[Joint House and Senate Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
ESG PART II: THE CASCADING IMPACTS OF
ESG COMPLIANCE
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON ECONOMIC GROWTH, ENERGY POLICY, AND REGULATORY AFFAIRS
AND THE
SUBCOMMITTEE ON HEALTHCARE AND FINANCIAL SERVICES
OF THE
COMMITTEE ON OVERSIGHT AND ACCOUNTABILITY
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
JUNE 6, 2023
__________
Serial No. 118-40
__________
Printed for the use of the Committee on Oversight and Accountability
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available on: govinfo.gov,
oversight.house.gov or
docs.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
52-574 PDF WASHINGTON : 2023
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
Reagan Dye, Professional Staff Member
Kim Waskowsky, Professional Staff Member
Mallory Cogar, Deputy Director of Operations and Chief Clerk
Contact Number: 202-225-5074
Julie Tagen, Minority Staff Director
Contact Number: 202-225-5051
------
Subcommittee On Economic Growth, Energy Policy, And Regulatory Affairs
Pat Fallon, Texas, Chairman
Byron Donalds, Florida Cori Bush, Missouri, Ranking
Scott Perry, Pennsylvania Minority Member
Lisa McClain, Michigan Shontel Brown, Ohio
Lauren Boebert, Colorado Melanie Stansbury, New Mexico
Russell Fry, South Carolina Eleanor Holmes Norton, District of
Anna Paulina Luna, Florida Columbia
Chuck Edwards, North Carolina Raja Krishnamoorthi, Illinois
Nick Langworthy, New York Ro Khanna, California
Subcommittee on Health Care and Financial Services
Lisa McClain, Michigan, Chairwoman
Paul Gosar, Arizona Katie Porter, California Ranking
Virginia Foxx, North Carolina Minority Member
Glenn Grothman, Wisconsin Alexandria Ocasio-Cortez, New York
Russell Fry, South Carolina Jimmy Gomez, California
Anna Paulina Luna, Florida Greg Casar, Texas
Nick Langworthy, New York Becca Balint, Vermont
Eric Burlison, Missouri Summer Lee, Pennsylvania
Jasmine Crockett, Texas
C O N T E N T S
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Page
Hearing held on June 6, 2023..................................... 1
Witnesses
----------
Ms. Mandy Gunasekara, Director, Center for Energy & Conservation,
Independent Women's Forum
Oral Statement................................................... 7
The Honorable Jason Isaac, Director, Life:Powered, Texas Public
Policy Foundation
Oral Statement................................................... 9
Mr. Stephen Moore, Distinguished Fellow in Economics, The
Heritage Foundation
Oral Statement................................................... 11
Dr. Shivaram Rajgopal, Roy Bernard Kester and T.W. Byrnes
Professor of Accounting and Auditing, Columbia Business School
Oral Statement................................................... 12
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, The Washington Post, ``Protecting Public Pension
Investments''; submitted by Rep. Bush.
* Article, Texas Public Policy Foundation (TPPF), ``Keep
Politics Out of Texas Pensions''; submitted by Rep. Fallon.
* Report, Life:Powered, ``Corporate Collusion: Liability Risks
for the ESG Agenda''; submitted by Rep. Fallon.
* Report, Life:Powered, ``Energy Discrimination: A Threat to
Capitalism, Prosperity, & Flourishing''; submitted by Rep.
Fallon.
* Analysis Chart; submitted by Rep. Raskin.
The documents listed above are available at: docs.house.gov.
ESG PART II: THE CASCADING IMPACTS
OF ESG COMPLIANCE
----------
Tuesday, June 6, 2023
House of Representatives
Committee on Oversight and Accountability
Subcommittee on Economic Growth, Energy
Policy, and Regulatory Affairs
Washington, D.C.
The Subcommittees met, pursuant to notice, at 2:23 p.m., in
room 2154 Rayburn House Office Building, Hon. Pat Fallon
[Chairman of the Subcommittee on Economic Growth, Energy
Policy, and Regulatory Affairs] presiding.
Present from the Committee on Oversight and Accountability
[Subcommittee on Economic Growth, Energy Policy, and Regulatory
Affairs]: Representatives Fallon, McClain, Edwards, Bush,
Raskin, Brown, Stansbury, Norton, and Krishnamoorthi.
Present from Committee on Oversight and Accountability
[Subcommittee on Health Care and Financial Services]: McClain,
Grothman, Porter, Raskin, Balint, and Lee.
Also present: Representative LaTurner.
Mr. Fallon. This joint session of the Subcommittee on
Economic Growth, Energy Policy and Regulatory Affairs and the
Subcommittee on Health Care and Financial Services will come to
order. We want to welcome everyone. Thank you for coming.
Without objection, the Chair may declare a recess at any
time.
I recognize myself for the purpose of making an opening
statement.
I ask unanimous consent for Representative LaTurner of
Kansas to waive on to the Committee for the purposes of asking
questions during this hearing.
Without objection, so ordered.
Today's hearing will examine what ESG--environmental,
social, and governance--initiatives really mean for workers and
consumers and how the decisions made in boardrooms and global
climate conferences have real-world impacts here at home. What
are social impacts of using ideological activism to change
corporate behavior, to change and really shape it? And that is
the question that, really a vital question we need to answer
here today.
A few weeks ago, we heard from two very well-known and very
well-respected state attorneys general about the dangers of
what ESG policies mean when in the hands of activist asset
managers. We know that asset managers control an estimated, and
really astounding, $126 trillion, and that is with a ``T,''
trillion dollars, in financial resources in almost 30 percent
of all global financial assets. This type of power and
influence extends far beyond what most people can really even
conceive of, and just like they say, with great power comes
great responsibility.
Millions of Americans across the country trust their
investments will be used to make a profit and, hopefully, one
that they can live on comfortably in retirement because what we
are really after here when we are all investing long-term is
financial security. But these days, it is not crazy for many
Americans to wonder `will I even be able to afford retirement?'
This Administration has driven inflation through the roof. It
is at a 40-year high and pushed the economy to the brink of a
major recession, which we all pray will not happen, but it very
well could in the next year.
Now, due to Democrats' ESG push, asset managers are
prioritizing ESG goals over profit and risking Americans' hard-
earned money. With ESG investing, businesses are now tasked
with accounting not only for their own carbon footprints, but
maybe the footprint of their contractors and suppliers, the
race and gender of their corporate boards, instead of the merit
and performance of those same corporate board members.
These are all factors that have come to be valued, and
valued at least to activists and dominant asset managers, and
woke corporate boardrooms as much, if not higher, than the
actual returns that a business provides to their shareholders.
To secure capital, the lifeblood of any business, companies
large and small now must hire teams of lawyers and compliance
consultants to comb through internal data and estimate exactly
what their greenhouse gas emissions might or may be, or how
many points they have scored with activist organizations for
checking the right boxes on an ever-changing list of leftist
social norms.
Somehow this financial gamble, one that is played with your
money and your investments, is supposed to still maximize
returns for pensions and 401(k)'s. In fact, the Biden
Administration is placing political ESG priorities over
American retirements. The Department of Labor Prudence and
Loyalty Final Rule allows fiduciaries to consider climate
change as well as other ESG factors when making investment
decisions.
President Biden actually vetoed Congress' bipartisan
resolution overturning this rule, financially risking the
retirements of millions of Americans. This certainly sounds
like the Biden Administration is sending mixed signals when it
comes to American retirements and encouraging them, as we heard
at the last hearing with the state AGs, to violate their
fiduciary duties. Rules do not have a force, well, they should
not have a force of law, and rules are below laws. That is what
we are all here for. ESG is being utilized in an attempt to
rewrite the fabric of America with, unfortunately, woke
policies that deliver nothing but higher prices, fewer market
choices, cultural oppression, not to mention jeopardizing
returns on investments for retirees and regular Americans.
I thank the witnesses for appearing here today and for
their willingness to testify on this important issue. And with
that, I ask unanimous consent to submit three statements into
the record: ``Corporate Collusion'' by Life:Powered, ``Keeping
Politics out of Texas Pensions'' by the Texas Public Policy
Foundation, and ``Energy Discrimination'' by Life:Powered.
Without objection, so ordered.
Mr. Fallon. I now yield to Ranking Member Bush for her
opening statement.
Ms. Bush. Thank you, Mr. Chairman. St. Louis and I are here
today because we understand the simple concept of cause and
effect. We understand that when pharmaceutical giants, like
Purdue Pharma, make their fortunes by getting people addicted
to opioids, someone pays the price. We understand that when
corporate governance failures lead to the collapse of banks and
Fortune 500 companies alike, someone pays the price. We
understand that when corporations recklessly pollute our
communities or fail to consider how the climate crisis will
harm people on the front lines, someone pays the price.
Who pays the price? Our constituents. More specifically, it
is our constituents who live in Black and Brown communities, it
is the children in my district who are suffering from some of
the highest asthma rates in the country because corporate
polluters put short-term profits over the needs of people. It
is the families in East Palestine who paid the price when they
had to flee their homes because railroad companies cut corner
after corner, inevitably leading to adverse health outcomes and
environmental ruin. It is our workers who entrust their
livelihoods and their earnings with their employers, only to
have those employers go bankrupt after years of mismanagement
and self-dealing. It is our constituents who will pay the price
with their retirement funds and investments if Republicans
succeed in their attempts to restrict the public's access to
data.
Environmental, social, and governance elements, commonly
known as ESG factors, have material and defining benefits on
companies' bottom lines. Companies that face and responsibly
address this reality carry less risk, both for themselves and
for society overall. Companies that deny this reality and
pretend their actions do not have consequences are not only
delusional, they are dangerous. ESG principles are designed to
protect investors, workers, and retirees from the financial
risks of bad business practices by responsibly considering all
available data about potential investments.
Responsible investing depends on ESG data to facilitate
prudent planning for long-term challenges. That is why
Democrats are working to protect access to this data so that
financial professionals and the public are free to make
responsible and economically beneficial investment choices. For
example, under the Biden-Harris Administration, the Department
of Labor finalized a rule reversing a Trump-era regulation that
prevented retirement plan fiduciaries from considering ESG data
when seeking to maximize investment returns for plan
participants. The Securities and Exchange Commission is also
working on rulemakings to require publicly traded companies to
disclose climate risk information and make ESG disclosures more
standardized, more consistent, and more reliable.
The MAGA insurrectionist Republicans' political crusade
against responsible investing is an attempt to manufacture a
culture war and protect corporate special interests, all at the
expense of taxpayers and their savings. For example, in 2021,
Texas barred municipalities from contracting with banks that
have ESG policies regarding fossil fuel and firearms companies.
The move cost taxpayers an additional $300 million to $500
million in interest in the first eight months alone. The vast
majority of the public, Democrats and Republicans alike, oppose
government efforts to restrict responsible investing. They
understand that investments have better returns when financial
professionals are free to consider all data, including
environmental, social, and governance risks and opportunities.
Over the past few months, the GOP has made it clear that
they have no problem putting the public in harm's way for
political gain and using the debt limit to take our economy
hostage. They willingly risked the full faith and credit of the
United States simply to push through politically unpopular
policies that could not otherwise win the votes it needed. By
attempting to prohibit responsible investing practices, they
continue to risk the retirement security of hardworking people
simply to protect corporate special interests that cannot
attract investment on their own merits.
To reiterate the clear message of our previous hearing on
this topic, transparency, and responsible management of
environmental, social, and governance risks is the bare minimum
we should expect of corporations, such as those that are
headquartered in St. Louis, that bear a responsibility to the
communities they touch and the people that invest in them. This
access and freedom is just common sense, it is common decency,
and smart business practice. Thank you, and I yield back.
Mr. Fallon. Thank you. I now yield to Chairwoman Lisa
McClain of Health Care and Financial Services Subcommittee for
her opening statement.
Mrs. McClain. Thank you. Before I was in Congress, I
actually was a financial services professional. I actually
understand fiduciary responsibility and fiduciary duty. I
understand what it is like to run a business because I did not
talk about it, I actually did it. I understand how important it
is for those entrusted to manage the wealth of Americans across
the country to protect that wealth and to work to grow that
wealth for Americans. Yet today, that is simply not happening.
