“ESG month” may not be exactly what you think. It’s the moniker, according to Politico, ascribed to the plan of the House Financial Services Committee, reflected in this interim report from its ESG Working Group, “to spend the next few weeks holding hearings and voting on bills designed to send a clear signal: Corporations, in particular big investment managers, should think twice about integrating climate and social goals into their business plans.”  But this is not just another generic offensive in the culture wars; according to Politico, this effort is more targeted—aimed not at major brands of beer or amusement parks, but rather at the processes that some argue activists use to pressure companies to address ESG concerns, as well as the “firms that play big roles in ESG investing.”   At the first of six hearings on July 12, Committee Chair Patrick McHenry maintained that the series of hearings and related proposed legislation was not about “delivering a message,” but was rather about protecting investors and keeping the markets robust and competitive. First item up? Reforms to the proxy process to prevent activists from diverting attention from core issues; while he supported shareholder democracy, he believed that democracy should reflect the say of the shareholders, not external parties that, in his view, exploit the existing process to impose their beliefs. The Working Group appears to have identified the shareholder proposal process as instrumental in promoting ESG concerns. Will this spotlight have any impact?

What is the ESG Working Group? The report tells us right upfront:  “The Environmental, Social, and Governance (ESG) Working Group was created at the beginning of this Congress for the specific purpose of developing a policy agenda designed to protect the financial interest of everyday investors from progressive activists who are using our institutions to force far-left ideology on Americans.”  The report identifies a number of priorities, including reforming the proxy system, ensuring the accountability of the proxy advisory firms, enhancing the alignment of voting decisions with retail investors’ best interests (also involves proxy advisors), increasing transparency and oversight of large asset managers “to ensure their practices reflect the pecuniary interest of retail investors,” improving ESG rating agency accountability and transparency, and protecting U.S. companies from burdensome EU regulations. In addition, in light of the “politicization of the SEC”—as the Working Group sees it—another priority is to “strengthen oversight and conduct thorough investigations into federal regulatory efforts that would contort our financial system into a vehicle to implement climate policy,” and to “demand transparency, responsibility, and adherence to statutory limits from financial and consumer regulatory agencies.”  I counted at least 18 bills that the Committee is proposing to address these issues.

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