House advances anti-ESG legislation on investments, pensions

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The US House of Representatives recently passed a major ESG reform package that is on its way to the Senate. In a vote of 217-206, with three Democrats joining the narrow Republican majority, the House advanced a set of bills countering environmental, social, and governance (ESG) finance.

This came as members of the House Financial Services Committee wrapped up their highly anticipated "anti-woke week," a series of ESG-related hearings and floor votes on bills countering pro-ESG rules.

Especially since 2021, GOP representatives have been developing multiple bills to counteract the negative repercussions of several ESG rules and "woke" investment regulations enacted under President Joe Biden.

Below are some of the most important measures advanced in the bills package:

Prioritizing Economic Growth Over Woke Policies Act. This measure (HR 4790) provides a direct legislative check on mandatory ESG reporting regulations. The bill prevents the Securities and Exchange Commission from forcing publicly traded companies to disclose non-material information about board diversity and climate change risks. It also protects firms from private liability for disclosing nonmaterial information based on SEC policy.

The bill would allow companies to retain their own judgement over risk considerations, leaving them free to voluntarily disclose non-financial risks if management deems them to be material. One of the greatest arguments against the SEC's embattled climate disclosure rule is that Congress did not expressly grant authority to the agency to promulgate nonfinancial disclosure requirements.

Rep. Andy Barr (R-KY) made this point in a major House Financial Services Committee hearing before all five SEC commissioners. Barr mentioned that two climate disclosure bills were advanced in the 116^th and 117^th Congresses, which would have conferred statutory authority to the SEC for the accommodation of immaterial environmental disclosures. Yet, the Corporate Improvement and Investor Protection Act and its companion legislation died in the Senate, meaning Congress never gave the SEC the authority it is claiming.

Protecting Americans' Investments from Woke Policies Act. This bill (HR 5339) counteracts the Labor Department's (DOL) ESG-based pensions policy, which exposes retirees to additional investment criteria. The Biden DOL's rule, "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" nullified two Trump-era rules that safeguarded private pension fund beneficiaries under the Employee Retirement Income Security Act of 1974. It ensures that plan fiduciaries could only consider financial, not political, factors when making investment decisions affecting their client's retirement accounts.

The practice of "ESG screening" by managers excludes politically disfavored but otherwise profitable industries, such as fossil fuels and weapon manufacturing, from the retiree's portfolio. The measure would do away with that and only allow for consideration of nonpecuniary factors in limited situations, such as if the fund manager is incapable of distinguishing "between investment alternatives on the basis of pecuniary factors alone."

The goal is to ensure that hard-earned retirement savings won't be "depleted due to politically motivated mismanagement," according to Rep. Rick Allen (R-GA).

The No Discrimination in My Benefits Act. Similar to the above protections against ESG criteria in retirement planning, this bill (HR 5338) ensures that fiduciaries aren't selected to manage funds based on diversity, equity, and inclusion (DEI) criteria. It prohibits "race, color, religion, sex, or national origin" from being considered in the selection of advisors, legal counsel, providers, or any employee authorized to manage a private retirement plan.

House GOP members also advanced complementary bills to protect private retirement funds, including HR 5337. This prevents abuse of the proxy voting power extended to plan fiduciaries. They would only be able to vote on behalf of their clients for measures that advance the economic interests of the plan.

The GOP's package of ESG bills was advanced shortly after the ESG working group released its final report on ESG in August. The final report built on the initial findings of the 2023 interim report. The working group forecasts important policy priorities on the horizon for the 119^th Congress, including:

• "Enhanc[ing] accountability in shareholder voting by aligning voting decisions with the economic interests of shareholders";
• "Reform[ing] the proxy voting system to safeguard the interests of retail investors"; and
• "Increas[ing] transparency and oversight of large asset managers to ensure their practices reflect the pecuniary interest of retail investors."

While one could quibble over some of the details, it is heartening that the people's House is pursuing safeguards for the investments and retirements of hardworking Americans. Now the torch is passed to the Senate to restore a modicum of financial sanity to federal regulations that matter to so many.