown, multiple research
undertaken shows that diverse boards outperform homogenous
boards. We are not excluding anyone----
Mr. Timmons. Well----
Mr. Frerichs [continuing]. In saying that getting more
different opinions from different backgrounds on the table
produce better results.
Mr. Timmons. In this case, having people that have
experience in banking would result in SUV and Signature not
failing. Instead, they were focused on diversity inclusion.
They were focused on gender and race and on sexual orientation
and pronouns, and that is why we need to stop this, and we need
to focus on fiduciary obligations and getting return for
investors. Thank you. I yield back.
Mr. Frerichs. They focused too much on one specific risky
industry. They did not have risk managers they were listening
to. That was the cause----
Mr. Raskin. Mr. Chairman----
Mr. Frerichs [continuing]. Of their demise.
Mr. Sessions. [Presiding.] Just a moment. Does the
gentleman yield back his time?
Mr. Timmons. Yes.
Mr. Sessions. The gentleman yields back his time. Does the
gentleman seek----
Mr. Raskin. I seek unanimous consent just to introduce an
article on this very point saying SVB's collapse was a failure
of governance and describing it as a textbook case of corporate
mismanagement, and it is from Axios. So, I would like to
introduce----
Mr. Sessions. Without objection----
Mr. Raskin. Thank you.
Mr. Sessions [continuing]. We will enter that into the
record.
Mr. Raskin. Thank you.
Mr. Sessions. Does the gentleman seek further time?
Mr. Raskin. No.
Mr. Sessions. Thank you very----
Mr. Raskin. Thank you much. Thank you.
Mr. Sessions. The gentleman, Mr. Ro Khanna, is recognized
for five minutes.
Mr. Khanna. Thank you, Mr. Chair. Attorney General
Marshall, I want to see if we can find----
Mr. Sessions. Excuse me just a minute. Will the gentleman
hold on just one a moment, please? Does the gentleman seek
agreement that he could go use the outside services?
Mr. Khanna. Go ahead.
Mr. Sessions. OK. I am trying to make sure because I do not
want to interrupt if that is the question. OK. Sir, the rooms
might be outside and to the left.
Voice. We got one back there.
Mr. Sessions. OK. Got back there. OK. Excuse me. The
gentleman now will be recognized for five minutes.
Mr. Khanna. Thank you, Mr. Chair. Attorney General
Marshall, I want to see if we can find some common ground. I
assume you would agree with me that if BlackRock or a company
wanted to prioritize investments for things that were made in
America, that would OK.
Mr. Marshall. The question is whether or not that is going
to maximize the return for the investor and that fund.
Mr. Khanna. I mean, I believe that it is fine for companies
to prioritize goods made in America, made in Alabama, made in
the United States regardless of profit maximization. You would
disagree with that?
Mr. Marshall. I would disagree with that. The role the
fiduciary is to maximize the benefit for that individual for
whom they represent.
Mr. Khanna. OK. Well, I----
Mr. Marshall. If I can finish, please, sir. It is a sole
interest duty of loyalty that exists for that fiduciary, and,
in fact, investing in a company that produces American goods is
not profitable nor does it provide a return, then that
individual would be acting contrary to their duty of loyalty to
that particular investor.
Mr. Khanna. Well, we just disagree with this. I think your
view is more of a globalist view. I would be curious what
President Trump thinks actually because my view is that
American investment firms should prioritize investing in making
things in America. I thought that was half of the former
President's campaign, so we just have a philosophical
disagreement on that. Let me ask a second question. I assume
you would be fine if BlackRock says even though the vast
majority of a profit maximization would mean investing in
China, which by the way they have said that is the highest
returns, we are going to choose not to invest there because of
the human rights violations of the Uyghurs. Would you be for
them maximizing their profits and investing in China or would
you support them not investing in China because of human rights
concerns?
Mr. Marshall. Obviously, BlackRock has multiple investment
vehicles for which people can choose. If, in fact, they have a
global fund in which they are investing in China, then the
investor has an opportunity to determine whether or not----
Mr. Khanna. But would you say it is fair for BlackRock to
make a decision that they should not invest in China, even if
that is higher returns, because they have a problem with the
human rights view and the Uyghurs?
