Competitive Enterprise Institute senior fellow predicts larger government role in shaping ESG policies.
Other 2023 forecast pieces have made predictions based not just on calendar events but on the expectation that ESG will continue to capture the imaginations of the nation’s politicians, academics, and others on both sides of the ESG debate.
For example, National Review Online last week published the following forecast piece by Richard Morrison, a senior fellow at the Competitive Enterprise Institute:
Politicized finance — and the government’s role in it — is going to be a bigger issue than ever in 2023, and both institutional and individual retail investors could be in for some major surprises. Legislative proposals at the federal level will be taking aim at environmental, social, and governance (ESG) investing policies, in a backlash that has only accelerated since a year ago.
[S]everal Republicans in Congress have recently made ESG a top issue, including members of the House Financial Services Committee, now chaired by Representative Patrick McHenry (R., N.C.).
Even in a divided Congress in which House Republicans can expect little cooperation from the Democrat-controlled Senate, having the Financial Services gavel switch hands from Maxine Waters (D., Calif.) to McHenry is a dramatic change. McHenry has already made clear that he will be calling Securities and Exchange Commission chairman Gary Gensler to testify on the agency’s ESG initiatives, in particular the jaw-droppingly expensive and invasive climate-disclosure rule that it is currently finalizing. Less discussed, but no less likely to be a source of interest to the committee, is the SEC’s planned “human-capital management” rule, which could mandate every public company in America to collect and disclose the demographic information (race, sex, ethnicity, sexual orientation, and gender identity) of every employee. A “self-regulatory” rule adopted by NASDAQ and approved by the SEC in 2021 already requires such disclosures in the context of boards of directors.
Besides seeing Chairman Gensler grilled before the full Financial Services Committee, or at least Bill Huizenga’s (R., Mich.) Subcommittee on Oversight and Investigations, we should expect several ESG-related bills to be filed in this session of Congress. Some will be reintroduced versions that dropped in the 117th Congress but understandably didn’t go very far under Speaker Pelosi. Huizenga, for example, will likely reintroduce both the Index Act and Mandatory Materiality Requirement Act. Originally co-sponsored by fellow Financial Services Committee member Blaine Luetkemeyer (R., Mo.), the Index Act would require asset managers to vote on shareholder resolutions in accordance with the instructions of fund investors rather than at their own discretion. Meanwhile, the Mandatory Materiality Requirement Act, co-sponsored in 2022 by Andy Barr (R., Ky.), would amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to establish a statutory definition of “materiality” to guide SEC rulemaking, thus limiting the creative reimagining of what constitutes a material disclosure that ESG advocates have been promoting.
Other efforts from last year that we might see return to prominence in 2023 include the ESG Rule Prevention Act from Byron Donalds (R., Fla.), a noted ESG skeptic, as well as more narrowly tailored efforts to block the SEC’s policy agenda such as the Stopping Excessive Climate Reporting Act from Beth Van Duyne (R., Texas). Donalds’s effort would stop the federal government from using greenhouse-gas reporting as a requirement for procuring federal contracts — a common gambit when the federal government wants to achieve a given outcome in the economy but stops short of creating a hard mandate. Representative Van Duyne’s bill would simply stop the SEC from following through on its pending climate-disclosure rule, walling off the agency from using its authority under the 1934 Securities Exchange Act to require greenhouse-gas-emissions disclosure. The top players on the issue in the Republican caucus are now also poised to collaborate via the recently announced ESG Working Group, which is chaired by Huizenga and will include Donalds and others.
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