Public Citizen letter to House on anti-ESG bills
September 17, 2024
The Honorable Mike Johnson
Speaker of the House
United States House of Representatives
Washington, DC 20515
The Honorable Hakeem Jeffries
Minority Leader
United States House of Representatives
Washington, DC 20515
Vote NO on anti-ESG, bank capital bills
Dear Speaker Johnson and Minority Leader Jeffries:
On behalf of more than 500,000 members and supporters of Public Citizen[1], we oppose a suite of bills scheduled for House consideration this week that attack the ability of investors to improve their financial decisions with key environmental, social and governance (ESG) information. Promoted as “anti-woke” measures, they represent fossilized thinking at the behest of the fossil fuel industry. They defy widespread public interest in ESG issues, as polls affirm.[2] Public Citizen commissioned a poll and found that voters oppose federal limits on information available to the public, including institutional and individual investors. Voters support representatives who favor corporate disclosures on ESG metrics.[3] Separately, another dangerous measure attached to the anti-ESG measures attacks bank capital safety reforms. We ask the House to Vote No on all these bills.
HR 4790, The Guiding Uniform and Responsible Disclosure Requirements and Information Limits Act, would cede to corporations the final decision on what it considers material information, which is information that may affect investment decisions. This functionally renders all disclosures discretionary, retreating nearly to the era before the federal securities laws were approved in the 1930s to prevent another 1929-level market crash. The bill also creates a Public Company Advisory Committee composed exclusively of executives to counsel the Securities and Exchange Commission (SEC). Unlike the SEC’s other advisory committees, which already include corporate representatives, taxpayers would foot the bill for executive travel and other expenses. Corporate executives, who are handsomely paid, already enjoy ample voice in SEC policymaking through the bi-partisan commission make-up, public comment on rules, other advisory committees and an open door for meetings, not to mention an army of lobbyists.
The bill also requires the SEC to list all requirements for “non-material” information that must be disclosed and bars private litigation for corporate failure to disclose this information. Some information, perhaps such as the name of the corporate secretary, is necessary for administrative purposes and thus such a list would be nonsensical.
HR 4767, Protecting Americans’ Retirement Savings from Politics Act, and HR 4655, the Businesses Over Activists Act, would eviscerate shareholder democracy. (These bills may be incorporated as titles in HR 4790.) Specifically, HR 4767 would eliminate the ability of shareholders to file ESG related resolutions. It also restricts the ability of proxy advisory firms to consult with institutional investors on the merits of specific shareholder resolutions by requiring extensive disclosures and opportunities for management censorship. This is a hypocritical proposal from the same Republicans who generally decry management disclosure requirements yet now attempt to stifle potential dissent with what they would otherwise characterize as regulatory burden.
More bluntly, HR 4655 eliminates the power of the SEC to enforce federal rights of shareholders to file resolutions altogether. Shareholder resolutions serve to reform corporate governance and empower company owners to assert their interests as a check against the potentially self-interested actions of managers.[4] Notable progress through the suffrage of shareholder resolutions include the establishment of annual board elections; requiring a chair be an individual who is not also the CEO; bridling excessive compensation; and promoting reports on such vital issues as a company’s contribution to climate change. Management may bristle when directed to improve behavior. But capitalism pivots on the ability of those providing investment funding to exercise their ownership rights. These bills serve only to entrench management, fatten C-suite compensation, and buttress destructive corporate behavior.
HR 4823, American Financial Institution Regulatory Sovereignty and Transparency Act of 2023, would eliminate the position of “vice chair for supervision” at the Federal Reserve Board of Governors. (As with HR 4767 and HR 4655, this may be included as a title in HR 4790 even though it does not relate to shareholder suffrage.) The bill also requires all financial regulatory agencies to file extensive analysis of proposed rules with Congress. Finally, the bill bars banking regulators from meeting with an international organization on the “topic of climate-related financial risk” unless they file a report with Congress about any such organization, including its funding sources.
This provision clearly reflects the House Financial Services Committee Republicans’ year-long assault against the current efforts of financial regulators to finalize improved capital safety requirements for the largest banks. Michael Barr serves as the Fed’s Vice Chair of Supervision and leads the effort to improve safety, and stripping his title is little more than a juvenile taunt. Ultimately, these provisions do nothing to address the underlying issues in the financial sector. Capital, namely the difference between the value of the bank’s assets and liabilities, constitutes a primary bulwark of safety. When this difference is greater, when the bank maintains greater capital, it can sustain losses and continue to operate. When this difference is smaller, when capital is less, losses can lead to insolvency, that is, liabilities exceed assets. With the largest bank, insolvency then leads to a taxpayer bailout, as witnessed in the 2008 financial crisis.[5] Perversely, bank managers prefer to operate with as little capital as possible, in part, because it boosts C-suite pay. Most executive pay turns on the stock price. Stock prices rise with a better return on equity capital. The simplest way to improve this ratio is to reduce the denominator, namely equity capital; the same income return is allocated to fewer shares. But that’s hardly a foundation for a sound banking sector. American financial stability should not be sacrificed at the altar of elite remuneration.
HR 5339, the RETIRE Act, introduces a new concept for investment managers who provide fiduciary services to pension and other investment funds: fiduciaries would be required to make investment decisions based exclusively on “pecuniary” factors. The bill effectively prevents these investment managers from considering collateral factors, such as an investment in a firm that can promote employment where the plan beneficiaries reside, or one that provides clean energy to the community.
As noted, Americans oppose policies such as these, as affirmed by polls. This slate of Republican-led bills services industry sponsors, not the public. These bills will receive no attention in the Senate, but it is still critical for Members to demonstrate strong opposition on the House floor. Behind the anti-ESG movement are fossil fuel firms and other extreme right groups.[6] [7] Behind the attack on bank capital safety standards are pay-bloated bank executives The American public and public policy must not be subordinated to these destructive interest groups.
For questions, please contact Jon Golinger at jgolinger@citizen.org, and/or Bartlett Naylor at bnaylor@citizen.org.
Sincerely,
Public Citizen
[1] Public Citizen is a nonprofit consumer advocacy organization with members in all fifty states. Public Citizen regularly appears before Congress, administrative agencies, and courts to support the enactment and enforcement of laws protecting consumers, workers, and the general public.
[2] ROKK Solutions and Penn State University’s Center for the Business of Sustainability, Navigating ESG in the New Congress, (2021) https://rokksolutions.com/wp-content/uploads/2022/12/Navigating-ESG-in-the-new-Congress.pdf.
[3] Lake Research Partners, Survey Findings, (Dec. 7, 2023) https://www.citizen.org/wp-content/uploads/memo.Public-Citizen.2023.12.07.pdf.
[4] Sanford Lewis, Shareholder Rights: Assessing the Threat Environment, Harvard Law School Forum on Corporate Governance (August 21, 2023)
[5] Bartlett Naylor, TOO Big, Public Citizen (2016) https://www.citizen.org/wp-content/uploads/toobig.pdf
[6] Kate Aronoff , The Deranged Demands of the “Anti-ESG” Movement New Republic (August 29, 2022) https://newrepublic.com/article/167550/desantis-anti-esg-movement
[7] Julie Bykowicz & Angela Au-Yeung, Conservatives Have a New Rallying Cry: Down With ESG, The Wall Street Journal, (Feb. 26, 2023) https://www.wsj.com/articles/conservatives-have-a-new-rallying-cry-down-with-esg-2ef98725.