Mr. Marshall. I think the question is: what is the purpose
of the fund, what is the defined investment----
Mr. Khanna. The purpose----
Mr. Marshall [continuing]. Goal that is there.
Mr. Khanna. Yes, they are----
Mr. Marshall. And then they can make a decision about
whether or not it is an appropriate return for that particular
investor.
Mr. Khanna. So, if they made a decision and Larry Fink said
we are not investing in China in regions with the Xinjiang
where there are Uyghurs, would you be fine with that?
Mr. Marshall. Tell me again this----
Mr. Khanna. Uyghurs are basically oppressed in China, and
if BlackRock said we are not going to invest there because we
are concerned about the human rights violations, would you be
fine with that?
Mr. Marshall. BlackRock has an opportunity to define the
fund, how it would be invested, and how it is that they choose
for those who choose to invest it.
Mr. Khanna. So, you would be fine. If they made a decision
on human rights grounds, would you be fine with that?
Mr. Marshall. It is a broader issue than that, Congressman,
as far----
Mr. Khanna. Well, no, I was just asking----
Mr. Marshall. Sir, you are not letting me answer my
question.
[Cross talking.]
Mr. Marshall. You may have an agenda that you want to ask
for this question, but what I am answering for you----
Mr. Khanna. I reclaim my time. Let me ask you this.
Chairman Gallagher--I am on the China Committee--we have had
Republicans lecture BlackRock saying that they should have the
values not to be investing in China even if it is profit
maximizing because of the human rights violations with the
Uyghurs. Would support that view?
Mr. Marshall. First of all, I do not know exactly the
circumstances that you are talking about.
Mr. Khanna. Well, that is shocking that you do not know of
the Uyghurs and the human rights violations there.
Mr. Marshall. I cannot tell you that I know anything about
it, sir.
Mr. Khanna. Well, I suggest maybe you should read up on it
because it is a huge concern for America, but would you support
that view? I mean, I am just trying to say where do you think
values matter. Would you have supported the view that we should
not be investing in Germany during World War II?
Mr. Marshall. I think the issue for investment companies is
whether or not they are complying with their fiduciary duty.
Mr. Khanna. Attorney General Marshall, I guess here is my
point. Do you think there is ever a point that values, values
of standing up against the human rights views of China, values
of standing up against Nazism, values of standing up against
Stalinism, do you believe there is ever a time that value
should trump profit maximization?
Mr. Marshall. They have the right to choose not to invest
in companies that they believe create certain risks. That is
what the market provides.
Mr. Khanna. Once you open that door, once you say that they
have the right to, as you said, not invest in companies that
have certain risks or I would say companies that offend certain
fundamental human values, then the question is who gets to
decide what those values are. And my view is it should not be
the government deciding what those values are. It should not be
you or I. It should be in the free market these companies. If
you are saying it is fine that they should not be investing in
China with human rights violations, then what is the difference
between that and a company that says they do not want to invest
in something because of climate?
Mr. Marshall. I do not believe that a small cabal of
financial institutions ought to decide what are preferred
societal values or global energy policy.
Mr. Khanna. But that is not the case. The case is you are
not even letting the cabal, are not even letting them invest in
America. And then you are telling them do not invest in China
on the Uyghurs, and I hope you are, and then you are saying,
though, that you are defining these values narrowly. Anyway, my
time has expired.
Mr. Sessions. The gentleman yields back his time. Thank you
very much. I will yield myself five minutes.
Gentlemen, thank you, all three of you, for being here. You
have withstood questions and ideas from about 15 on each side.
This has gotten to be a little bit larger conversation than
perhaps you thought you might be engaged in, but it is pretty
normal for us. And we try and tout the things we believe in,
and we try and perhaps do not tout those things we do not agree
in. But thank you to all three of you for being here and
putting up with us.
I am an old guy. I believe that the role of government is
not to pick winners and losers. I believe it was to serve
appropriately. People provide government services, to so in a
fair and equitable way, to not overtax and not under-deliver.
But I believe that government has a role, and it is not
necessarily the activist governments that we have seen lately.