Money managers' unrestricted ability to pursue ESG pledges
without their clients' knowledge is doing the opposite. And I
always scratch my head, because I do agree with my colleague,
we should have transparency, but if we are going to be
transparent, let us really be transparent. What are we hiding?
We should not need to hide anything, so let us be transparent.
It is not their money manager's job, it is not their job to
pursue political agendas. It is their job to actually manage
the accounts for return on investment. It is their job to
invest their clients' money by putting their clients first and
focus on rates of return. Again, it is not their job to instill
their political agenda under the cloak of darkness, right--we
want to be transparent--without their clients' knowledge.
And again, I ask, what are we hiding? In fact, it is their
fiduciary responsibility to do just that. Yet, we are seeing
more and more instances of woke corporations importing European
values over American values and hiding it, and they are not
even telling their clients about the financial risks associated
with adapting these values. I mean, we want to be transparent.
Let us be transparent with the risks.
Even the so-called neutral, non-ESG investment funds are
increasingly voting for ESG resolutions in some cases more so
than ESG funds. And again, they are not telling their clients.
Why? What are they hiding? Why is there a lack of transparency?
Again, I have no idea what they are hiding. Well, it looks like
they are hiding the ball because we all know that if the
clients knew the truth, they would not approve. That is why
they have to hide it.
The fact is that they are funding their woke agendas using
Americans' hard-earned retirement savings without any
accountability until now. I am for the freedom to invest your
own money into the causes you, the client, actually believes
in, but that is not what is happening here. Managers are
investing your money in causes they believe in, and we are
seeing real consequences for Americans' retirements.
Americans' retirement assets were down nearly 15 percent
last year, 15 percent. This includes state pension funds. State
pension funds supports teachers, librarians, firefighters, and
other public sector employees. Some states, such as Texas and
Kansas, are actually getting in front of this by advancing laws
that restrict investments that consider non-financial factors.
Remember, they are in the financial sector. They should be
focusing on financial factors, like ESG for state pension
funds.
Unfortunately, the Biden Administration recently issued a
rule that makes the problem even worse. Now, plan fiduciaries
that fall under the ERISA are empowered to consider ESG factors
when selecting investments. Well, I am going to be sarcastic.
``ESG,'' does that mean they can empower themselves to consider
any agenda they want? What if it was a pro-life agenda? That
would be horrible, right? We would be all up in arms about
that, and we would want transparency, right? Well, what is good
for the goose is good for the gander. The President vetoed a
bipartisan congressional resolution actually overturning this
rule. This is just one step in this Administration's job to
push ESG into a more prominent role in a financial decision-
making.
Today's hearing is a continuation of this Committee's
broader efforts to shed light--to shed light--on the long-term
impacts of ESG's agenda. We are delivering accountability and
transparency. I thank the witnesses for being here, and we look
forward to your testimony. And with that, I yield to the Chair.
Mr. Fallon. Thank you, and I now yield to Ranking Member
Katie Porter from California for her opening statement.
Ms. Porter. Capitalism means economic freedom. It means
choices. Here in America, when I go to buy a car, I do not have
to buy the cheapest car. I can buy a minivan that is
comfortable for my family of four and provides plenty of
storage. In our capitalist system, I am glad that I do not have
anyone powerful telling me what I should like or what I should
buy. If the product is safe for the marketplace, I can choose
it.
I would like anyone here who thinks we should have less
economic freedom to please raise their hand. Republican or
Democrat, it seems like everyone is comfortable with letting
consumers pick what they want, how they want from a marketplace
of responsible goods and services. So why are Republicans
worked up about investors choosing to invest in a company based
in part on its performance on environmental, social, or
governance data? Republicans want to force Americans to pick
our investments based on dollars and cents alone. That would
limit economic freedom.
Let us see if Republican limits on financial decision-
making would give me more freedom if I use that same framework
to buy a new car. I mentioned my minivan. Someday I need to
trade one for a new one. I want one that is really fuel-
efficient. I also want one that is not country blue because
that is not cool. Let us say I go for the new car. I walk into
a dealership in a state that has banned showing consumers any
data or information other than financial info. Wow. To give me
only the financial info, the dealers had to cover up all the
cars. I see a sign that shows me things like price and expected
depreciation, but I cannot see the color, the model, the fuel
efficiency, whether it was made in America, because those are
not directly related to its value. I am struggling to figure
out how to find the environmentally friendly minivan that I
want without any fuel efficiency information. I would struggle
to find a truck that was made in America, paying the highest
costs for good workers in my district, if they ban data on
labor.
Republicans say none of those things should matter to me.
According to them, the cost alone should guide me to what I
value. So, I find a few covered up cars in my price range, and
I buy one that depreciates the slowest because that is the only
information that I have. I cross my fingers and I hope that I
get the car that I value the most. I uncover the car to drive
off the lot. I got a three-row SUV that guzzles gas that was
made in China. It is a color that I hate. I stayed within my
budget and got an economically sensible vehicle, but I got
nowhere close to what I wanted.
Who thinks I have more freedom like that? Of course I do
not. I am freer when I know all of the features of the car I am
buying, including things like fuel efficiency and labor costs.
Then I can choose what information matters to me, ignore the
information that does not matter to me, and freely make a
purchase. The same thing applies to investing. If I value
investing in a company that prioritizes energy efficiency, I
cannot make that free choice. If Republicans limit information
on the company's environmental footprint, what kind of freedom
is that for me as an investor?
Let us call this hearing what it is. It is an attack on
economic freedom. Republicans apparently do not want investors
to know if a hugely profitable company outsources to China, if
they have a huge carbon footprint and are unprepared for
climate change, or if they treat their workers horribly. It is
a lot more comfortable for them to just cover up all that
information so that they can get what they really want, big
corporate profits at all costs, rather than what investors
really want, which is more information about their investments.
The uncomfortable truth is that withholding ESG information
from the market means denying investors the freedom to decide
where they want their dollars to go. A couple of minutes ago,
nobody said that they wanted to reduce economic freedom, so let
us not be hypocrites. Let us not use this hearing to reduce
economic freedom for investors. I yield back.
Mr. Fallon. I am pleased to welcome today's panel of
witnesses. First, I would like to welcome Mandy Gunasekara--
yes, did I get it right, all right--Director of Center for
Energy and Conservation at the Independent Women's Forum. Our
second witness today is Jason Isaac, an esteemed veteran of the
Texas House of Representatives, who I served with for four
years, I believe, together, the Director of Life:Power at the
Texas Public Policy Foundation in Austin. And then our next
witness is Stephen Moore, who currently serves as a
distinguished fellow in economics at the Heritage Foundation.
And our last witness is Dr. Shivaram Rajgopal--close, yes--who
is the Roy Bernard Kester and T.W. Byrnes Professor of
Accounting and Auditing at Columbia Business School. I welcome
all of the witnesses here today, and I look forward to hearing
your testimony on this issue.
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 will be the truth, the whole truth, and nothing
but the truth, so help you God?
[A chorus of ayes.]
Mr. Fallon. Thank you. Let the record show that the
witnesses all answered in the affirmative.
We appreciate you all being here and, again, look forward
to your testimony.
Let me remind the witnesses that we have read your written
statements and they will be appearing in full in the hearing
record. Please limit your oral testimony to five minutes. As a
reminder, please press the little button on the microphone in
front of you so that we can all hear you. And it will be green
for four minutes, yellow for one minute, and then read, zip it,
wrap it up, finish that sentence, and let us move on down the
line, like a carrier landing, you know, hit the cables.
I recognize Mandy Gunasekara to please begin her opening
statement.
STATEMENT OF MANDY GUNASEKARA
DIRECTOR
CENTER FOR ENERGY & CONSERVATION
INDEPENDENT WOMEN'S FORUM
Ms. Gunasekara. Thank you. Chairman Fallon, Chairwoman
McClain, Ranking Member Bush and Ranking Member Porter, as well
as Members of the Subcommittees, thank you for the opportunity
to participate in today's hearing discussing the consequences
of ESG. My name is Mandy Gunasekara, and I'm the director of
the Independent Women's Forum Center on Energy and
Conservation.
As American families continue to struggle under rampant
inflation, increased energy costs, and an economy on the verge
of recession, a subset of financial elites and their allegiance
to environmental, social, and governance, or, rather, ESG
investing, are making matters worse. While branded as an
investment strategy for good, ESG manipulates markets as well
as access to markets in order to advance a leftist political
agenda.
The ``E'' standards result in higher cost to energy,
unreliable electricity grids, and stand to undermine
environmental progress. The ``E'' standards also enrich high-
end asset managers at BlackRock, State Street, and Vanguard at
the expense of retirees and pensioners as standards force
companies to engage in controversial political issues, such as
campaigns to defund the police or promoting gender transitions
in children, cultivating division in the workplace and the
marketplace. ``G'' standards give the appearance of diversity
while restricting freedom of thought and competing viewpoints
in the work force.
Now, ESG standards are purposefully complex and convoluted
in the hopes that the everyday man and woman will not catch on.
Well, I want to highlight four important perspectives and how
they are impacted by ESG. First, the bill payer; second, the
entrepreneur; third, the retiree; and fourth, the worker.
First, the bill payer. The most economically devastating
policies of ESG fall under the E-rubric. The goal is to
phaseout fossil fuel energy by 2050, despite the fact that over
80 percent of the energy we need to fuel our economy and modern
way of life comes from oil and natural gas. ESG is also a
contributing factor to high-cost gas, expensive electricity
prices that hit low-income households the most, forcing some to
choose between food or electricity. Additionally, 1 in 6
American families is currently behind on electricity bills. The
cost for an average household has risen approximately $10,000
over the past two years, and these costs are squeezing the
middle class, making it virtually impossible for low-income
Americans to ever cross the middle-class threshold. In sum, ESG
is a barrier to upward mobility.
Next, the entrepreneur. ESG does not just target oil and
gas companies, which is bad enough, it is also used by
progressive activists to defund and constrain the growth of
other politically disfavored--that is, politically disfavored
from the left--companies, including firearms manufacturers and
animal agriculture. These misguided efforts create a range of
perverse outcomes beyond lost jobs and economic growth to
companies deemed bad by ESG standards. It makes the realization
of the American Dream contingent on acquiescing to the demands
of the woke left.
Next, there is the retirees and the pensioners. Asset
managers at BlackRock, Vanguard, and State Street, which
collectively manage over $21 trillion, including a large
portion of U.S.-based retirement funds, subscribe to ESG.
Numerous reports have found that ESG funds consistently perform
worse than non-ESG funds, producing lower returns for the
retirees and the pensioners that have been planning for them.
And even though the retirees and the pensioners are losing out,
the high-end financial advisors at these investment houses are
making bank. They get paid their premium fees no matter what
and essentially have nothing to lose.
Finally, the worker. Some analysts have found that
oppressive governance policies that prioritize checking
superficial boxes results in decreased viewpoint diversity. It
forces employees to curb free speech and to stay silent on
matters of which they fundamentally disagree. Also concerning
are some companies will incorporate diversity language solely
for marketing benefits, undermining actual progress in the
workplace.
Now, by design, ESG has been developed to achieve leftist
goals that have failed to gain traction in Congress and state
legislatures and are increasingly being shut down by the
courts. It is designed to circumvent the role of voters, to
circumvent the democratic process, and to use the might of the
financial sector to force Americans into accepting an agenda of
which the majority disagree. As awareness of ESG increases so,
too, does the opposition.
So, I thank the Subcommittee for the opportunity to testify
today and your willingness to educate the public on what ESG is
and its harmful downstream effects. I look forward to your
questions.
Mr. Fallon. Thank you. I do not think this is your first
time. You landed almost exactly at five minutes. Thank you very
much. Very well done.
The Chair recognizes Mr. Jason Isaac for his five minutes.
STATEMENT OF THE HONORABLE JASON ISAAC
DIRECTOR, LIFE:POWERED
TEXAS PUBLIC POLICY FOUNDATION
Mr. Isaac. Thank you, Mr. Chairman, Members. Again, I'm
Jason Isaac. I'm the director of Life:Powered, a national
initiative of the Texas Public Policy Foundation to raise
America's energy IQ. And I live a high-carbon lifestyle, and I
think the rest of the world should, too. It is truly where you
have human flourishing.
