The rise in Environmental, Social, and Governance (ESG)-related initiatives must be mitigated to protect shareholders and the strength of U.S. capital markets, according to a new staff report released on Aug. 1 by the Republican ESG Working Group.
The final report outlines the working group’s examination of the factors contributing to the rise of ESG initiatives and their consequences for everyday investors and includes recommendations that Republicans say would protect American capital markets from threats posed by these politically motivated mandates.
“Politically motivated ESG mandates put Americans’ financial security at risk and have no place in corporate boardrooms,” said U.S. Rep. Patrick McHenry (R-NC), chairman of the U.S. House Financial Services Committee, which launched the working group in February 2023.
“The committee’s ESG Working Group report supports this fact as well as provides recommendations to address the failures of progressive environmental and social policy goals,” McHenry added. “Our committee will continue to work to ensure that progressive priorities are not placed above the interests of shareholders, sound corporate governance, or the strength of U.S. capital markets.”
The working group, led by U.S. House Financial Services Oversight and Investigations Subcommittee Chairman Bill Huizenga (R-MI), was designed to coordinate a response “to the troubling increase in efforts to force progressive policies on the private sector,” according to the report, and members of the group met with various stakeholders to identify factors that have allowed this increase to occur.
“This report not only advances the conversation but delivers tangible solutions to increase transparency and accountability surrounding the shareholder and proxy process,” Huizenga said. “Investors from all walks of life deserve to know that those managing their hard-earned money are working to maximize returns, making it easier, not harder, for more Americans to retire with financial security.”
The key priorities identified in the final staff report include recommendations to reform the proxy voting system to safeguard the interests of retail investors and to promote transparency, accountability, and accuracy in the proxy advisory system.
Additionally, accountability in shareholder voting must be improved by aligning voting decisions with the economic interests of shareholders, the report says.
Transparency and oversight of large asset managers also must be increased to ensure their practices reflect the pecuniary interest of retail investors, and ESG rating agency accountability and transparency must be improved to safeguard retail shareholders.
The working group also recommends strengthening oversight and conducting thorough investigations into federal regulatory efforts that would contort the nation’s financial system into a vehicle to implement climate policy and require transparency, responsibility, and adherence to statutory limits from financial and consumer regulatory agencies.
U.S. companies also should be protected from burdensome European Union regulations to safeguard American interests in global markets, according to the report.
“Companies are forced to spend their limited time, money, and attention considering an increasing number of activist-led proposals that do nothing to increase shareholder value,” the report states.
The ESG Working Group also identified several policies that address problems caused by activist-led ESG initiatives, noting that Congress should reform the proxy process and pass legislation making proxy advisory firms more accountable.