If you go back about two hours ago, there was a discussion
about prudent risk management, lowering risk, oh, look at the
long-term, maybe 20 years of a return. Well, that is good if
you can do that, but I would say to the gentlemen, the Attorney
Generals, that I have looked at the trends as of late in each
of the last probably five years, but three years I have gone
back and looked. California, New York, and Illinois have all
lost hundreds of thousands of people. A hundred and fifty-one
billionaires have moved out of California. That is economic.
People moving, notwithstanding 109 out of 111 counties or in
Illinois have decided to leave the state.
States have their own opportunity to do as they would
choose, but activist governments, just like our Federal
Government now, are lending them self to picking winners and
losers, making decisions for people, and doing things of their
own regard, even in midst of our Nation being probably a 50/50
country. And I find that this argument that we are into today
about the role of ESG as being very germane to whether is going
to be successful or not. We are dividing our self in this
country, and people arbitrarily are moving, notwithstanding, to
my home state of Texas, but in that process, dividing us.
Mr. Marshall, Mr. Reyes, please tell me, you come from two
states that I do not think you try and divide each other. You
do not try and pick winners and losers, but you do see where
there are marketplace problems out there where people are doing
that. Are you rejecting those ideas or are you simply trying to
philosophically say let us let our state businesses decide
where it goes, schools decide where they go, and try and be
successful? Mr. Marshall?
Mr. Marshall. It is clearly the latter. One of the things
that we have attempted to advance here today is this is not an
objection to the individual investor. This is a question about
whether those with outsized influence, as a result of the
assets in which they manage, have the ability to dictate public
policy that ought to be decided by accountable legislative
bodies, as well as companies' pension funds, being able to
dictate societal values in places in which they are not
present. That is the purpose of this hearing today, I believe,
and it is the focus of what we have talked about.
Mr. Sessions. Thank you. Mr. Reyes?
Mr. Reyes. Definitely the latter, Mr. Chairman, and we are
proud in Utah to be a fiscally conservative state that have
seen in migration from many of those states that you have
referenced because they value the cleanliness and the success
and the business opportunities, the family friendly environment
of our state, and then ironically, quickly try to change our
values and our way of life, importing the very things they just
fled from. ESG is a part of those policies and a process that
thwarts the free market that caused them to leave where they
came from and enjoy where they are living now in the great
state of Utah.
So, I appreciate on behalf of my citizens who are very
concerned about this on many levels--this being ESG--not just
data, not just data in a free market, in a vacuum that allows
people to make decisions without coercion, but in an
environment where every major pressure point is choking out
decisions and the free will of everyday Americans and hurting
them at their pocketbooks, hurting them in their long-term
savings, hurting them at the gas pump. And these are the things
that we hope that you will continue to hold hearings on with
regard to this ESG movement. Thank you.
Mr. Sessions. Thank you very much. I simply call it active
government making decisions on behalf of free people, and I
agree with you. I want to thank the gentleman from Illinois. I
believe that his presence today says volumes about hot only
what he believes in but, very clearly, my colleagues that are
my dear friends also viewed you as an advocate to express their
ideas, as an evaluator. And I want to thank you very much.
I yield back my time, and we now would recognize the
gentleman from Rhode Island for five minutes.
Mr. Magaziner. Well, thank you, Chairman and Ranking
Member. Thank you for letting me join you today. I asked to
join the Oversight Committee today because of my background as
a State Treasurer for eight years where I was a colleague of
Treasurer Frerichs, and my experience as an investor in the
private sector before that. And the message that I want to
deliver, because people need to understand it, is that these
attacks against ESG investing are based on a fallacy. They are
based on the argument that somehow incorporating environmental
and social and governance factors is a breach of fiduciary duty
to clients or to beneficiaries. That is not true. The opposite
is the case. As fiduciaries, we would not be doing our jobs if
we did not consider environmental and social and governance
risks when making investment decisions.
And, in fact, investors and companies that have failed to
incorporate ESG risks into their decision-making have lost a
lot of money as a result. Do you want some examples? BP. After
the Deepwater Horizon spill, BP stock dropped 55 percent,
eliminating $88 billion of shareholder value because that
company failed to adopt proactive safety protocols. Volkswagen.