Look back to 2019 and then candidate for President, the
first-ever candidate on the face of the earth to run as a net-
zero candidate, ran and was elected as president of Sri Lanka.
In 2020, he began his efforts to decarbonize. At the time, Sri
Lanka was a near-perfect ESG-rated country, 98 out of 100, one
of the highest ESG-rated countries on the face of the earth.
And he began to implement his ESG policies, which might be
better known as everyone's suffering guaranteed, or what it
does to energy and food, makes it expensive, scarce, and
government-controlled.
But in 2020, he made his push toward net-zero and pushed it
onto the people of Sri Lanka that were once prospering, that
were actually exporting food and other commodities around the
world, lifting them up to prosperity for the first time in
their existence. He banned the use and importation of nitrogen-
based fertilizers. That resulted in a 40-percent decrease in
food production and 80-percent increase in cost. And today, 9
in 10 families in Sri Lanka are facing hunger every single day,
making energy and food expensive, scarce, and government-
controlled.
Now, in 2019, shortly after I joined the foundation, I was
visiting with some energy producers, and they were telling me
stories about how they were having trouble getting access to
capital because they produce oil and gas, and I thought, no,
this cannot be the case, not in America. We produce energy more
responsibly than anywhere else on the face of the earth. Why
would we want to shift production away from the United States
into places that have lax environmental controls or human
rights standards? Certainly, we would not want to do that.
But as I dove into this and started visiting with more and
more energy producers that were being kneecapped, having their
energy resources taken away from them, I thought, we need to
write some policy in the state of Texas. And so, in 2020, I
began writing and drafting a bill that ultimately became Senate
Bill 13 that says, if you are going to boycott, divest, or
sanction companies that produce energy in Texas, then you are
no longer welcome to do business with the state of Texas, the
9th largest economy on the face of the earth. That legislation
passed with overwhelming broad bipartisan support in both the
Texas House and the Texas Senate. They took America first.
And today, there are 11 financial institutions that are on
the boycott list in the state of Texas, one of them being the
largest financial institution on the face of the earth,
BlackRock, who does invest in fossil fuels, who does invest in
oil and gas, but forces companies to sell assets much like
Exxon. They replaced board members with activist board members
that want to decarbonize a business that produces hydrocarbons.
That is like de-fooding a restaurant. That does not work out
too well for anyone, not the employees, not the consumers, not
the owners, not the shareholders, no one, but yet they have
done that. And Exxon sold assets in Southeast Asia where they
were going to produce oil and gas, and I argue, again, they
would probably produce that oil and gas more responsibly than
anywhere else on the face of the earth, and who do they sell it
to? PetroChina.
That is why I refer to the ESG agenda as the China ESG
agenda. It does very little to help Americans. It does
everything to help the Chinese Communist Party, and, again,
making energy expensive, scarce and government controlled. And
the numbers show that this ESG agenda, the China ESG agenda,
has been extremely effective at cutting off capital for
businesses here in the United States.
From 2015 to 2021, look at the chart that I provided in my
written testimony. There has been an 81-percent reduction in
the number of funds that provide private capital raised for oil
and gas exploration in this country, a 94-percent reduction in
dollars raised for oil and gas production. This is just making
energy more expensive, not only here in the United States, but
around the world.
Expensive energy hurts the poor. And today, this energy-
driven inflation caused by ESG and other factors, demonization
of hydrocarbons, is leading to an increasing number of
Americans getting their utilities disconnected, as Mandy
pointed out. Electricity disconnects have increased 30 percent.
Natural gas cutoffs have soared 76 percent, and globally, 345
million people are on the brink of starvation. The China ESG
agenda is not about emissions or pollutions. It is about
control.
Thank you for the opportunity to testify. Look forward for
your questions.
Mr. Fallon. Thank you. And now, the Chair recognizes Steven
Moore for his opening statement.
STATEMENT OF STEPHEN MOORE
DISTINGUISHED FELLOW IN ECONOMICS
HERITAGE FOUNDATION
Mr. Moore. Mr. Chairman, thank you so much for allowing me
to testify. By the way, in conjunction with the truth-in-
testimony, I do not take government money, and none of the
organizations I work for take government money. I want to just
make four or five quick points.
No. 1, ESG is surprisingly prevalent in the U.S. investment
industry today. We just completed a study that has been widely
covered in the Wall Street Journal and others that looked at
the 40 largest investment firms in America, every company from
BlackRock to Charles Schwab to Fidelity, Vanguard, and so on.
And these firms have trillions, literally trillions, maybe even
tens of trillions of dollars assets under their management.
And what we found was that of the thousands and thousands
of shareholder resolutions, these companies are basically doing
proxy voting based on their clients' money. And out of the
thousands of proxy votes, we looked at what we consider to be
the 50 most invasive and the 50 most harmful to the company.
And by the way, all of these were opposed by the management of
the companies. And what we found is that in most cases, these
large fiduciaries were actually voting for these resolutions
even though they were contrary to the interests of the
shareholders. That is a big problem and it has to change. So,
it is highly prevalent, and the majority of the companies are
doing it. The name of that study, by the way, is called
``Putting Politics Over Pensions,'' and it is ripping off
America's savers and America's retirees.
The second point I want to make is that when fiduciary
companies are voting for these ESG resolutions, they are
violating their fiduciary because these are not in the
interests of shareholders. And so, if you look at my testimony,
I am not going to get into these studies now, but the
predominant number of studies show that ESG investing
underperforms the market. And by the way, this is not a
controversial point. As the Congresswoman spoke about earlier--
social investing has been around for 50 or 60 years. There are
pro-life funds, there are anti-pro-life funds, there are pro-
gun funds. There are funds for every single kind of cause. And
by the way, I am very much in favor of people being able to
make their own decisions about how they want to invest their
money. If people want to invest in ESG, I have no problem with
that whatsoever. I am talking about fiduciaries doing this
without the knowledge of their clients.
And so, what we found is that the predominant numbers of
studies show an underperformance, which means this is costing
people retirement income. Now, this has to be the case, by the
way, if ESG funds actually outperform the market, then
everybody would invest in the ESG funds, right, because
everybody wants to get the highest returns. And the reason that
these kinds of funds underperform is very simple because they
limit the number of companies that you can invest in, and that
is why they underperform index funds.
The next point I wanted to make is just that ESG funds are
really costly to the economy, and this is a point that you were
making. And I'll just add one statistic to this, which is that
if you look at what has happened to U.S. oil and gas production
in the last two-and-a-half years, we peaked out at 13 million
barrels a day under Trump. Today we are at somewhere between 11
and 12 million barrels a day even though the price is higher,
so we should actually be producing more oil at a higher price
than we would.
And so, we estimate--I did the study with Casey Mulligan,
economist at University of Chicago--that we are probably
producing, thanks to Biden's policies, two million less barrels
a day of oil here in the United States at $70 to $80 a barrel.
This is imposing about a $200 billion cost on the American
economy. Think of that, $200 billion because we are not
producing our energy here at home.
And then finally, I just wanted to make the final point
that all of this is for nothing. The fact is, that if you look
at the U.S. energy production, and this is a point that you
made, it is not that we are producing less oil. The world is
not consuming less oil. The world is consuming the same amount
of oil. It is just that instead of producing it in Texas or
Oklahoma or North Dakota or Alaska, we are really stupidly
getting the oil from Saudi Arabia, from Russia, from Iran,
Venezuela, and countries that hate us. That just does not make
a lot of sense to me as a consumer. And so, we need to really
realize that this is not reducing greenhouse gas emissions or
pollutions because these countries have much worse
environmental records than we do. So, all of this is for
naught, and I hope that the Committee really starts to look at
how we can solve this problem.
Mr. Fallon. Thank you, and now I recognize Dr. Shivaram
Rajgopal for his five minutes.
STATEMENT OF SHIVARAM RAJGOPAL
ROY BERNARD KESTER AND T.W. BYRNES PROFESSOR
OF ACCOUNTING AND AUDITING
COLUMBIA BUSINESS SCHOOL
Mr. Rajgopal. Thank you. Thank you to Subcommittee Chairs
Fallon, McClain, Subcommittee Ranking Members Porter and Bush,
as well as the other Members of the Committee for the
opportunity to testify here today on a topic of utmost
importance--how companies allocate resources, who are they
accountable to, and how. So, it is an honor to be here.
My name is Shiva Rajgopal and I am the Kester and Byrnes
Professor of Accounting and Auditing at Columbia Business
School. To me, ESG is really about material factors that affect
future cash-flows and the cost of capital of a firm. So, I
think of ``ESG'' as a term that covers data that is not
adequately disclosed by our financial reporting model and by
our mandated disclosure rules.
So, let us consider a few examples to illustrate the
argument. So, climate and extreme weather events already affect
the cash-flows of insurers, travel companies, tourism companies
such as cruise lines, agricultural firms, theme park operators,
energy companies, transportation companies, to just name a few.
Yet the current reporting rules in the U.S. require no
systematic disclosure of the impact of such climate-related
physical and transition risks on the affected firm's future
cash-flows and cost of capital.
Now, turning to the ``S'' in the ESG related to workers and
labor, it turns out that barely 15 percent of U.S. public
companies even disclose compensation costs in aggregate paid to
workers, and companies are required, as of now, just to
disclose the number of full-time employees. We rarely see them
talk about part-time employees, contractors, compensation paid
to these workers, let alone important information about
employee tenure, abnormal turnover, training, gender, age
composition of the work force, and how much of these operations
are outsourced or conducted via other contractors. And
appreciation of the firm's work force would actually enable an
investor to get a better sense for the corporate culture, the
quality of human capital in the company, which has been shown
to be robustly associated with several aspects of value
creation of a firm, including productivity, ethical behavior,
compliance, and innovation.
Now, let's talk about another ``S,'' which relates to the
taxes a company pays and the grants and subsidies that it gets,
and the conditions associated with earning of these grants and
subsidies, such as, say, the minimum number of jobs that a firm
needs to create for such assistance. Corporate disclosures in
this area are vague and sketchy at best. In fact, some of my
research shows that the expected payoff to a dollar of lobbying
for a firm far exceeds the expected payoff to, say, a dollar of
R&D investment. Yet there is virtually no disclosure of the
extent and the scope of lobbying activity that a firm
undertakes.
And let us talk a little bit about the ``G,'' or the
corporate governance of a firm. To me, that describes the
process of assessing what the CEO has done with the shareholder
capital, natural capital, human capital, and the taxpayer
resources entrusted to such a CEO by shareholders, society,
workers, and taxpayers. However, as mentioned before, the data
available to assess how well the CEO has delivered a return on
these sources of capital is often missing or vague. Even CEO
compensation disclosures do not fully reveal whether
shareholders actually got the so-called pay-for-performance
that a lot of proxy statements talk about.
So, to me, ESG, in essence, is a free market, organic,
investor-driven movement to ask firms to disclose more
information about their described factors associated with their
future cash-flows or cost of capital. In fact, I would argue
investors would be derelict of their fiduciary responsibility
to their stakeholders if they did not consider the material
factors while making that investment decision. Prohibiting
consideration of material ESG factors simply interferes with
the provision of data to make asset prices efficient such that
markets can price these risks and returns. In fact, there is
evidence to suggest that substantial losses will be incurred by
the constituents of states such as Texas, where legislation
that infringes on the public pension's freedom to invest have
been passed in recent months.
In closing, I want to reiterate that investors and asset
managers cannot afford to ignore material financial risks posed
by overlooking material ESG data that is relevant to
understanding a firm's future cash-flows and risks of stocks,
bonds, and other assets. So, thank you again for listening to
my testimony, and I look forward to your questions.
Mr. Fallon. Thank you very much to all the witnesses. I now
recognize myself for five minutes of questions.
Mr. Moore, when it comes to managing retirements and
investing, do investors, money managers legally owe a fiduciary
duty to their clients under Federal law?
Mr. Moore. So, this is a really important point, and I just
want to make sure that we are not talking past each other. ESG
funds are fine. If people want to invest their money in ESG
funds, Congresswoman, I could not have said it better than you
did. I mean, it is a free country, certainly if investors want
to.
