US Congress to Combat ‘ESG Threat’?

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    Stockholm (NordSIP) – At the end of 2022, efforts to oppose sustainability within conservative circles in the USA began to coalesce around the labelling of sustainable investors as proponents of “woke capitalism”. Now, it seems Republicans in the US House of Representatives are warming up to pursue their attacks at a higher level. However, the headlines are a bit misleading and things are not quite so bleak just yet.

    The War on ‘Woke Capitalism’

    At the Skytop Conference, ESG Impact Against the Backdrop of Geopolitics, Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment at the Office of the New York City Comptroller warned that this was not a mere war of words.

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    “There are a number of Republican-led states which are cutting their pension funds or their state’s business relationships with financial institutions that have set decarbonisation rules. They are not allowed to underwrite bond issuances for the public sector and their pension funds are not allowed to hire some of these firms as investment managers. I think it is having an impact in the financial community and some of the firms might be starting to walk back some of their commitments,” Garland explained at the end of October.

    The reactionary response to ESG investors gained further momentum when the Republican party won a narrow majority in the US House of Representatives, the country’s lower legislative chamber in November 2022. The new conservative majority also seems to be leveraging the June 2022 decision by the US Supreme Court on West Virginia v. Enviromental Protection Agency (EPA).

    The case focused on a 2015 Clean Power Plan rule promulgated by the EPA according to which coal power plants had to start finding ways to reduce their own emissions while also shifting power generation to alternative clean energy sources, such as solar and wind power. In its June 2022 decision, the US Supreme Court ruled that Congress did not grant the EPA authority to regulate emissions from existing plants based on generation-shifting mechanisms, thus rejecting the constitutionality of the EPA’s Clean Power Plan. However, the ruling did not stop the EPA from regulating emissions at existing plants through emissions reduction technologies.

    A New Working Group

    On the heels of these victories, Republicans announced the creation of a Financial Services Committee Republican ESG Working Group no February 3rd. The working group will focus on reigning in on ESG regulations and other initiatives coming from the Securities and Exchange Commission (SEC), the US financial market regulator.

    “Progressives are trying to do with American businesses what they already did to our public education system—using our institutions to force their far-left ideology on the American people. Their latest tool in these efforts is environmental, social, and governance proposals. This is why I am creating a Republican ESG working group led by Oversight & Investigations Subcommittee Chair Bill Huizenga,” said Patrick McHenry, a member of the House of Representatives for the 10th Congressional District of the US state of North Carolina and the recently elected Chairman of the House Financial Services Committee.

    “This group will develop a comprehensive approach to ESG that protects the financial interests of everyday investors and ensures our capital markets remain the envy of the world. Financial Services Committee Republicans as a whole will continue our work to expand capital formation, hold Biden’s rogue regulators accountable, and support American job creators.”

    “Last year, the Supreme Court ruled in West Virginia vs EPA that government bureaucracies cannot arbitrarily expand their own regulatory reach,” said Congressman Bill Huizenga (Pictured) the leader of the new working group. “The SEC’s climate disclosure rule is a prime example of this overreach- that would have a wide-ranging impact on hard working Americans across all walks of life. I look forward to leading our committee’s ESG working group, which will focus on promoting strong, vibrant capital markets, while defending the interests of all retail investors.”

    It’s important to note that the working group is not a formal subcommittee. It is instead an informal working group made up exclusively of Republican representatives, without any formal capacity to initiate, inquire or investigate any matters at all, much less pass legislation. However, if well coordinated, the new working group could serve as a reactionary base for campaigning and drafting legislative proposals against ESG efforts.

    Where do They Stand?

    According to a report by CNBC, McHenry is not entirely opposed to all ESG. According to the article he supports “responsible corporate governance, which he said does “have a significant bearing on economic outcomes”. However, he sings a different tune with regard to climate change. “It’s necessary for Congress to tackle climate change, rather than regulation that foists onto large corporations to carry out what Congress should carry out,” he argues.

    Representatives McHenry and Huizenga received contributions from such institutions as Alphabet (Google’s holding company), MetLife, BlackRock, Blackstone, the Bank of New York Mellon, Cboe Global Markets (the mother company that owns the Chicago Board Options Exchange), JP Morgan, Fidelity Investments and the Zurich Insurance Group, among others. While American organisations are known to donate to both parties, it is worth noting that many of these organisations have made public commitments to ESG integration in directly opposition to the agendas of politicians they seem to support. This is not what ‘walking the walk’ looks like.

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