Their emissions scandal caused their stock to drop nearly 30
percent, also costing investors billions of dollars. We have
heard about Norfolk Southern and Purdue Pharma. The list goes
on and on. Companies that do not manage their environmental
risk, their labor risk, their consumer protection risks
appropriately open up investors, including retail investors,
pensioners, retirees to financial losses.
So, investors would not be doing their jobs if they did not
think about these issues when making investment decisions. And,
in fact, because we have a free market in this country,
investors are voting with their feet. We have heard about how
big companies like BlackRock and others that integrate ESG
factors in their decision-making process control trillions of
dollars. Yes, because investors have chosen to take their
business there because they want their asset managers to be
incorporating all of these factors into their decision-making
process. And the data has borne out. Over the last five years,
according to Morningstar, two-thirds of funds that emphasized
ESG in their investment process have ranked in the top half of
performance relative to their peers. That is mutual funds.
So, again, ESG investing, it is common sense, and it has
been going on for years as well. Private investors have been
doing this for decades. The Department of Labor has been
allowing this for public funds for decades. The SEC has allowed
proxy voting proposals on ESG issues for decades. What is new
here is this trumped-up opposition, no doubt funded by and
pushed by the oil and gas industry that is desperately trying
to hang on because they know that the smart capital is moving
toward a clean energy future. Again, if you want an example, if
you had invested $100 in ExxonMobil stock five years ago, that
hundred dollars would be worth $142 today. Pretty good. If you
had invested that same hundred dollars in First Solar, a
publicly traded company, it would be worth $267 today.
So, the industries of the future are winning, and the
industries of the past are now trying to rig the game by
employing government interference to prevent investors from
doing their jobs. And I would note this government interference
is being run oftentimes by people who have no investment
experience themselves at all. The two Republican witnesses who
are here, who may be very credentialed in other ways, between
the two of them have zero degrees in investments or economics
or finance, are not CPAs, are not chartered financial----
Mr. Reyes. I ran a tech venture fund, just so you know,
Congressman.
Mr. Magaziner. Yes, fair enough.
Mr. Reyes. Yes. OK.
Mr. Magaziner. But no degrees, no securities license----
Mr. Reyes. But just to be clear on the record, I just
wanted----
Mr. Magaziner. Reclaiming my time. Reclaiming my time, all
right? I have spent a career in this, as has Treasurer Frerichs
and many others who were not given the opportunity to come here
today. Our Republican witnesses have experience trying to
overturn elections that were freely and fairly won but not
incorporating smart ESG factors into investment decisions.
So listen, we know what is going on here. This is a
taxpayer-funded effort to run interference for the oil and gas
industries, prevent investors from doing their jobs and
exercising their judgment, and prevent investors from having
the options for where to move their money. It is un-American.
It is not in keeping with the free market or sound investment
principles. And with that, I am out of time, and I yield back.
Chairman Comer. [Presiding.] The Chair recognizes Mr.
Burlison from Missouri for five minutes.
Mr. Burlison. Thank you, Mr. Chairman. You know, I am an
investment advisor representative. I do have a securities
license, and I sat across the table from people when you manage
someone's accounts and the burden is on you to make sure they
make it all the way to end of life, and that their funds do not
run dry. And I will tell you when you are facing someone and
you are looking at them across the aisle, you realize that
burden. It weighs on you, and when your clients' portfolios go
down, you feel the pain. But you know what I would never do? I
would never, and I would think it would be fiscally
irresponsible, to apply my morality on my clients' funds,
right? Mr. Marshall, would you not agree that people have
different moralities, and if your investor is applying their
brand of morality on your funds, would you be pleased with your
performance?
Mr. Marshall. I would not, but that is the goal of those
that initiated ESG concepts to the United Nations, which said
that they want to transform the world by creating a global
energy economy as well as being able to set preferred societal
values.
Mr. Burlison. Yes. And, Mr. Reyes, the problem is that we
have a situation where the tail, folks like Mr. Frerichs, is
wagging the dog and using his position and voting position to
be able to change the direction of companies, and these
companies are where are our citizens and their retirements are
invested.