What I am talking about in my testimony is companies like
BlackRock and State Street voting on these resolutions without
the knowledge of the clients and without their approval. That
is a big problem. And that is where the fiduciary duty problem
arises because they are lowering the return that these
companies, you know, they have in their retirement fund or
whatever it might be, so that, I think, is the heart of the
matter.
One other just quick thing. When it comes to risk, of
course there is risk with climate change, but you know what?
There is a risk of running out of energy, right? I mean, look
at what has happened in California where you have brownouts or
blackouts. That risk, you could make the case, is five times
greater than the risk of what the planet's temperature is going
to be 100 years from now. So, we have to balance these risks in
a way that I think is best for the economy and best for the
investor.
Mr. Fallon. So, what you are saying is if the person that
is investing has knowledge that the investment firm that they
are entrusting their money with, knows about the fact that they
are using an ESG score, that is not limiting anybody's economic
freedom, right? But they have to know, and if you do not know,
it is limiting your freedom.
Mr. Moore. And that is, frankly, why we did the study we
did because people do not know and now they do know. And so, if
you look at our testimony, you can see the companies that were
the worst in terms of protecting fiduciary duty were companies
like BlackRock, companies like State Street, companies like
UBS, and the best were companies like Vanguard, and
Dimensional, and Fidelity.
Mr. Fallon. Yes. Ms. Gunasekara, my understanding is you
were the Chief of Staff for the EPA?
Ms. Gunasekara. Yes.
Mr. Fallon. All right. In your opinion, when it comes to
advancing environmental goals, can we justify the green-at-all-
cost approach that permeates not just the Federal Government,
but now our financial systems that threaten to wipe out the use
of our most, really, reliable energy sources?
Ms. Gunasekara. No, not at all. We in this country, when
the government essentially gets out of the way and lets U.S.
oil and gas workers do what they do best, we know how to
cultivate, refine, transport and deliver energy resources in
the cleanest, most efficient manner compared to any country out
there. So, suppressing the type of energy that we actually need
to live the lifestyles that we have become accustomed to,
which, as Jason pointed out, has lent itself to massive human
flourishing, when we suppress those energy resources, that
demand does not go away, it is just transported typically
overseas to places like China or India, and Russia, that do not
ascribe to the same level of environmental standards that we do
in this country, which ultimately undermines environmental
progress that we have made over the past few decades.
Mr. Fallon. Mr. Rajgopal, do you think that ESG scoring is
consistent?
Mr. Rajgopal. Say again?
Mr. Fallon. Do you think the ESG scoring, the agencies are
consistent?
Mr. Rajgopal. So, you know, one has to, I think
distinguish----
Mr. Fallon. Button.
Mr. Rajgopal. Sorry.
Mr. Fallon. I am going to give myself 10 more seconds. Go
ahead.
Mr. Moore. Is the red light on, 15 more seconds.
Mr. Rajgopal. So, one has to distinguish, I think.
Mr. Moore. You have to move your--up, mic.
Mr. Rajgopal. Oh, sorry.
Mr. Fallon. A little closer. There you go.
Mr. Rajgopal. Thank you. Thank you. So, one has to
distinguish the idea with ESG the practice. So, you are right,
the practice of ESG, which is I think what you are alluding to,
the rating agencies, you know, that is a work in progress for
sure.
Mr. Fallon. OK. Yes, because when you look at, like,
traditional competing rating agencies, like Fitch, and S&P, and
Moody's, they reach a similar credit evaluation 99 percent of
the time. But when you look at the large ESGs, they are only--
come up with the same correlative ratings 54 percent of the
time. So, that leaves a lot to be desired, particularly when
you are talking about billions if not trillions of dollars at
stake.
Work-in-progress scares me, and there is a hell of a lot
more risk in work-in-progress than it would be when you have
professional agencies that come up with the same conclusion
over and over again. And we are talking about folks' money and
economic freedom and economic security that is of vital import.
Sorry. I have one more. I am going to yield myself that 20
seconds from the microphone deal. One quick question. Mr.
Isaac, you focused much of your work at Life:Powered on telling
our Nation's energy story, and part of that story is the impact
that policy has on consumers. What should Congress be most
worried about when we think about ESG and the future of
American energy? And if you can do that in 30 seconds or less.
Thanks.
Mr. Isaac. Yes. I think energy independence is probably the
most important thing as we continue to see this demonization
not only from financial institutions and politicians alike.
These anti-American energy policies are crushing the least
among us. As I mentioned in my testimony, we are seeing
increased number of disconnects from utilities, something that
1 in 6 Americans are experiencing over the last 12 months, and
I think that is what policymakers need to focus on. And ESG is
just this discrimination against American energy producers, the
most responsible producers on the face of the earth.
Mr. Fallon. Thank you very much for being quick. I
appreciate that, and I want to yield to Ranking Member Bush for
her five minutes.
Ms. Bush. Thank you, Chairman. St. Louis and I are here
today because my colleagues across the aisle have convened
another hearing to demonize ESG. While Republicans called this
hearing under the pretense the Biden Administration is risking
hardworking people's retirement funds, research proves that the
consideration of ESG metrics is beneficial to workers who
invest their earnings. We know ESG is demonstrably a more
effective investment strategy for the average worker. Dr.
Rajgopal, why do you think it is important for ESG metrics to
be publicly available?
Mr. Rajgopal. So, as I said in my opening remarks----
Ms. Bush. Pull it a little closer to you, the mic.
Straighten it out a little.
Mr. Rajgopal. At some point, I will get this right. So, as
I said in my opening remarks, the current reporting disclosure
model is, in my mind, woefully inadequate. You know, it goes
back to the earlier conversation about just showing the price
of a car as opposed to the holistic idea of where the car is
made, you know, the energy efficiency, et cetera. The idea is
that these ESG metrics are related to future cash-flows, not
necessarily current ones. So, think of these as leading
indicators of what is to come in the future.
And, you know, going back to the earlier conversation about
the credit rating agencies and so on, the credit rating
agencies have a far easier problem to forecast. Will the
company not pay interest or will it probably stop paying
principal? The ESG conversation on the other hand, you know, is
a deeply idiosyncratic, complicated exercise where you have to
look at a mosaic of factors for the 4,500 stocks out there.
That is why you do not get the convergence that was referred to
earlier. And more data, you need a more robust conversation
about these idiosyncratic factors that help raters, investors,
institutions, whoever, the free market, to just do its thing
and figure out what that might mean for future cash-flows and
risks. So that is why I think we need to have these things
public.
Ms. Bush. Thank you. Let me also ask you, Dr. Rajgopal, the
``S'' in ESG stands for social factors. How does the
availability of ESG data impact workers across industries?
Mr. Rajgopal. So, one aspect, an important aspect, as you
rightly mentioned, is worker data. And again, as I mentioned in
my testimony, barely 15 percent of U.S. public companies even
tell you their compensation costs, let alone all the other
stuff that we are discussing in terms of, say, turnover,
training, you know, gender composition, age composition, what
portion of the work force is part time versus full time versus
subcontracted.
So, all this, as an investor, one would care about this, as
I mentioned before, because this tells you about the quality of
human capital that the firm has. And I think there is no
dispute that there is a strong association with the quality of
human capital you have and your outcomes, such as productivity,
innovation, et cetera, which again affect future cash-flows of
the company.
So, you know, worker groups, whoever makes investments
would simply be better off with this data. Right now, it is
opaque, sketchy, you know. I would say almost non-existent.
Ms. Bush. Yes. Thank you for those insights. Corporate
transparency is a priority. We know that adherence to ESG
principles protects workers and protects our communities.
I ask unanimous consent to enter a Washington Post op-ed by
David Webber on ``Protecting Public Pension Investments.'' Mr.
Chairman?
Mr. Fallon. Without objection, so ordered.
Ms. Bush. In the op-ed, Mr. Webber tells the story of state
workers who suffered financial harm when their pension funds
were invested in private sector companies that the state later
hired to take over the very agencies where these employees
worked. These workers lost their stable state jobs, earning a
decent wage and benefits when these private sector companies
took over. In some cases, the private companies then rehired
the workers at lower wages with fewer benefits.
This type of anti-worker privatization has negatively
affected teachers, school bus drivers, janitors, firefighters,
and more. My colleagues across the aisle might call these anti-
worker policies good business because these companies showed a
positive short-term return on pension investments, but good
business, it should not come at the cost of hardworking
families in the long run.
So, Dr. Rajgopal, would you agree workers are undermined
when their hard-earned money is invested in companies that then
turn around and take away their jobs?
Mr. Rajgopal. You know, I again say I am just pushing for
more data and more disclosures. It is up to them to take
informed decisions, whether it is investing decisions or
whether they want to continue working for the firm.
Ms. Bush. Again and again, Republicans value only the
corporate bottom line and short-term profits. I am proud to
support workers by protecting their jobs and their retirement.
Thank you, and I yield back.
Chairman Fallon. I now recognize Chairwoman Lisa McClain of
the Health Care and Financial Services Subcommittee for her
five minutes of questions.
Mrs. McClain. Thank you. Just to be clear, Republicans are
not demonizing ESG. It is a free country. If you want to invest
in ESG, invest in ESG. I do think we are talking about being
honest and transparent. I think that is really the gist of this
hearing.
So, I would like to start with you, Mr. Isaac. In your
written testimony, you tell a story about how a Credit Suisse
pressured a client to make a positive public statement about
the Paris Climate Accord in return for facilitating their
transaction. Is that correct?
Mr. Isaac. Yes. I have got a copy of the actual text from
the email here that Credit Suisse First Boston was enticing,
coercing, forcing this business entrepreneur that if they
wanted to do a business transaction, if they wanted to fund
another business to create more opportunities to create more
jobs, that they were concerned about his social media and that
he needed to tweet some things. And I was most concerned with
their alignment with Paris. This body, the U.S. Congress, has
not ratified the Paris Treaty. It is not the law of the land
here in the United States, but to force an American
entrepreneur to admit that his company will comply with that is
just mind blowing to me, but they put it in writing in order to
complete a transaction.
Mrs. McClain. So, who is ``they?'' Do we have names that--
--
Mr. Isaac. This is the Global Energy and Transition.
Mrs. McClain. But is this a person? I am looking for, like,
Susie Smith? Do we have a name associated with this, because
this is amazing to me.
Mr. Isaac. Yes, it is the Credit Suisse First Boston, I
would imagine now, former, because of their collapse that they
experienced, and I do not have a name. It is the chairman of
Global Energy and Transition.
Mrs. McClain. I mean, that is pretty aggressive to me.
Mr. Isaac. Yes. And to list four bullet points of things
for this entrepreneur to tweet.
Mrs. McClain. I mean, could you imagine if this was some
other function other than ESG, we would be going wild right
now?
Mr. Isaac. Absolutely. It is bend the knee----
Mrs. McClain. Yes. Again, I am not really sure that that is
the fund manager's job, but at any rate, I would like to ask
another question. Who exactly enforces ESG compliance at these
companies?
Mr. Isaac. That is arbitrary. There are multiple different
companies that do ESG ratings, and as you and Chairman Fallon
have alluded to, the ratings vary by company. You will see
Chevron with an A rating from one company, a C, and then an F
from another.
Mrs. McClain. Perhaps, do you think it has something to do
with maybe coercions if they tweet positively or negatively?
Mr. Isaac. Absolutely. Yes. The climate cartel is at full
work, and that is why companies like FTX had no board. They did
not have a governing board, but had a higher ESG rating than
ExxonMobil, where we know the story----
Mrs. McClain. Interesting. Do not let the facts get in the
way of a good story. Are these ESG compliance officers, so to
speak, is it an internal to the company, or are there outside
groups that they are coordinating with?
Mr. Isaac. You look at companies like ISS, the Investor
Shareholder Services, and Glass Lewis, these are the duopoly of
proxy voting firms that control over 90 percent of the market,
have become major ESG promoters. So, these are the companies
that are actually voting the shares for the largest
institutional investors, which 19 of the largest 20
institutional investors are public pensions, and ISS and Glass
Lewis are voting their shares and aligning with their personal
ESG political agenda.
Mrs. McClain. OK. I am going to switch gears for one moment
because I want to piggyback and stick with the facts because,
again, return on investment is supposed to be factual. There is
risk mitigators in there, right? It is not an idea or ideology.
