Finance and energy experts testified before the House Oversight Committee on Tuesday that the environmental, social, and governance (ESG) movement is impairing Americans’ retirement savings, reducing living standards, and infringing on civil rights, while Democrat members protested that GOP efforts against ESG threatened Americans’ economic freedom.
“As American families continue to struggle under rampant inflation, increased energy costs, and an economy on the verge of recession, a subset of financial elites and their allegiance to ESG investing are making matters worse,” Mandy Gunasekara, director of the Independent Women’s Forum Center on Energy and Conservation, told lawmakers. “While branded as an investment strategy for good, ESG manipulates markets, as well as access to markets, in order to advance a leftist political agenda.”
According to Gunasekara, the ESG industry hurts consumers by driving up energy prices. She testified that one in six American families are currently behind on paying their electricity bills today and that expenses for an average household have increased by approximately $10,000 over the past two years as progressive energy policies take hold.
The agenda of the ESG industry to divert capital away from “politically disfavored” companies, she said, “makes the realization of the American dream contingent on acquiescing to the demands of the woke left.” In addition, the “oppressive governance policies” of ESG “result in decreased viewpoint diversity; they force employees to curb free speech and to stay silent on matters with which they fundamentally disagree,” she said.
Witnesses testified that ESG also harms pensioners by reducing the value of their investments. The hearing took place amidst sharp declines in the shares of companies like Target and Anheuser-Busch InBev, whose stock prices fell by $13 billion and $27 billion, respectively, after attaching their brands to controversial social-justice causes.
Stephen Moore, a senior fellow at the Heritage Foundation, testified that he had analyzed 50 ESG-related shareholder proxy votes that were “most invasive and harmful to the company” and found that the 40 largest asset managers, including BlackRock, Fidelity, Vanguard, and Charles Schwab, habitually voted in favor of them, against the wishes of company management.
“What we found is that, in most cases, these large fiduciaries were actually voting for these resolutions, even though they were contrary to the interests of the shareholders,” Moore said. He wrote in a May 16 op-ed that while Dimensional, Vanguard, T. Rowe Price, and Fidelity voted against nearly all ESG initiatives, other asset managers like UBS, BNP Paribas, and Northern Trust voted 80 percent of the time in favor of “woke” initiatives. He also named State Street, one of the largest money managers, as a prominent ESG supporter.
This finding comes in the wake of testimony by State Street’s Chief Investment Officer Lori Heinel, who stated before the Texas state senate in December 2022: “I have no evidence that this [ESG investing] is good for returns in any time frame. In fact, we’ve seen the evidence to be quite contrary.
“Last year, if you didn’t own energy companies, you did miserably compared to broad benchmarks,” Heinel stated. “The year before, that was quite the opposite … but that was just a happenstance; that’s not because it’s a good investment.”
In February 2023, Vanguard CEO Tim Buckley stated: “Our research indicates that ESG investing does not have any advantage over broad-based investing.”
Toll on US Oil, Gas Production
Jason Isaac, a director at the Texas Public Policy Foundation, testified that the ESG industry has taken a harsh toll on U.S. oil and gas production, leading to energy price hikes and more Americans being unable to afford to pay their electric and gas bills.
“There has been an 18 percent reduction in the number of funds that provide private capital raised for oil and gas exploration in this country, and a 94 percent reduction in dollars raised for oil and gas production,” Isaac said.
BlackRock, the world’s largest asset manager, “does invest in oil and gas but forces companies to sell assets, much like Exxon,” he stated. BlackRock was among the asset managers that voted to replace board members at Exxon with climate activists “that want to decarbonize a business that produces hydrocarbons.”
“Exxon sold assets in Southeast Asia where they were going to produce oil and gas, and I argue they would probably produce oil and gas more responsibly than anyone else on the face of the earth,” Isaac stated. “And who do they sell it to? Petro China. That’s why I refer to the ESG agenda as the China ESG agenda; it does very little to help Americans and it does everything to help the Chinese Communist Party.”
Moore stated that U.S. oil production is down from 13 million barrels a day under the Trump administration to 11-12 million barrels today and said that “this is imposing about a $200 billion cost on the American economy.
“All of this is for nothing,” Moore said. “The world is consuming the same amount of oil, it’s just that instead of producing it in Texas or Oklahoma or North Dakota or Alaska, we are stupidly getting the oil from Saudi Arabia, Russia, Iran, Venezuela and countries that hate us.”
Backing ESG Investments
Speaking in favor of ESG investing, Shivaram Rajgopal, an accounting professor at Columbia Business School, stated that “ESG is really about material factors that affect future cash flows and the cost of capital of a firm.
“I think of ESG as a term that covers data that’s not adequately disclosed by our financial reporting model and by our mandated disclosure rules,” he said. “Climate and extreme weather events already affect the cash flows of insurers, travel companies, tourism companies, agricultural farms, theme park operators, energy companies, and transportation companies, just to name a few. Yet the current reporting rules in the U.S. require no systematic disclosure of the impact of such climate related physical and transition risks.”
A 2021 report by Columbia Business School and the London School of Economics found that “ESG funds appear to underperform financially relative to other funds within the same asset manager and year and to charge higher fees.”
A 2020 study by the Boston College Center for Retirement Research found that ESG investing reduced pensioners’ returns by 0.70 to 0.90 percent annually, with the majority of the difference attributable to higher management fees for ESG funds.
Democrat lawmakers protested that the ESG hearing, which followed a similar hearing on ESG two weeks prior, was an attempt to limit information and economic choices and to interfere in free markets.
“Let’s call this what it is; it’s an attack on economic freedom,” Rep. Katie Porter (D-Calif.) declared.
“When I go to buy a car, I don’t have to buy the cheapest car,” Porter said. “I can buy a minivan that’s comfortable for my family of four and provides plenty of storage. In our capitalist system, I’m glad I don’t have anyone powerful telling me what I should like or what I can buy … so why are Republicans worked up about investors choosing to invest in a company based in part on its performance on environmental, social or governance data?”
Regarding cars and consumer choices, climate laws in Democrat-run states like California and Washington will ban the sale of new gasoline-powered cars by 2035, in favor of electric vehicles (EVs). In addition, new emissions regulations from the Biden administration are designed to force automakers to have two-thirds of the cars and light trucks they make be EVs by 2032.
“ESG principles are designed to protect investors, workers and retirees from the financial risks of bad business practices by responsibly considering all data about potential investments,” Rep. Cori Bush (D-Mo.) said.
“Responsible investing depends on ESG data to facilitate prudent planning for long-term challenges,” Bush said. “That’s why Democrats are working to protect access to this data so that financial professionals and the public are free to make responsible and economically beneficial investment choices.”