Mr. Reyes. That is that is correct. I would not want
anybody's morality, whether it was progressive, conservative,
or something in between, voting with my dollars. And when I and
my team invested on behalf of others, it was the same. We would
not interject our own political preferences or personal
preferences.
Mr. Burlison. Well, and the impact on states is
unbelievable. We heard that Illinois is over, I saw reports,
$110 billion in a pension deficit. It may be more, right? And
so, the problem is that in order to make that up is that the
state has to kick in more dollars in order to get that fund to
be solvent. That is what happens in every state. When you
become below a particular level of solvency for your pension,
you start having to kick in more, and the impact on the
taxpayers is devastating.
So yes, we can talk about whatever moral decision that you
want to make. You can make voting right decisions to direct
people's money toward your brand of morality. But when you mess
around with other people's money and they get hurt, who pays?
Do you? No. You do not pay. They do, and that is what this is
about. We are trying to make sure that people are not messing
around with retirees' funds.
So, let me ask this question. It was mentioned that we just
want to have more information out there, so let me ask a
question. Mr. Marshall, and you guys can go down the line and
just say, in Missouri, our Treasurer issued a rule that said if
your money manager is using ESG in their metrics, then your
client should probably know about that, right? More information
would be good information. Would you agree with that?
Mr. Marshall. I do not disagree at all.
Mr. Burlison. Mr. Reyes, do you agree with that?
Mr. Reyes. Agreed.
Mr. Burlison. Do you agree with that, Mr. Frerichs, more
information is good information?
Mr. Frerichs. Mike Frerichs, I agree with that.
Mr. Burlison. Thanks.
Mr. Frerichs. And I disclose all this on our website. We
are public and transparent.
Mr. Burlison. OK.
Mr. Frerichs. I agree with you, but I would disagree with
your statement that this about me pushing my values. This is
about pushing value for companies. When we hold----
Mr. Burlison. Right, and, Mr. Frerichs, businesses are not
going to heaven or hell, are they? There is no----
Mr. Frerichs. No, but businesses do declare bankruptcy,
like Purdue Pharma.
Mr. Burlison. Well, and that is math.
Mr. Frerichs. That was a bad investment.
Mr. Burlison. That is math. There is no morality to math. I
reclaim my time.
Mr. Frerichs. I completely agree with that statement.
Mr. Burlison. But again, I reiterate that as an investment
advisor, who actually had to deal with clients and actually
worry and stress about whether or not, when they are making
that decision, I am retiring, am I going to make it all the way
through, and you are sweating that for them, you are stressing
about that for them, it is not your money. But when you know
them, you are looking at them in the eye, you know that you
cannot mess around with their money and apply your morality.
Thank you, Mr. Chairman. I yield back.
Mr. Frerichs. I sweat the 850,000 families who are saving
for college education to make sure they can graduate----
Mr. Biggs. Point of order.
Mr. Frerichs [continuing]. Without more debt.
Mr. Biggs. There is no question before the gentleman.
Chairman Comer. The Chair recognizes----
Mr. Biggs. He yielded back.
Chairman Comer. Oh, Mr. Biggs, yes.
Mr. Biggs. Thank you, Mr. Chairman. So, I have been running
back and forth from hearing to hearing today. Always
interesting to hear people say things, just make them up,
fantasy. We got to hear from one of our colleagues across the
aisle a moment ago saying this hearing is a result of trying to
protect oil and gas industry. You know, sometimes you get to
fabricate, you get to promote a fantasy, and that is what we
just heard, but that is too bad. That is too bad.
It has been nearly a decade since this Committee under
Chairman Issa exposed Operation Chokepoint, the Obama
Administration's weaponization of regulatory power to starve
lawful businesses of their access to capital and banking
services. Unfortunately, the latest iteration of Chokepoint is
being undertaken by unaccountable international organizations,
large asset managers acting in breach of their fiduciary
responsibilities, and is encouraged by the Biden
Administration, which is pushing the advancement of ESG
priorities beyond agency authorities and at the expense of
their statutory missions.
