State Treasurer to Congress on Dangers of Banning ESG Investing: “Like Investing With A Blindfold On”

May 11, 2023
Press Release
Oversight Democrats Call Out Republican Attacks on Responsible Investing that Put Corporate Special Interests Above Americans’ Retirement Savings

Washington, D.C. (May 11, 2023)—Rep. Jamie Raskin, Ranking Member of the Committee on Oversight and Accountability, led Committee Democrats in defending the free market principles behind responsible investing that protect the savings and retirements of Americans and promote prudent planning for long-term challenges, such as those associated with climate change. 

 

“Responsible investment principles—including ESGs—have been freely chosen by America’s companies and employed by asset managers and pension fund managers for decades.  Right-wing attacks on these principles—fueled by dark money, corporate special interests, and flawed legal arguments—threaten the savings and retirements of Americans by forcing asset managers to ignore material risks and considerations and violate their fiduciary duties,” said Ranking Member Raskin in his opening statement.

 

The hearing included testimony from Michael Frerichs, Illinois State Treasurer; Steve Marshall, Alabama Attorney General; and Sean Reyes, Utah Attorney General.

 

Committee Democrats highlighted the role of responsible investing in minimizing risk, maximizing returns, and prudently planning for long-term challenges.  

 

  • After Rep. Alexandria Ocasio-Cortez asked about the importance of assessing ESG—or environmental, social, and governance—factors in making responsible investment decisions, Mr. Frerichs responded“…They are material.  They may deal with human capital, they may deal with workers, they may deal with the environment, but they have real world consequences on the bottom line of these corporations and if we don’t have access to that information, it’s like investing with a blindfold on.”  

 

  • When Rep. Shontell Brown highlighted how company diversity at all levels helps institutional investors meet their fiduciary responsibilities and position themselves for success, Mr. Frerichs responded, “diversity is good for boards.”  In explaining that diversity positively affects board performance, Mr. Frerichs stated, “The research has shown that homogeneous boards underperform diverse boards.  And it’s not just the research—it’s common sense.”  He continued, “Diverse boards reduce groupthink and produce better results.” 

 

  • In response to a question from Rep. Summer Lee about how banning responsible investing will lead to worse returns for Americans relying on public pensions for retirement, Mr. Frerichs explained:  “Let me try to make an analogy here, we talked earlier about buying cars.  There are many factors used in buying a car.  You get to look at the car, you get to sit in the car, feel the car, smell the car, see if you like it.  You also might consider price.  We also say that they should publish miles per gallon.  Now this is like saying, no, no, no, that is an environmental impact.  You shouldn’t be able to know the information on miles—MPGs in your car.  Miles per gallon will directly affect your costs down the road.  You ought to have access to that.  These factors that we talked about are similar to that.  And these efforts to deny us information on environmental and social and corporate governance issues are making it more difficult for us to be good consumers.”
     

     
  • Rep. Seth Magaziner warned that investors who fail to consider responsible investing factors as part of their investment strategy risk breaching their fiduciary duty.  He explained, “Companies that do not manage their environmental risks, their labor risks, their consumer protection risks appropriately, open up investors, including retail investors, pensioners, retirees, to financial losses.  So investors would not be doing their jobs if they did not think about these issues when making investment decisions.”

 

Committee Democrats revealed how Republican attacks on responsible investing are fueled by dark money from corporations and special interests.

 

  • In response to a question from Rep. Robert Garcia about how Republicans’ dark money campaigns hinder the free market, Mr. Frerichs stated:  “When they pass legislation that prohibits disclosure of information, that hinders our ability to make good decisions.  When they pass legislation that punishes certain companies for making business decisions, it costs taxpayers in their states.  And it’s not insignificant dollars.  We’ve documented billions and billions of dollars this legislation is going to cost American taxpayers.”

 

  • Rep. Jasmine Crockett lambasted Republicans for wasting Committee resources and taxpayer dollars to mine soundbites in advance of the 2024 presidential election, stating:  “Instead of talking about how Speaker McCarthy’s manufactured crisis on the debt ceiling has led to declines in the stock market, instead of talking about how investors are scared about whether [the] U.S. will pay its bills, today we’re talking about their fear of what my colleagues call ‘radical wokeism.’  ESG is not—I repeat, ESG is not—radical or woke.”

 

  • In response to a question from Rep. Maxwell Frost about opposition to Republicans’ misguided crusade against responsible investing, Mr. Frerichs explained: “I think they’re facing backlash because they’re anti-free market.  They’re going to cost the taxpayers money.  It’s being pushed by a special interest out there.”
     

Committee Democrats emphasized that Republican attacks on responsible investing undermine Americans’ freedom to invest their savings as they see fit.
 

  • In response to Ranking Member Raskin’s question on Republicans’ campaign to limit investors’ access to responsible investing data, Mr. Frerichs said, “If you looked at [Purdue Pharma’s] financial returns, they showed themselves to be a very profitable company.  But we wanted to know more because there are risks associated with selling highly addictive drugs… reputational risks, regulatory risks, litigation risks—and those litigation risks took a company that was very profitable for a long time and bankrupted it.”

 

  • Rep. Becca Balint pointed out that responsible investing is part of an asset manager’s fiduciary duty to their clients.  Mr. Frerichs agreed that asset managers have a responsibility to act on behalf of their clients’ best financial interest, and responsible investing helps asset managers determine the most secure investments for their clients.  “Republican efforts to prohibit the consideration of these factors create legal risks for fiduciaries going forward,” Balint said.

 

  • In response to Rep. Ro Khanna’s questioning on the role of social values in investment decisions, Republican witness Mr. Marshall admitted that investment firms should be able to engage in responsible investing practices if they wish, stating:  “They have the right to choose not to invest in companies that they believe create certain risks, that’s what the market provides.”

 

  • Rep. Katie Porter corrected disinformation spread by Republicans regarding the Department of Labor’s rule that gives businesses the freedom to responsibly consider all risks before investing Americans’ hard-earned retirement savings, explaining:  “The Labor Department’s rule does not impose a mandate.  It permits fiduciaries to consider ESG standards if they believe those considerations are prudent in their decision making.”  

 

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118th Congress