One of my colleagues earlier said that ESG is a more efficient
investment strategy. Mr. Moore, would you like to comment on
that? Because I would think it is the opposite. In fact, the
data that I show is ESG is not a more efficient strategy. Do
you have any comments on that?
Mr. Moore. There are scores of studies. Look, there are
studies on both sides. But the predominant number of studies
show that ESG investing, just like any social investing
technique, reduces return because you are just limiting the
number of companies you can invest in. And so let me just give
you one little example.
Mrs. McClain. Please.
Mr. Moore. What do you think was the top returning industry
of the Fortune 500 last year? Oil and gas. Guess what the ESG
companies did? They divested in oil and gas as their stocks
went way up. Now, oil and gas is not doing so well this year, I
mean, so you can always cherry pick the data, but over time,
these social investment ESG policies reduce returns to the
shareholders. Look, you know, I cannot tell you how many people
I have heard from since we did our study saying, you know,
look, this is my retirement money. You know, I have worked my
whole life to, you know, maybe buy a home in Florida or Arizona
when I retire, and this is costing me thousands of dollars. And
so, people are upset about it, and they are upset that they did
not even know about it.
Mrs. McClain. And therein lies the problem: just be honest.
And I am going to say it again, if you want to invest in ESG
companies, by all means, you have every right to do so, but let
us just be honest and transparent. Thank you.
Mr. Fallon. OK. The Chair recognizes Ms. Brown from Ohio.
Ms. Brown. Thank you, Mr. Chairman. Once again, we sit here
in this hearing room wasting our time, our constituents' time,
and the Nation's time discussing a Republican-manufactured
crisis. Our last hearing in this Subcommittee was focused on
the Republican narrative of gaslighting people about a ban on
gas stoves. And here we are, again, now discussing a real
Republican attempt to ban information and the freedom to choose
how to invest your savings. As I said during our last hearing
on environmental, social, and governance investing, ESG is a
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.
Investment companies and asset managers developed ESG
factors for responsible investing to attract financial backers
and better assess long-term risk from challenges like climate
change. ESG is not a liberal conspiracy. It is common sense,
which apparently is not so common these days. Nevertheless, Dr.
Rajgopal, why do investors and asset managers want to consider
ESG factors?
Mr. Rajgopal. So, your question is how do they consider it?
How do they consider it? Is that----
Ms. Brown. And why.
Mr. Rajgopal. Yes, and why. So, let us kind of go back to
the fiduciary discussion that we had. As a fiduciary, if there
is a robust body of signs that raises potential risks, let us
say climate as an example, at the very least, I think it is
your responsibility to look at those things. You might decide
what you want to, but at least you have to look at them. It
would be the first premise.
And second, lots of comments have been made about how ESG
funds underperform and so on. You want to look at specific
aspects of the ``E'' and the ``S'' and the ``G.'' That is where
the action is. It is not running regressions of ratings, et
cetera, on returns. So, if you want to look at ``S,'' quality
of the work force. If you want to look at ``G,'' are CEOs
overpaid? What is the composition of the board? How many
insiders do you have? When was the board appointed? If you want
to look at specific aspects of ``E,'' we can talk about
physical and transition risks. So that, to me, is the way to
think about the investments you have, and look at the mosaic of
factors. To me, it is no different from, say, accounting risk.
One of the issues that is often not considered carefully in
this ESG, it does not correlate to performance debate, is that
ESG is a lot about tail risk. What does tail risk mean? To me,
it is like accounting fraud. Maybe 5 percent of your portfolio
companies probably have some probability of going through an
accounting fraud, but if they do, it is going to wipe out the
principal and that principal is going to wipe off years of
returns. So, think of ESG as a way to think about the tail risk
associated with future cash-flows of the stocks that you hold
if you are a fiduciary. So hopefully, that gives you some
granularity in----
Ms. Brown. That is helpful. So yes or no, do you think the
use of ESG data is politically motivated?
Mr. Rajgopal. It can be, but it need not be.
Ms. Brown. Yes or no, would you say that the banning of ESG
data is politically motivated?
Mr. Rajgopal. I think it is regrettable. We should just let
the free market decide what it wants to. Markets cannot be
efficient if you stop access to data.
Ms. Brown. Thank you. Well, unfortunately, my colleagues on
the other side of the aisle throw out their support of free
market principles when it does not fit their narrative.
Apparently, recent abortion and book bans have not satisfied
Republicans, so now they are moving to ban basic logic and data
and interfering in the private market. It is truly
disheartening to see my colleagues do everything they can to
drag even the most commonplace issues into their manufactured
culture wars. So let me close by saying this. Transparency,
information access, facts, and truth are not conspiracies or a
political agenda, and with that, I yield back.
Mr. Fallon. The Chair recognizes Mr. Grothman from
Wisconsin.
Mr. Grothman. Yes. We are focusing here on funds, but
obviously the funds are made up of many individual businesses,
right? And I wonder if there is a data base or a place where I
could look up the ESG scores on, say, any publicly traded
company. Is that a public thing, or do the scores vary by
mutual fund by mutual fund?
Mr. Isaac. Yes, there are. The scores are going to vary,
but I know Schwab has a tool that shows ESG ratings. We had a
piece published within the Texas Public Policy Foundation that
showed that an American business that owns minerals--that is
all they own is minerals in the United States--actually had a
lower ESG rating than three Chinese companies, one of which has
``coal'' in the name. The China Coal Energy Company has a
higher ESG rating than an American----
Mr. Grothman. Why is that?
Mr. Isaac. It is just because I believe it is political in
nature. And I would imagine this Chinese communist-controlled
company has probably signed on and said that they are going to
meet the terms of the Paris Accord while they have their
fingers crossed behind their back.
Mr. Grothman. OK. I see guns is one of the things. Does
that include retail or just manufacturing of guns?
Mr. Isaac. Manufacturing and retail, you have got both of
those that are being targeted by financial institutions that
are denying access to capital and insurance.
Mr. Grothman. So, in other words, there are individual
retailers out there who get a higher ESG score if they do not
sell guns?
Mr. Isaac. Correct, and then they are losing access to
credit card processing. There are companies out there that will
not allow credit card transactions to take place at retail gun
stores.
Mr. Grothman. OK. Well, that is an interesting thing. It
looks like there is a lot of diversity. I take that that
diversity means employees' diversity by race, presumably
diversity by gender, diversity by sexual preference. Is that
so?
Mr. Isaac. I would say that leans heavily into the ``S'' in
the ESG. Yes, and DEI is a close cousin of ESG, if not directly
related.
Mr. Grothman. OK. So, a company that gets a higher score is
more likely to discriminate against, I do not know,
discriminate against certain ethnic groups, I will put it that
way.
Mr. Isaac. Yes, and basically to have policies that they
are going to employ people not based on merit.
Mr. Grothman. OK. Is there any reason why these companies
are not publicized? They think they make themselves more
popular. I mean, I would like to know if companies are hiring
or promoting not based on merit. Is that something that anybody
is making an effort of getting out there?
Mr. Isaac. I cannot recall. It seems like there are a
couple of companies out there. Maybe 2ndVote Advisers is one
that is doing a list. And I know there is some other lists. I
will be happy to followup with some information on that.
Mr. Grothman. OK. And I know some of the things in the
notes here imply that some of these policies will and may be
popular with the fringe element in our society, maybe popular
with wealthy people who do not have to worry about what their
rate of return is, that overall, a lot of these policies that
the companies have to implement are unpopular with the American
public. Is that true?
Mr. Isaac. Absolutely. Yes.
Mr. Grothman. Could you rattle off a couple of examples?
Mr. Isaac. Well, I mentioned in my opening remarks about
the president of Sri Lanka. When he fled his country, he was a
wealthy individual and was able to take a government plane, and
where did he take it? He took it to Singapore, a place with the
second highest per capita CO2 emissions on the face of the
earth. But here he is pushing in, he is wealthy, he has got
access to military equipment, he can go wherever he wants to
go. He didn't go to Malawi, which is at net zero. They were
suffering a cholera outbreak at the time. He went to one of the
wealthiest countries with high CO2 emissions, that has no goal
and will never meet CO2 or net zero CO2. You have got other
people, Al Gore, John Kerry, and others, that fly around in
private jets and profess----
Mr. Grothman. Well, he is just a hypocrite. We all know
that, the millionaire, the limousine liberal. I mean, I hope
people are familiar with that ilk. I guess the question that I
am looking for here, though, are there any large companies
where you could go through and say that you are hiring not
based on merit, you are rewarding a company that won't sell
guns, we, on energy front, we are rewarding people who harm
American energy? Is there a place where these companies are
easily accessible, and we could publicize them?
Mr. Isaac. I know there are some public records of that,
and I'll just have to followup with the specific lists and
locations of that list.
Mr. Grothman. And one other thing, with regard to
discrimination, with pride, discrimination on the basis of
race, which is all illegal, have these companies who pride
themselves on this discrimination, do they ever open themselves
up to lawsuits, or is this something the Department of Justice
or EEOC ought to be looking at?
Mr. Isaac. Yes, I believe that the New York City pension
fund is under lawsuit from some of its pensioners because of
poor performance, and you----
Mr. Grothman. No, not poor performance. I am saying the
company that gets the high ESG score, if they are getting a
higher ESG score because they pride themselves on
discriminating against White people.
Mr. Fallon. Sorry. The gentleman's time is expired.
Mr. Grothman. OK.
Mr. Fallon. The Chair recognizes Ms. Porter from
California.
Ms. Porter. Dr. Rajgopal, first, can you straighten your
microphone out? Let me just be very clear. Bend it like this so
it is dead straight toward your mouth. Thank you.
As far as I can tell, and I am really on the struggle bus
here, what Republicans seem to want is they do not want
companies or investment managers to use ESG. Why?
Mr. Rajgopal. Ask them. I do not know. I would imagine, as
I said earlier, if there are signals that inform your view of
future cash-flows and risks, as a fiduciary, you would actually
fail in your responsibility if you did not look at those
signals.
Ms. Porter. Right. So, I mean, investment managers have
fiduciary duties to make good investments. If they find ESG
useful, then they find ESG useful, and if you disagree with
them and you think they are mismanaging your money, sue them.
What am I missing here?
Mr. Rajgopal. Or shed the stock, you do not even have to
sue them, right? I mean, if you have a view that, just shed the
stock, make money, you can be an activist, right? That is how
capital markets work, and that is where the discipline comes
from.
Ms. Porter. Right. So, I mean, I am really struggling here
to understand what Republicans want to have happen. From your
understanding here, it seems like what they want is they want
companies to do things that they like. I, too, by the way,
would like companies to do things that I like, and I sometimes
choose to invest in companies whose practices I like more. But
Ms. McClain, my colleague on the other side of the aisle, is
saying that if companies want to use ESG, they should be free
to do it. Did you hear her say that?
Mr. Rajgopal. I thought so, yes.
Ms. Porter. Then what is the point of this hearing? I, too,
I am with Mrs. McClain. I think companies should be free to
decide for themselves whether ESG practices are beneficial to
their bottom line and their business model and help them
attract customers or do not. I, too, think that asset managers
should be free to decide that ESG data helps them make good
valuation decisions and good investment decisions, and if they
do not, they should be able to ignore it. I cannot believe this
is part two when part one was actually the stupidest hearing I
have ever been to, and now we are having a part two. Please,
God, let there not be a part three.
Dr. Rajgopal, is it better for pension fund managers to
have more options for investing people's retirement savings, or
is it better if they have fewer options?
Mr. Rajgopal. More, obviously.
Ms. Porter. What is the pension fund manager's primary
responsibility?
Mr. Rajgopal. To make sure that they can deliver a return
commensurate with the pension benefits that have actually been
promised to their workers.
Ms. Porter. Great. Will limiting pension fund managers'
investment options increase retirement savings?
Mr. Rajgopal. Not that I can think of.
Ms. Porter. And by the way, you are not just thinking about
it. The Kansas Division of Budget did a study. They found that
limiting pension fund managers' investment options would cost
the retirement system $3.6 billion in reduced returns over 10
years. When we cutoff companies and asset managers from
choices, investors lose money. We are sacrificing the freedom
to invest, and we are all poorer. We are poorer because we have
fewer choices, and we are literally poorer because we have
lower returns.
