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SALT LAKE CITY — Utah Attorney General Sean Reyes has for months been waging a campaign against environmental, social and governance investment policies.
Reyes is one of 25 Republican attorneys general who are suing the U.S. Department of Labor over a rule that would allow federal retirement plans to consider climate change and other environmental, social and governance factors.
Now, he's taking his message directly to Congress, telling a committee of representatives Wednesday that such policies are "distorting our financial system and harming consumers and working-class Americans."
Reyes appeared before the House Committee on Oversight and Accountability during a hearing on environmental, social and governance investing, which has become a growing concern among the Republican House majority. Environmental, social and governance initiatives encompass a broad range of attempts to invest ethically, but opponents say the funds ignore fiduciary duties to bring the greatest financial return on investment for clients.
In March, President Joe Biden used the first veto of his presidency to nix a Republican bill that would have overturned the Labor Department's rule on retirement plan investing.
Major investment management companies like BlackRock and Vanguard have increased investments in environmental, social and governance funds, which Reyes said amount to an effort by companies to overrule governments and steer economies toward sustainability goals like those outlined in the 2015 Paris Agreement on climate change.
"ESG involves some of the biggest and most powerful players in the global economy attempting to force costly operational changes on American companies in pursuit of the 2015 Paris Agreement, which has never been made the law of the land by our elected representatives in Congress," he said in a written statement given to the committee.
He went on to say that investor groups like the Glasgow Financial Alliance for Net Zero and Climate Action 100+ are pressuring companies to undertake climate change policies they wouldn't enact on their own, part of an "open conspiracy to bypass Congress."
"The 'real economy' corporations that are the targets of these coordinated pressure campaigns would not adopt these changes on their own," he continued. "These changes drive up the cost of goods. And they harm shareholders by reducing returns. In sum, ESG is an undemocratic tax on our economy and productivity."
But Democrats on the committee pushed back on Republican criticism of environmental, social and governance investing, saying it can actually be a better investment in the long term, by factoring in risks associated with industries that contribute to climate change.
Illinois State Treasurer Michael Frerichs appeared next to Reyes as a witness for the Democrats on the committee, and said environmental, social and governance investments aren't about liberal "values," but taking more data into consideration.
"For example, if you're investing in a car company, it's thinking about whether that company is aligned with market expectations and preparing for the shift to electric vehicles," he stated. "Or if you're investing in a pharmaceutical company, it's thinking about whether that company has exposure to massive lawsuits because of its role in the opioid epidemic."
"I am tasked with investing not just for the next quarter — but with the goal of maximizing returns over the next quarter century," Frerichs said.
Committee Democrats also decried Republican efforts to curtail environmental investing as government overreach in business decisions, and Rep. Jared Moskowitz, D-Fla., likened it to "corporate socialism."
Reyes said he doesn't have a problem with individuals choosing to invest in companies that have environmental, social and governance policies. Instead, he said the issue is that some asset managers or companies may be investing in such policies on behalf of clients who don't understand where their funds are going.
"We've never disputed your own ability to invest whatever assets you have the way that you want to, including an ESG program," he said in response to a question from Rep. Anna Paulina Luna, R-Fla. "But when you're an asset manager investing on behalf of others, that's an entirely and wholly different circumstance, and you have to live up to that fiduciary duty."
Reyes encouraged the committee to investigate the Department of Labor's rule about environmental, social and governance investing, along with investment decisions that are "based on the goals of pressure groups, rather than shareholders' best interests."
