The ongoing battle over the use of environmental, social and governance (ESG) factors in determining retirement investments continues unabated, as members of the House Ways and Means Committee dug into their respective positions during a hearing titled “Protecting Seniors and Savers from ESG Activism.”
Among the witnesses for the roughly four-hour hearing were Preston Rutledge, Principal and Founder of the Rutledge Policy Group; Jason Isaac, Director of Life:Powered; Marlo Oaks, State Treasurer of Utah; Mason Bolay, Senior Vice President of First Bank & Trust Company; and Brandon Rees, Deputy Director of the AFL-CIO’s Office of Investment.
To give a sense of the tenor of the hearing, many of the committee’s Democrats used their time largely to decry the underlying focus of the hearing, noting that there are far bigger issues that need addressing, such as funding the federal government for fiscal year 2024 or preserving Social Security, while committee Republicans argued, among other things, that the “radical ESG agenda” threatens seniors’ retirement savings.
“Working families need that protection to prevent Wall Street money managers from putting climate alarmism and far-left policies ahead of their retirement security. But over the last couple of years, we’ve seen the ESG agenda turn into a pressure campaign that allows, and in some cases forces, investment advisors to gamble with retirees’ nest eggs,” House Ways and Means Committee Chairman Rep. Jason Smith (R-MO) said in his opening statement.
In contrast, Rep. Richard Neal (D-MA), who is the committee’s ranking Democrat and former chairman, observed that retirement policy typically serves as a bipartisan issue, but contended that the ESG issue is another “manufactured crisis meant to distract the base from the lack of legislating.”
“The biggest threats to Americans’ retirement security are the calls for cuts to Social Security and the obsession with hysteria and fringe issues from my colleagues on the other side of the aisle. Could you imagine after a lifetime of hard work being told by House Republicans how you can and cannot invest your savings?” Rep. Neal stated, adding that, “Politicizing retirement policy only jeopardizes workers’ hard-earned savings, and that’s the last thing the American people need.”
As to the witness testimony, Rutledge, who is a frequent guest speaker before events sponsored by the American Retirement Association, focused on addressing the history of ESG rulemaking, and largely steered clear of the politics surrounding ESG. Isaac, Oaks, and Bolay, on the other hand, used their testimony to bash the use of ESG factors, suggesting, among other things, that it has been “weaponized” against essential industries, and encouraged the lawmakers to instead focus on free market principles.
Rees, meanwhile, appeared to be the lone witness fully defending the use of ESG factors by fiduciaries, arguing that Congress should not be “playing politics” with the nation’s retirement funds. “We view the recent attacks on ESG investing as little more than partisan politics—and the search for a sound bite—rather than being based on factual reality. Moreover, proposals to limit investors’ ability to consider ESG factors have more in common with a totalitarian command economy than a free market system,” Rees stated.
To be clear, the Department of Labor in November 2022 released a final rule—"Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights”—stipulating that plan fiduciaries may (but not must) consider ESG factors when they are expected to have an impact on investment outcomes. The rule took effect on Jan. 30, 2023.
Meanwhile, a group of 26 “red state” attorneys general recently filed a notice of their appeal of a federal court’s judgement rejecting their challenge to the Labor Department’s ESG rule.
Links to the witness statements, as well as a video link of the four-hour long hearing, can be found here.