In 2021, the Texas state government passed a law
prohibiting municipalities from signing loans with banks that
they believe boycott fossil fuel companies, I believe, also
guns. Is it better for municipalities to have more options for
loans or fewer options for loans?
Mr. Rajgopal. It is a simple supply demand kind of issue.
If you cutoff a few suppliers of a product or service and if
demand stays constant, the price of their good or service goes
up.
Ms. Porter. Thank you. I yield back. I literally am out of
ideas here, Mr. Fallon. I appreciate the extra time.
Mr. Fallon. The Chair recognizes Ms. Norton from
Washington, DC.
Ms. Norton. Thank you, Mr. Chairman. This hearing
highlights the partisan divide over what information investors
should have access to when making financial investments. I
think we all understand that. My Democratic colleagues and I
believe that investors should be free to make their own choices
using available data. We think workers seeking to invest in
their futures should have the information they need to make
evidence-based decisions.
My Republican colleagues want to restrict investors to
certain types of investments that show short-term profitability
by withholding data on the long-term financial sustainability
of a company. The issue at stake today is whether individuals
and families will have the freedom to invest responsibly by
considering all relevant factors in making investment
decisions, including environmental, social, and governance
principles. Mr. Rajgopal, how does considering ESG offer more
choices to investors?
Mr. Rajgopal. So, if you were to just go by what an income
statement or a balance sheet or the footnotes of a financial
statement tell you, you would perhaps not have a full
appreciation for all the risk factors related to the future
sales, future costs, and future earnings of a company. So that
is what ESG gives you.
Ms. Norton. Well, Mr. Rajgopal, would you agree that
restricting the consideration of ESG data also restricts the
ability of investors to make choices?
Mr. Rajgopal. I fully agree.
Ms. Norton. During the last ESG hearing, Illinois
Treasurer, Michael Frederick, made a compelling case that
short-term profit should not necessarily be the principal
factor for making investment decisions. For example, Purdue
Pharma's financial returns showed a very profitable company
earning billions of dollars. Purdue, however, eventually went
bankrupt because they made those profits by manufacturing an
opioid epidemic resulting in numerous lawsuits and contributing
to hundreds of thousands of deaths across this Nation. The
inherent risk in a company that sells a product that kills a
considerable percentage of its consumers through drug overdoses
seems like a very relevant factor to consider for making
investments. If Republicans had their way, investors would not
be able to consider such risks.
So, Mr. Rajgopal, when Purdue Pharma filed for bankruptcy,
how did that affect its investors?
Mr. Rajgopal. They lost all their money. They lost their
principal.
Ms. Norton. That is clear and simple. Mr. Rajgopal, should
asset managers have been able to choose whether to consider the
inherent risks associated with investing in Purdue because of
the opioid epidemic?
Mr. Rajgopal. Absolutely. I mean, any good analyst should
have asked these questions, yes.
Ms. Norton. Well, Democrats are for transparency and
against limiting what data families and investors can consider
in investment decisions. I yield back the balance of my time.
Mr. Fallon. The Chair recognized, Ms. Stansbury--oh, there
she is, perfect timing--from New Mexico for her five minutes.
Ms. Stansbury. Thank you, Mr. Chairman, and I want to say
thank you to all of our witnesses for being here today. I am
delighted to have a second opportunity today to talk about
sustainable investing. But I do have to say that I am a little
perplexed about why we are having exactly the same hearing that
we had just four weeks ago. And I think what is particularly
strange to me about this hearing is that we already established
a few weeks ago that the topic that we are here to discuss
today and the attacks on ESG investing are wildly out of step
with the American people, with American corporations, with the
market, and with our basic freedoms as Americans.
You know, I think it is clear to say that, and I think we
have heard today in the rhetoric, that this is yet another
crusade and the culture wars against American freedom, but, you
know, quite strangely against the market itself. And what I
find particularly strange about this conversation is that over
63 percent of American voters actually directly oppose any kind
of government interference in investing strategies, and the
vast majority of Republicans oppose it as well.
And, you know, when you look at the bigger picture, when
you look at what the American people are actually asking
Congress to do, asking businesses in the private sector to do,
almost 70 percent of Americans are in support of actions to
address climate change, to transition to a clean energy
economy. And for our younger Americans, for young people, they
are two-and-a-half times more likely than older generations to
say this is their No. 1 issue. So, why are we having a second
hearing on this topic when we have already established that it
really has nothing to do with anything that the American people
want us to be working on?
But I think it is a good opportunity to talk about the
things that we do care about, which is climate action. That is
what the American people are asking us to do. And in fact, that
is what Democrats did this last year when we passed the
Inflation Reduction Act, which we have said time and time again
is not only the most significant investment in climate action
that this country has ever taken, it is the most significant
action on climate change that any country has ever taken in the
history of the world. And that is why the President went to bat
to protect the Inflation Reduction Act last week when
Republicans threatened to tank our economy over the debt
ceiling. So, it is just completely outrageous to me that we are
here talking about this once again.
But I think the other aspect of all of this that I find
particularly troubling is the veiled commentary about wokeism
as it applies to issues of diversity and inclusion because what
we are actually talking about is women and people of color
participating in the board room, being in leadership positions,
having meaningful jobs, investing in companies who care about
that. Why wouldn't we care about that? Do we think that our
Fortune 500 companies are actually struggling right now with
retaining the kind of historical leadership that they have had?
No, they are not. In fact, only 30 percent of Fortune 500
companies have members that are women, and their boards are
disproportionately White and non-people of color compared to
the rest of the country.
So, for those of you who are opposed to ESG and opposed to
diversity, you know, I think we have a important message here
to say, which is, thankfully, the American people and American
businesses disagree. And not only do they disagree because it
is the right and ethical thing to do, it is also good for the
bottom line because more diverse businesses, more diverse
boards actually lead to more successful businesses. So, as a
factor in investing, it is not only important to advancing
social justice and equity in our society, it is also a factor
that we have to be considering when we are making investments
and our fiduciary responsibilities.
So, we have heard a lot here today, but, Mr. Rajgopal, I
want to thank you for being here. Can you please just help us
drive home the point here? Tell us why investors and businesses
take ESG into account, and why is ESG important not only for
advancing our goals as a society, but also for investing.
Mr. Rajgopal. So, as I have said, you know, quite a few
times, ESG simply gives you a richer toolkit of signals and
risk factors that might affect a firm's future cash-flows and
risks. Just a very quick comment on the diverse board's idea.
One of the big issues with boards is groupthink, and, you know,
by and large it becomes socially very difficult for a board
member to question a CEO because the elephant in the room is
usually left out. The hope is that people with diverse life
experiences, even if, you know, 10 or 15 percent of their
groupthink fell, I think, you know, that would actually add to
corporate accountability, governance, and actually release more
firm value.
Ms. Stansbury. Thank you. And, you know, just in
conclusion, I want to say it is very clear Americans want
climate action. They want sustainable investing. They want
diverse work environments and leadership, and the American
people want their freedom. And so, I appreciate all of you for
being here today and those of you who are doing this important
work. And with that, I yield back.
Mr. Fallon. The Chair recognizes Ms. Balint from Vermont.
Ms. Balint. Thank you, Mr. Chair. Earlier in the hearing,
one of my colleagues went out of her way to say this hearing is
not about demonizing ESG and that, in fact, we are just here
really to get to the truth. And so, I just wanted to go through
some of the language that was used by some of the witnesses
earlier. We have got words like ``infiltrated,''
``weaponized,'' ``collusion,'' ``cartel-like, conspiracy.''
What else do we got here? ``Force compliant,'' ``climate
cartel,'' ``wrecking ball,'' ``coercive.'' Yes, these are
really neutral terms. We even had ``anti-American'' and ``anti-
capitalist,'' ``driving the woke capitalism.'' These are not
neutral terms. These are not neutral terms.
So, like my colleagues have said, this is a colossal waste
of time. We have already been here before. We have already
established that if we, in fact, believe that we live in a free
society and we have the opportunity to make investments, we
should have all the information that we need to make those
investments, and we should not be interfering with that. So
that has already been established.
And, you know, I stepped out of the hearing to go visit a
different hearing for a little while, and I just have a
question. I apologize. I do not know exactly how you say your
name. Is it Gunasekara? Can you pronounce that?
Ms. Gunasekara. Gunasekara.
Ms. Balint. Thank you. Gunasekara. I was looking at some of
the materials you supplied here. And one of the things that you
said in your information here that you provided was that the
dangers of ESG include promoting gender transitions for
children. And I want to know, do you really believe that
garbage?
Ms. Gunasekara. It is not about believing. It is a matter
of fact.
Ms. Balint. Oh, so you believe that investing strategies,
it is weaponized to support and promote gender transition for
children. Is, essentially, that what you are saying, or do you
just use it as another opportunity to beat up on children? So,
do you believe this?
Ms. Gunasekara. I am not the one beating up on children. It
is the people who are promoting gender transition in children
that are potentially harming them. If you just walk into----
Ms. Balint. Well, so let me tell you, if I could, let me
tell you where I was, where I stepped out, and this is why I am
bringing it up. I stepped out to sit down with parents of trans
kids from states that have come after their kids. And now their
kids cannot get the level of care that they deserve and need.
And they literally said, when you leave this room, could you
please, the next time you are in a room with someone bringing
up yet again our children and our families as some kind of
boogeyman, that you will actually stand up for us. And
literally, I did not think it would take less than a half hour,
I left that hearing, here I am. I did not know I would have
such an opportunity.
But it feels like every single hearing that I am in,
whether it is in Oversight, or whether it is in Budget, or
whether it is in a subcommittee, somehow the witnesses find a
way to bring trans children into whatever conversation we are
trying to have here. And all I will say, before I finish is, if
you are a parent or you know parents that you love, I want you
to think really carefully about whether you think those parents
are making decisions for their children that are not in their
children's best interest. That is what we are talking about
here. I do not think it has any place in this hearing on
investments to once again be beating up on Americans and their
children. I yield back my time.
Ms. Gunasekara. I do not think it has any place in
investing, and, frankly, the problem is this is not about a
choice. This is----
Mr. Fallon. Yes. OK. I got it.
Ms. Balint. I yield back my time. My time.
Mr. Fallon. The Chair recognizes Ms. Lee.
Ms. Lee. Thank you. We have heard a lot about how pointless
a hearing this is, again, so much so that I would just like to
quickly point out that the other side of the aisle that called
the hearing did not even bother to show up, but we are here.
So, I guess we will carry on with the hearing so as to not
waste your time as much as our time is being wasted here.
But we are currently facing a climate crisis, right? That
is not an opinion, it is a fact, and we cannot just sit around
and do nothing though. Sometimes we do worse to nothing.
Propping up the fossil fuel industry with these fabricated
anti-ESG policies, or whatever acronym we are going to use, is
actually worse than doing nothing. It is harmful to Americans'
health, their quality of life, and retirement funds. Our future
is at stake, and instead of holding a hearing on that actual
real crisis, we are wasting our time again on this nonsense.
We heard in the last hearing how vital it is to look at the
big picture for investments and that long-term growth is the
ultimate goal. The anti-ESG policies do nothing more than force
blinders on investors and prevent them from considering
legitimate risk factors. This past February, a Norfolk Southern
train derailed just outside of my district in neighboring Ohio,
causing hazardous chemicals to be released into the air and the
soil and water in East Palestine. The EPA has since issued an
order directing Norfolk Southern to pay EPA's response costs
and has filed a complaint, along with the U.S. Attorneys'
Office, against the company, seeking penalties and injunctive
relief.
Dr. Rajgopal, will any potential imposed penalties by the
EPA affect the bottom line of Norfolk Southern?
Mr. Rajgopal. No. Most penalties tend to be fairly small
compared to the social laws imposed by the company,
unfortunately. So, I would say it is probably a blip on the
stock price, if anything. Not even a blip.
Ms. Lee. Why is it so important for asset managers to be
able to consider factors, however, like climate change, and to
make investments in clean energy technologies when making
decisions?
Mr. Rajgopal. So, let us go back to the BlackRock,
Vanguard, State Street idea. These are so-called universal
owners, meaning they hold the stock for 20-30 years until the
stock gets probably displaced from the index. So, if the firm
misses a quarter, they are not going to sell the stock. So,
they have to worry about, you know, factors that might affect
the future cash-flows in the stock 10, 15, 20 years out. That
is why you need to have a conversation about climate risk.