General Reyes and General Marshall, I understand that one
of my Democratic colleagues has accused Committee Republicans
of promoting corporate socialism today, another fabrication and
fantasy. Given that ESG is being forced on the public by the
Biden Administration and by activists, Mr. Reyes, Mr. Marshall,
would either of you like to respond to the claim made by one of
my colleagues?
Mr. Marshall. I think we are advocating corporate
independence, the ability to make decisions for your business
based upon what is best in the return for shareholders as a
result of the work that you are doing. One of the things that
we clearly have seen is a concentration of wealth in a very few
that has caused for them to be able to create policy changes
within companies that are not generated by their board, not
generated by shareholders who generally are involved, but
instead by a small group who happens to hold significant
amounts of shares in those companies.
The other thing, Congressman, that we have heard today is
what is truly a fiduciary duty. It is clear that this is a
U.N.-generated project, ESG factors themselves. That is where
it came from, and even the U.N. acknowledged in a recent report
in 2021 that the definition of ``fiduciary duty'' needs to be
changed in order to validly consider ESG factors. That is not a
part of the financial return. It is clearly designed to create
a very different political agenda and not one consistent with
investor return.
Mr. Biggs. Yes. So, I want to leverage this since we only
have 2 1/2 minutes left because what you are talking about, the
way I understand, is mixed-motive investing. So, there is a
2020 Stanford Law Review article by Max Schanzenbach and Robert
Sitkoff, entitled, ``Reconciling Fiduciary Duty, Social
Conscience, the Law and Economics of ESG Investing by
Trustees.'' Are either of you are familiar with that piece?
Mr. Marshall. I am not.
Mr. Reyes. I am not, sir.
Mr. Biggs. OK. Well, the articles goes on to describe for
trustees acting with mixed motives, he says, ``Acting with
mixed motives triggers an irrebuttable presumption of
wrongdoing under the sole interest rule.'' Does that sound
accurate to you the way you understand the sole interest rule?
Mr. Marshall. Yes.
Mr. Reyes. That is accurate, Congressman.
Mr. Biggs. So, Mr. Chairman, I would like to submit to the
record several decisions, Fifth Third v. Dudenhoeffer, Central
States v. Central Transport case, and several articles by
Valmer. But I want to----
Chairman Comer. Without objection, so ordered.
Mr. Biggs. Thank you.
Mr. Biggs. I want to go to this right here from that
Stanford Law Review article, and then I am going to ask you to
expand on this in our closing amount of time. ``Acting with
mixed motives triggers an irrebuttable presumption of
wrongdoing, full stop. Because the sole interest rule is
prohibitory rather than regulatory to prove a breach of
beneficiary need to prove a breach, a beneficiary need only
prove the fact of a trustee's mixed motives. Under the sole
interest rule, the trustee violates the duty of loyalty even in
the absence of self-dealing. If the trustee has any motive or
rationale for undertaking an action other than the sole
interest or exclusive benefit of the beneficiary.'' How does
ESG standards encroach upon the fiduciary duty described by the
sole interest rule?
Mr. Reyes. Before you came, Congressman, we read numerous
quotes from these horizontal organizations that clearly state
their ultimate purpose, and there is an end result for net zero
compliance. That is the motivation for them beyond anything
else, and that is why that is more akin to corporate socialism
than anything that we espouse. Socialism takes away liberty. It
takes away free will, and socialism does not ask what is in the
best interest of the individual. It asks what is in the best
interest of the state. We are absolutely championing the
opposite, which is how do you maximize shareholder value for
the individual.
Mr. Biggs. Thank you, and I see that my time has expired,
but I wish you, Mr. Reyes, if you would give your State
Treasurer, Morley Oaks, my regards.
Mr. Reyes. I will pass on to our great Treasurer----
Mr. Biggs. Thank you.
Mr. Reyes [continuing]. Your hello.
Mr. Biggs. I yield back. Thanks.
Chairman Comer. The gentleman yields back, and that
concludes our questioning portion. I will now yield to the
Ranking Member to deliver a closing statement.
Mr. Raskin. Mr. Chairman, thank you very much, and I want
to thank all of our witnesses for what was a truly enlightening
and educational discussion which I would recommend to every
U.S. citizen to come check out, and certainly business school
students, economic students, law students, students of every
type, because this has been a fascinating and important
discussion. I do not know that it advanced the campaign against
ESG. I think it reaffirmed the basic principles of the free
market and to allow asset managers, like the distinguished
treasurer of the state of Illinois, to do their jobs.