Ms. Lee. Thank you. Republicans want us to look the other
way to ignore when a company is poisoning our ecosystem.
Banning ESG investing is the opposite of doing responsible
investing, and why is that? What is motivating Republicans to
create a problem out of nothing? I think we can find the answer
right here on our panel of witnesses. The Heritage Foundation,
Texas Public Policy Foundation, and Independent Women's Forum
all get their funding from the fossil fuel industry.
Dr. Rajgopal, why do you think the fossil fuel industry
would fight so hard against ESG factors being considered in
investing?
Mr. Rajgopal. Well, changing business models is very hard.
So, if you ask an oil and gas company to suddenly become or
think about a different line of business, the history in
corporate America of companies changing course is not very
good. Blockbuster had a chance, I think, to buy Netflix twice,
still passed on that, and I can go on and on. There is Xerox.
There is Kodak. There are so many, so change is hard.
Ms. Lee. Let me just add that not only is change hard, but
change is, in fact, inevitable, right, whether it is hard or
not. Current fossil fuel assets are facing an estimated $1
trillion loss over the next 15 years. Their need for a paycheck
is apparently more important than ensuring our planet is usable
for the next generation. I came to environmental justice not
through education, but through necessity. Pittsburgh has some
of the worst air quality in the Nation on any given day.
Allegheny County, specifically, the Mon Valley where I grew up,
suffers from some of the highest rates of asthma, of cancer,
and of other respiratory illnesses. We see corporate polluters
sacrifice the health and well-being of our communities for
their own financial gain over and over. Yet, when we want to
consider the environmental impacts in how we invest our money,
they lobby and they throw money around to stop us. Every person
deserves clean air and a livable future.
My Republican colleagues need to wake up and get with the
majority of Americans who are demanding action on climate
change. I yield back.
Mr. Fallon. The Chair recognizes Mr. LaTurner from Kansas.
Mr. LaTurner. Thank you, Mr. Chairman. Thank you all for
being here.
When President Biden introduced his new ESG rule earlier
this year allowing fund managers to invest American's
retirement savings into ESG funds without their knowledge, the
House and the Senate took bipartisan action to block this
reckless proposal from moving forward. Unfortunately, the White
House did not get the message. President Biden used the first
veto of his tenure to give large financial institutions the
ability to advance his political agenda, which the vast
majority of Americans would never endorse at the ballot box,
through forced investment, skirting due process.
The truth is, most Kansans do not want any part of
President Biden's ESG agenda, much less with their hard-earned
retirement savings at stake, and why would they? The ESG
movement forces financial entities and investors to ignore
real-world fiscal value for the sake of pie-in-the-sky climate
change initiatives. Does a bank comply with ESG practices or
prioritize as they should delivering value to their
stakeholders?
Energy was the sole sector in the S&P 500 to rise last
year, but ESG-aligned funds which spurned fossil fuel companies
by design unanimously underperform the S&P 500. Despite this
reality, my colleagues across the aisle seem to be just fine
with policy which conditions behaviors of our financial
institutions upon arbitrarily contrived ESG scores and puts
woke climate change policies over the financial security of
hardworking Americans.
Mr. Moore, the Census Bureau estimates 25 percent of
Kansans will be 60 or older by 2030. Retirement funds
constitute nearly half of mutual fund assets nationwide. Can
you briefly elaborate upon the financial liabilities my
constituents' golden year savings are exposed to under the
Biden Administration's ESG standards?
Mr. Moore. Congressman, like I outlined in my testimony,
the preponderance of the studies show that ESG investing
reduces investor return. It reduces the value of the fund. Not
hugely, but it does. And so, someone who has put a whole
lifetime savings, maybe quarter million or half a million
dollars in, you know, over the course of their 30 or 40 years
of work, you are talking about reducing, you know, perhaps
$10,000 or $20,000 the value of their lifetime savings, and
that is a real cost to retirees.
Now, I think one of the things that has frustrated me a
little bit about this hearing is that we keep talking past each
other. I do not think anybody in this room is against ESG
investing. I mean, are you? Are you? We are just saying that
you cannot force people or have them in ESG funds when they do
not even know about it, when it is being done without their
knowledge. And that is what a lot of these firms are doing, and
that is what the Biden Administration requirements are doing.
They are basically saying, you have to get a lower return on
your investment.
Look, I have a big problem because when I talked to
clients, you know, who are, people who are clients with these
firms, they say, look, I do not want to save the world. I do
not want to save the whales. I just want to have a good
retirement income. I worked my whole life, and that is what
they deserve. And, frankly, these firms do have a fiduciary
duty to provide them the highest return possible.
Mr. LaTurner. I am going to stick with you. Two companies
control over 90 percent of all proxy advisory services. Do you
harbor any antitrust concerns over their combined market share?
Mr. Moore. I am sorry. I missed that.
Mr. LaTurner. It is OK. I am talking about antitrust
concerns over combined market share when we are talking about
Glass Lewis and ISS control over 90 percent of all proxy
advisory services. Anyone can comment on that if they would
like.
Mr. Moore. Well, I do not believe in antitrust, but I do
believe we need a market solution to this. We need to have
another firm out there that presents a more free-market review.
When we graded, yes, we graded the top 50 money management
firms.
Mr. LaTurner. Yes.
Mr. Moore. But we also graded the ISS, and what is the
other one?
Mr. LaTurner. Glass Lewis.
Mr. Moore. Glass Lewis, they got a D-minus and an F-minus.
They are recommending the firms that they vote for all of this
ESG stuff. So, we probably need an alternative because they are
not really advising these firms in a way that maximizes
shareholder value.
Mr. LaTurner. To your personal knowledge, are climate
change activists using the threat of political action to
pressure banks from lending to certain energy and industrial
sectors like the fossil fuel industry?
Mr. Moore. Here is the point about this. The U.S. economy
cannot operate without fossil fuels. So, the idea that we are
going to, you know, eliminate fossil fuels over the next 20 or
30 or 40 years is extraordinarily economically dangerous. And I
mentioned earlier that, you know, there is a state that is
trying to do that. That is California, and California has had
brownouts, blackouts. Even my friend here in Texas, you have
problems because of some of this, you know, these environmental
initiatives that are moving away from not just oil and gas, but
nuclear power. I mean, that makes no sense.
And by the way, the single factor that has reduced carbon
emissions the most is not this Inflation Reduction Act. The
thing that, by an order of magnitude, that has reduced carbon
emissions has been shale gas. Shale gas is like a wonder fuel.
It has dramatically reduced greenhouse gas emissions.
Mr. Fallon. The gentleman's time has expired.
Mr. LaTurner. Thank you. I yield back, Mr. Chair.
Mr. Fallon. The Chair recognizes Chairman Raskin.
Mr. Raskin. Mr. Chairman, thank you very much, and I feel
with this last round of statements we have reached some
enlightenment here. Mr. Moore stated that he was not opposed in
any way to ESG investing or ESG companies. He invited his
fellow panelists to disagree with him, and they appeared to
assent to it. He said he is only opposed to affirmatively
forcing people to invest in ESG, but, of course, that does not
happen anywhere.
The Department of Labor rule, which I think is the target
of their attack, does not impose a mandate on anybody, but
permits fiduciaries to consider responsible investing factors
if such factors are shown to be prudent and consistent with
fiduciary principles. So, the Department's rule just represents
a return to neutrality, precisely what the anti-ESG people do
not want in the states. They want to try to exclude ESG
companies from consideration.
Representative McClain said at the beginning that, well, if
investors and asset managers are going to be able to consider
environmental and social and governance factors, a company
could decide to just make its decisions based on abortion. But
what do you know, this is America, and we have got economic
freedom, and you go online and you can find the Catholic
investment portfolio which excludes abortion. You can find the
Timothy Plan which excludes abortion. You can find Ave Maria
Mutual Funds. That is the marketplace.
So, if you think that your asset manager is violating your
rights somehow, you obviously have the right to exit. You have
the right to have some kind of shareholder proxy election about
it, or you can sue them. You can bring derivative shareholder
litigation. Are there examples of any lawsuit where
shareholders have said you pulled the wool over our eyes and
you decided to take into account more data about environmental
and social governance factors that we want you to consider?
Does anybody have any cognizance of any lawsuit like that where
someone has won?
I mean, so I am with my colleagues who are just baffled
that we are having not one but two hearings. And I hope we are
not going to have a third hearing and then we will have no
Republicans show up at all because I think they have absolutely
abandoned the field here because they are going up against
market freedom, consumer sovereignty, environmentally conscious
and socially conscious decision-making that people want and
where the market is taking us. That is where we are right now.
Well, in 2022, Morningstar surveyed 500 global asset owners
controlling $32 trillion, and they found that 85 percent of
those 500 see ESG factors as material or even essential to
prudent financial investment policy. And that makes perfect
sense because it has been shown that investments that consider
ESG data offer greater long-term resilience and lower risk than
investments that do not. I mean, if someone came to you in 2016
or 2017 and said, I have got a great pharma investment for you
with this great company called Purdue, it is producing 30
percent, 40 percent, 70 percent, 80 percent returns in the last
couple quarters, would you want to know that their business
model was getting people addicted to drugs? It is not just that
it is socially pernicious. Maybe you do not care about that.
You say all you care about is the financial bottom line. But if
you care about your financial bottom line, you are going to
want to know if that company is going to go bankrupt because of
its socially predatory practices.
Same thing with--take the Massey Energy Company in West
Virginia. Someone said to you, invest in Massey Energy. They
are getting staggering profits in 2007, 2008, before the Upper
Big Branch Mine disaster which took the lives of 29 workers.
And someone said, well, why don't you consider the fact that
they have got hundreds of mine safety violations and OSHA
violations? And then someone says, well, no, you cannot do
that. You cannot take into account the social factors are the
environmental factors. Just look at the bottom line. That would
be a ridiculous way to invest, but that is precisely what we
are being invited to endorse today. Look only at the money and
not include the ESG factors, which are just data, more data for
the investment managers to figure out whether it is a good
investment or a bad investment.
So, these ham-fisted efforts of the carbon kings are
projected to dramatically raise costs for state and local
governments by tens or hundreds of millions of dollars
annually.
[Chart]
Mr. Raskin. If you could just take a look at this. A
Sunrise Project study estimated the cost for six southern
states, if they pass legislation limiting responsible
investing, these bills would pull state funds from investment
managers if officials deem their investment strategies are
adverse to certain industries, most prominently, of course,
fossil fuels and the firearm industry, which are the ones that
have gotten this whole anti ESG crusade going.
I ask unanimous consent to submit this analysis to the
record, Mr. Chairman.
Mr. Fallon. Without objection, so moved.
Mr. Raskin. Thank you very much. I yield back.
Mr. Fallon. Thank you. The Chair now recognizes Ranking
Member Bush for a close.
Ms. Bush. Thank you and thank you to all the witnesses for
being here today and to the Democrats who showed up two to one
to this hearing that was called by the Republicans. Thank you
so much.
And let me also say, it is astounding how often we hear
about wokeness, wokeness, wokeness from people who have no idea
what ``woke'' actually means and where it stems from. But let
me just say, as Black folks who stood up to say, that no more
will we allow these injustices to continue to happen on our
communities. We spoke up, and I can speak to it because I am
one of those folks that was on the ground for more than 400
days after the killing of Michael Brown. When that came about,
we said we woke up because we will not allow anyone else to do
this to us without us fighting back.
And so, when you say, ``I am anti-woke,'' when you talk
about wokeness, you are saying ``I am anti-Black and I do not
want Black people to speak up for themselves. I do not want
equality and justice for Black folks.'' So, I say to those that
say wokeness, wokeness, wokeness, ``we are anti-woke,'' this is
not wokeness what we talked about in here, and you should be on
the side of folks who are woke because we are saying no more
oppression against our community.
So, whatever else is being thrown around, unless you are
saying ``I am racist, White supremacist, and I am bigoted,''
stop talking about wokeness. And you cannot tell me that I am
wrong because I am from the very movement where this came
about. Do not let a fascist tell you what being woke means.