[Chart]
Mr. Raskin. Now, Mr. Chairman, I started by showing a graph
demonstrating that money invested over the last decade in a
large-cap ESG influenced fund did substantially better than
investment in the Standard & Poor 500 Energy Index, and that
came not from us, not from the Democratic staff of the House
Oversight Committee. It came from Bloomberg News. And I would
like to submit the article for the record just so we can
clarify that, if that is OK.
Chairman Comer. Without objection, so ordered.
Mr. Raskin. Thank you, Mr. Chairman.
Mr. Raskin. Now, that graph, which is quite dramatic
showing that over a decade, your money would have been better
put in an ESG-defined fund than just the general S&P 500 Energy
Index, which I was not aware of, but that graph seems to
support Mr. Frerichs' basic point today that ESG considerations
are totally consistent with an asset manager's fiduciary duties
to maximize shareholder value and, arguably, compelled by it.
That is certainly the interpretation, I think, that Mr.
Frerichs has offered today, that it would be in disregard of
your fiduciary duties simply to try to close your eyes to
environmental, social, and political concerns.
For example, we talked about Norfolk Southern. If it had
come to the attention of investors before the derailment, which
obviously caused a tanking of value of the stock, that Norfolk
Southern was making a lot of money but it was cutting corners
on safety and it was laying off workers to save money, but
making it more dangerous on the rails, that is something that
should be taken into account. I have not heard a single
argument from the other side that it should not be taken into
account.
You can say the exact same thing with Purdue. Mr. Frerichs
testified--I was using it as a hypothetical--he said they
actually came to Illinois. He faced the question whether or not
to invest in Purdue, and Purdue was coming back with staggering
profits, but he looked behind the curtain, and he did not like
what he saw in terms of Purdue getting people hooked on
Oxycontin, Oxycodone, and he said that is not a good long-term
investment for the teachers and firefighters and cops of
Illinois, and so he avoided it. He was doing his fiduciary
duty. That is what it means to do your fiduciary duty. It would
be at least arguably a violation of it to disregard all of
those kinds of concerns.
I mean, the Massey Coal Company in West Virginia was making
tons of money up until the Upper Big Branch Mine disaster,
which killed 29 miners. If you had looked more deeply into it,
they had hundreds of violations with OSHA and with the mine
safety organization. That is something that asset managers
should not take into account? That just seems way off to me.
But look, in the final analysis, it is all about free
choice. If Illinois wants to look at, you know, the mine
regulatory safety record of a particular company--I know you do
not have mining there--but if you want to look at Purdue's
actual record, what they are doing with Oxycontin and Oxycodone
and Utah does not want to look at it, well, that is your
choice. You do it, and, you know, different states can define
the fiduciary duty differently. In Texas, They seem to be
defining ``fiduciary duty'' as doing whatever the oil and gas
industry wants or the gun industry.
Look what they just did in Texas under this whole anti-ESG,
anti-woke campaign. They pulled the leash on municipal
governments in the state and dramatically interfered in the
free market to protect the oil and gas industry and the
firearms manufacturers by telling local governments that they
could not make contracts with certain private banks, which the
legislature deemed to be too woke on those issues if they, you
know, took policies or made statements that were considered too
woke by the legislature. OK. Well, what was the upshot of this
anti-woke legislation in Texas?
Well, do not take my word for it. Check out a study by
Wharton professor, Daniel Garrett, and a Fed economist, Ivan
Ivanov, which found that this anti-woke sledgehammer in Texas
is costing the cities and towns of Texas, meaning the taxpayers
of Texas, an additional $305 million to $532 two million in
additional interest payments every single year. Now look, if
Texas wants to spend an extra half billion dollars on interest
payments to make a totally political, totally partisan anti-
woke statement, then have at it. That is up to them. At some
point, the people of Texas will wake up to it, but that is
their choice. But do not interfere with the right of Illinois
and all the other states to look at all of the factors that
actually influence the valuation of companies.