Now, responsible investing, which has nothing to do with
wokeness, depends on ESG data to facilitate planning for long-
term challenges, requiring firms to disclose more data about
their risk and returns and how that helps to protect our future
by investing in climate resilience and clean energy. And this
is good for our planet, it is good for business.
Climate-and extreme-weather-related events already affect
both small and large businesses every single day. Investors
deserve to know which companies are taking appropriate steps to
mitigate climate threats to their bottom lines. This is not
about wokeness. ESG also helps workers, ensuring that their
pensions are not going to companies that will later privatize
and degrade jobs.
Democrats are working to protect the public's access to
data and make responsible investment choices. The Biden-Harris
Administration's Securities and Exchange Commission and
Department of Labor's rules allow for more information to be
provided to investors. They are not mandates to consider ESG.
Republicans' attacks on ESG, they hurt taxpayers by raising
costs, like in Texas where anti-ESG bill, that bill cost the
public an additional $300 million to $500 million in interest
in just eight months. Republicans' anti-ESG crusade, it
protects their fossil fuel donors to the detriment of people's
retirement security and their freedom to invest. Republicans'
political crusade against responsible investing and calling it
``wokeness,'' be woke. Do not be anti-Black.
It is against responsible investing in an attempt to
manufacture a culture war that you know nothing about and you
are not standing up to fight against, and interfere in free
market trends and protect corporate interest. And with that, I
will say, do not speak about something that you do not know
about. Learn about it from the people who are the ones that are
most directly impacted, and change your language. Enough is
enough. This is not about being woke. Being woke is the side of
history you should be on.
Wake up to the fact that other people are burdened
differently than you, that other people have issues that you do
not even understand but you should be sensitive to. Wake up to
that, and with that, I will yield back.
Mr. Fallon. The Chair recognizes Chairwoman McClain.
Mrs. McClain. Wow. I am going to get back to the issue that
we are talking about, so thank you, Mr. Chairman. My colleagues
on the other side of the aisle are quick to identify as free
market capitalism as soon as it benefits their agenda. What we
discussed here today is not a problem of the free market. Anti-
competitive ESG practices, where banks and money managers are
colluding with climate activist forces, force business to
adhere to enormous compliance costs. And again, I am a business
owner. I have had to live in this realm. This is not a free
market, and that is capitalism. That is what we believe in. The
free market rewards businesses that account for the interests
of their customers and investors. It is simple.
In a free market, consumers are free to reward companies
they agree with by patronizing their business. This is not the
case with ESG because many of these decisions are being made
without the customer's knowledge. If an investor does not know
that their funds are being used to finance ESG initiatives,
they cannot make informed decisions. When you contribute to a
pension fund, you are putting your hard-earned savings in the
hands of a fiduciary who may not have your financial interests
at heart. And we now are seeing these investors get a green
light from the government to prioritize their desires over
Americans' financial best interest.
Like I said at our last hearing, I do not think my
colleagues would be so quick to support this level of
stakeholder capitalism if the ``S'' in ESG was investing in
pro-life causes or pro-Second Amendment businesses. My goodness
gracious, we would be all up in arms, and we would be talking
about everything but the issue at hand because what I find
interesting with my colleagues across the aisle, when they
cannot beat you on the issues, they go into name-calling. So, I
would prefer to just stick with the issues and the facts,
right? That is why economists do so well because it sticks with
the facts. Rates of return are pretty simple. We do not get
into the ideology.
You know, to me, it is hypocrisy, and it is a tool to
advance the left-leaning policies without the say of the
American people, and they try to bully you with the labeling
and the name-calling. Well, I am, for one, not going to be
bullied. The facts are the facts. You can call me any name you
want to call me, but let us look at the facts, and let us be
honest and let us be transparent. So, after all your name
calling is done, that is good, let us just look at the facts.
We have seen today that there are other downstream impacts,
plain and simple. Workers are facing situations where they may
be fired for not complying with their companies over
prescriptive DEI measures. From what we have heard today, those
measures are not doing much to improve the viewpoint or
employee diversity in these companies. Unfortunately, and
ultimately, forced ESG compliance is harming American workers
and business. And I am going to say this again, forced, not
free market, not free to choose because when, again, I cannot
beat you on the issues, I have to go to name-calling. I have to
go to bullying. All of a sudden, I am a White supremacist and I
am racist. And, no, I am just talking about the facts, but if
you cannot beat me on the facts, I guess call me names. So,
this Committee will continue to investigate this matter.
And in closing, I want to thank our panelists once again
for your testimony and your commitment to the facts and
transparency. And with that, Mr. Chairman, I yield back.
Mr. Fallon. The Chair recognizes Chairman Raskin for close.
Mr. Raskin. Thank you, Mr. Chairman, for that kindness. I
think I pretty much said what I had to say, but I want to thank
you for having this discussion. I think it has been clarifying
that nobody is opposed to ESG investing. Nobody is opposed to
those who want to invest only in companies with a pro-life
agenda, and we found a bunch of those. That is the free market.
And really, we do not need congressional hearings or
congressional action to interfere with the free market because
people control their own assets, people control their own
investment.
And I agree that we need more corporate transparency. I
would think our next hearing should be about whether
corporations are giving campaign contributions and engaging in
campaign expenditures without consulting the shareholders
because I think that is a real problem with transparency. There
is a lot more transparency in what we are talking about today,
than there is with what companies are doing in terms of
involvement in politics. But thank you for having this very
illuminating and productive hearing, and I yield back to you.
Mr. Fallon. Thank you, Mr. Chair. So, several things. We
heard adjectives and pejoratives, very incendiary,
unfortunately, ``gaslighting,'' ``MAGA extremist or MAGA
insurrectionists Republicans,'' ``big corporate,'' ``profits at
all costs,'' ``anti-Black,'' ``fascist,'' et cetera. I can tell
you what I am personally. I am anti-socialist, I am anti-
Marxist, I am anti-communist, I am pro-merit, pro-opportunity,
pro-liberty, pro-American, and I will never apologize for that,
because the most important diversity we have is the diversity
of thought.
I do not care what you are. I care who you are, and it is
about opportunity in this country. And yes, we have in our time
fallen very short, obviously, in our history, but we are
getting so much better. And the things that some of these folks
that use these pejoratives that are worried about are,
fortunately, incredibly diminishing phenomena every single day.
So, what we are talking about here is using ESG. We do not
want it to violate Federal law. We do not want to put it before
maximizing returns, and that is just not about profits, it is
also about prospectus. That is written into the law, and we do
not want to restrict investments. If you want to invest in
mermaid freedom, knock yourself out. You want to invest in
carbon free cookie monsters, knock yourself out. You want to
invest in a unicorn ranch, knock yourself out. It is just about
putting and not disclosing to the investor the criteria they
are using that violates Federal law.
Are we a country that is a rule of law Nation? Or are we
going to let rules become more powerful than the law because if
we are, the 535 of us should just damn well resign right now,
hire a bunch of Federal bureaucrats and let them run the
government. That is what we are really talking about, in
theory, because even if there is a rule that is made that I
agree with, I do not want it to trump law because then we are
going to be in anarchy, in chaos, and we are going to lose the
greatness that we have had as a country. It is very important
to recognize.
So, and then one of my other colleagues said about, we want
to ban books, probably talking about banning books. I am about
banning books in elementary schools that have explicit
pornographic material, and that is about it. I do not ever want
to see Catcher in the Rye banned again. So, and then we talk
about this country, is it a great country, is it not, and are
there opportunities out there? Well, you know, for people of
color and women, well, in this country, if you break us down
demographically in the five major categories, not going to
include everybody, but the No. 1 most successful ethnic group
in this country are Asian Indians, economically, second is
Asian Pacific Rim, and then White, then Hispanic, and then
Black. So, if there is White privilege, it is extraordinarily
not used well.
And then if you look at those five same categories with
education levels, it matches perfectly. On average, the most
educated Americans ethnically are Asian Indian, and they are
the most successful economically. What a shock. And who is
second? Asian Pacific Rim, what a shock, third, White, third
Hispanic, fifth Black. It exactly overlays, which indicates a
meritocracy.
So, what we heard here today should concern all Americans,
regardless of your political affiliation or what you believe
in. Your hard-earned money is used to fund projects and global
initiatives that were never meant to provide a return on your
investment. The ESG is a sham, and it is being forced on
people. We all know it, and we are seeing the damaging effects
playing out right here before our very eyes. It is pretty much
not really up for debate that the ESG funds underperform over
time. And this Committee is leading the charge here in Congress
to pull back the curtain on what is happening behind the scenes
that massive financial institutions never wanted you to know
about.
And worse, what does this government and this
Administration not want you to know? I do not want the
politicization of the FBI and, by extension, Justice. I do not
want the politicization of our military. I don't want a
Republican general and a Democrat general, and, more
specifically, I do not want our money being politicized, and to
point, in fact, specifically your financial investing.
And you know, and that is the scariest part. We need to ask
these questions. What if we continue down this path letting
leftist activists, asset managers use their clients' funds to
pursue a political agenda and decide what is in the best
interests of the business without having any practical
understanding of what it takes to run that business? And at
best, you have less money in your pocket and a warm, fuzzy
feeling about the brands you may choose to purchase. And again,
if you want to invest in ESG funds, invest in them, but there
needs to be proper disclosure.
Mr. Raskin. Mr. Chairman, could I pose one question to you?
Mr. Fallon. I yield for a question.
Mr. Raskin. You are very kind to do it. I just wanted to
give you the opportunity to clarify one thing you said. You
sort of elucidated a racial hierarchy in terms of success in
America, and you said what does that indicate. It indicates a
meritocracy. And I would just give you the opportunity to amend
that to say would also indicate the legacy and the persistence
of racism in America, slavery, Jim Crow, and the history that
we are all aware of, of anti-Black laws in the country.
Mr. Fallon. Well, clearly, we have had problems. I mean,
our greatest original sin has been slavery, obviously. That is
not up for debate. I do not understand your question, but I
think it illustrates the point of when somebody says ``White
supremacy'' or ``White privilege'' or what have you. I find
this country to be incredibly inviting to all comers. The
communists build walls to keep people in. We do not keep walls
to keep people in. People are welcome to leave if they want.
People from all over the world and every continent would love
to come here because of the opportunity that is here.
Now, I am not talking about America in 1865 or 1965. I am
talking about an America in 2023, and racism is, fortunately, a
diminishing phenomenon. I know we will always disagree on that,
but this is my time. And to answer your question, people of
color, Asian Indians, and they were less than 1 percent 40
years ago, and they are the most successful ethnic group, which
is remarkable because if racism truly exists to the extent that
a lot of people argue, they would not be. They would be fourth,
fifth, sixth, but yet, they are first. Why? Education is so
important, and I think that is far more than just an emphasis.
And the real root to this cause, and we can have discussions
and more hearings on these things, is if you have to have whole
families, fathers in the home.
If I did not have a father in my home--my father passed
away a year ago--I would not be in Congress right now, for
sure, because when you are a 14-or 15-year-old, you are just
not afraid of your mom, and it is hard to raise kids, as we all
know when raising kids. And that is why it is easier when you
have the two-parent home, and that is the symptom. We want to
really treat these things. It is not White people hating on
Black folks. It is not that at all. You have to focus on the
opportunities that this country provides you.
And again, it is about diversity of thought. I sat here the
entire hearing listening to things I disagreed with, patiently,
quietly, respectfully because I am not going to learn from
people that agree with me. I am going to learn from people that
may disagree with me, but as you just saw, somebody just wanted
to walk out but that is fine. After all, the end of the day, I
do believe in American exceptionalism. I do believe this
country is the greatest one history has ever known. And I do
believe that in 2023, we should take every opportunity to
prosper and make sure that the best days of this country have
yet to be counted, and we have that right here.
So, back to this topic and to close. You know, the American
public has every right to understand what their investments are
really going toward, and we are here to get to the answers.
Without objection, the Members will have five legislative
days to submit material and submit additional written questions
for the witnesses, which will be forwarded to witnesses for
their response.
Mr. Fallon. If there is no further business, without
objection, the Subcommittee stands adjourned.
[Whereupon, at 4:27 p.m., the Subcommittees were
adjourned.]