Nobody should think, by the way, that this movement is
striking a blow against global elites, which we have heard a
lot about today. If you are interested in that, you should join
our investigation into Donald Trump and Jared Kushner who
brought home $2 billion--not million--$2 billion from Saudi
Arabia and the United Arab Emirates for a company he created
the day after the Trump Administration ended. So, do not talk
to me about global elites. That is the Trump family business
trafficking in global elites and their businesses. And he
collected millions of dollars in unconstitutional foreign
emoluments from Saudi Arabia, United Arab Emirates, Indonesia,
Egypt, a whole bunch of countries that patronized his hotels
and his golf courses. So, I do not want to be lectured to by
anybody about global elites because I was here for the years of
the Trump Administration.
Now, my friend the Chairman asked the question, well, what
would happen in China or what would happen in another
authoritarian regime with ESG? Do they have ESG? Absolutely
not. That is the difference between a free market democratic
society and an authoritarian or totalitarian society. All that
matters is what the state rulers tell you to do. Well here, the
state rulers want to say everybody's got to invest in Big Oil
and Big Gas, even if they do not think it is the right thing to
do from a fiduciary perspective. They want to try to compel
people's choices. Why don't we let the free market operate
instead?
In the final analysis, these decisions are being made not,
contrary to the gentleman's statements before, not according to
morality but according to economics. That is what we heard from
the excellent Treasurer of the state of Illinois today, those
are the kinds of decisions that are being made across the
country. Now, Americans have the opportunity to say we do not
want to patronize businesses that are supporting China, General
Xi, or Putin in Russia, or any authoritarian regime, but when
they are managing pension funds, they are not making a moral
decision. They are making a financial decision, and they are
withdrawing from that, they are saying it is not a good bet,
that is not a good bet for the people.
I know the Attorney General of Alabama said, well, you
should disregard all moral criteria. I think he was asked about
communist China. He was asked about Nazi Germany. He said, you
know, just maximize profit. I understand that view, OK? That is
not the view most citizens have, but a lot of the asset
managers say it is not a good bet to invest in Marcos in the
Philippines, or General Xi in China, Orban in Hungary, or what
have you, but that is up to them, and we should not be
interfering in one direction or another.
And that is the problem with this whole anti-ESG thing.
Even though it is dressed up as a critique of political
investing, it is all about promoting political investing and
promoting a political agenda. But luckily, I think the asset
managers see it for what it is, and the businesses see it for
what it is, and the people see it for what it is. I do not
think it is going anywhere, so it is going to be on to the next
battle in the culture war. I yield back to you, Mr. Chairman.
Chairman Comer. The gentleman yields back, and I want to
thank our witnesses for being here today, and it was a long
day. To those watching, it may seem that there were two
different hearings occurring today, one which explored concerns
with asset managers violating their fiduciary duty to their
clients by chasing left-wing agendas regarding the environment
and social issues, and the other which sought to cover for the
actions of asset managers abusing their authority by making
broad appeals to the need for data or access to information.
My colleagues on the other side of the aisle seem to be
conflating the term ``responsible investing'' to mean socially
responsible investing, as opposed to the fiscal responsibility,
that is asset managers' legally mandated fiduciary duty to
their clients. I think we and asset managers need a reminder:
the money asset managers invest is not their own. A fund
manager's definition of ``socially responsible'' may not only
directly oppose their clients' views, investing to satisfy
money managers' own ESG agenda could tank savings and
retirements across the Nation.
We will continue to investigate liberal agendas pushed
throughout the economy and society, be it by the private sector
or, more worrisome, by the government. And let us hope these
left-wing activists who are pushing this ESG agenda do not
continue regulating our banks, and setting our energy policy,
and doing many other jobs that have a detrimental impact on our
economy and on society. If the Biden Administration is
weaponizing a whole-of-government approach to coordinate and
force a whole-of-industry compliance with a woke agenda, it is
this Committee's responsibility to conduct oversight to the
American people, and we intend to provide it.
With that, again, I thank the witnesses for being here
today. I know it was a very long day, and I declare this
meeting adjourned.
[Whereupon, at 1:52 p.m., the Committee was adjourned.]
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