House Republicans move to silence Wall Street in climate fight

The fraying relationship between big business and GOP politicians is about to get more strained.

Republicans who lead the House Financial Services Committee plan to spend the next few weeks holding hearings and voting on bills designed to send a clear signal: Corporations, in particular big investment managers, should think twice about integrating climate and social goals into their business plans. Committee conservatives will target the process in which advocates pressure public companies to adopt environmental, social and governance (ESG) goals using the shareholder voting process.

“I've had a personal conversation with Larry Fink at BlackRock about this. I've had a conversation with the CEO of Vanguard about this,” Rep. Andy Barr (R-Ky.), a leader in the committee’s upcoming “ESG month,” said of the two giant money managers. “Our objective is not to fight for the CEOs of these companies. Our objective is to defend retail investors in America.”

It’s a delicate dance for both sides. While the committee’s bills have no chance of becoming law under President Joe Biden, the messaging — and industry’s response to it — will feed into a broader political conflict that could set the table for the next time Republicans control Washington.

House GOP leaders are under pressure to score points in the right’s escalating war on what many Republicans call "woke" capitalism — even though a number of senior GOP lawmakers would rather tell government regulators, instead of executives, what to do. While framed around holding Wall Street to account, Financial Services Committee Republicans appear to be picking spots where they’ll minimize friction with the industry’s biggest players.

Lobbyists for their part want to avoid further inflaming tensions. Their companies are poised to be huge targets for Florida Gov. Ron DeSantis and other Republican White House contenders who argue that corporations are exercising ideological agendas. Big money managers and banks already face a barrage of legislative attacks from state Republican officials over their policies on energy and guns. BlackRock’s Fink, the financial industry's most prominent leader in the sustainable investing trend, said last month he will no longer use the term ESG because “it's been misused by the far left and the far right.”

House Democrats, in a twist, are rallying behind the ability of Wall Street and investors to choose how they want to tackle societal issues such as climate change.

“We’ll continue to be the voice that’s defending the fact that the market should have choice,” Rep. Sean Casten (D-Ill.) said in an interview.

While the right’s culture war has ensnared a range of major brands, such as Disney and Bud Light, the Financial Services Committee will take a more targeted approach. It's aiming at firms that play big roles in ESG investing, a strategy for managing businesses and retirement funds that elevates concerns about climate change and diversity.

Finance industry proponents argue that addressing issues like climate risk is critical for long-term investing and that there’s consumer demand for it as well.

Fink, who has urged business leaders to focus on the environment, said at the New York Times DealBook Summit in November: “Stakeholder capitalism is not woke — it’s not political, it’s capitalism.”

Bryan McGannon, managing director of US SIF, a sustainable investing advocacy group that includes investment management firms, mutual fund companies and banks, calls it “free-market solutions.”

“Investors are demanding it,” McGannon said. “But also the financial industry is realizing, `Wait a second, here is a whole other set of data giving us information about how companies are run.’”

Republican critics — who on this point have backing from other sectors such as oil and gas — warn that it’s an outgrowth of left-leaning political pressure that threatens investor returns and the growth of the U.S. energy industry.

Adam Brandon, president of the conservative FreedomWorks, said ESG is “another avenue for state control of the economy and of society." He said the Republican House majority "was elected by the people to reverse this course of action."

While a number of Republicans clearly believe it’s a winning attack line, the House Financial Services Committee — a panel where Wall Street’s priorities often win the day — appears to be carefully choosing which fights to take on with industry.

“ESG is maybe a symptom of the larger concern of ‘woke’ capitalism,” Rep. Bill Huizenga (R-Mich.), who leads committee Republicans’ ESG working group, said in an interview. “This is part of the reason why [House Financial Services Chair Patrick McHenry] asked me to take this on. Let's narrow the scope. … Because if we go fight this multifront war — we’re going to lose.”

A report that Huizenga's working group released to set the stage for this month's committee work prioritizes concerns about so-called proxy advisory firms that provide recommendations to big investors on how they should vote on shareholder matters that dictate the direction of public companies.

Two proxy advisory firms — Glass Lewis and Institutional Shareholder Services — dominate the space and have long been targeted by business groups such as the U.S. Chamber of Commerce, which argue that they should be subject to greater regulatory scrutiny because of their influence over the operations of companies. Investors who rely on proxy advisory firms say they provide helpful guidance on issues like executive pay, board nominees and climate proposals pushed by shareholders.

In contrast, asset managers like BlackRock, Vanguard and State Street — recurring targets for Republicans given their behemoth status and stances on ESG — get less scrutiny than expected in the GOP report. They're called out as the "Big Three" but are identified by name only in a footnote. They aren’t expected to be the headliners of dedicated hearings at House Financial Services, unlike the two proxy advisory firms and regulators.

Republicans on a separate committee, House Judiciary, took a more aggressive tack toward the Wall Street giants Thursday, with letters that pressed BlackRock, Vanguard and State Street for information about their work as part of an international industry coalition committed to reducing greenhouse gas emissions. Vanguard left the group last year.

State Street spokesperson Ed Patterson said Friday that the fund manager assesses and votes on shareholder proposals "based on what we believe is in the best long-term interests of our clients and their investments."

"Our actions and decision-making are guided by research, expert analysis and our fiduciary duty to clients," he said.

Amid the mounting pressure, the big asset managers have responded by rolling out ways for their customers to vote more directly in shareholder matters.

"As an investor-owned asset manager, Vanguard's interests are squarely aligned with empowering everyday investors to reach their long-term financial goals," Vanguard spokesperson Netanel Spero said. "We remain singularly focused on maximizing our clients' returns and giving them the best chance for investment success."

For now, bank lobbyists are also relieved that lenders appear to be getting a pass in the Financial Services Committee's "ESG month," despite a desire by some Republicans to pressure banks to serve fossil fuel companies and gun manufacturers.

“We've got some members who are like, ‘Hey, you didn't name so and so’ … and it's like, OK, preliminary report,” Huizenga said. “The system is moving forward. We're not done with this. And when it's appropriate to name names, we’ll name names. When it is appropriate to go after a wider swath of issues, we'll do that. But let's chalk up a couple of wins here. This is chess. You don't declare checkmate on the first move.”

He added that the ESG working group plans to release “a more robust, longer report.”

If the committee’s report and tentative hearing schedule are any indication, business groups like the Chamber of Commerce may feel little need to speak out on the endeavor. They may even see Republicans advance some of their lobbying priorities.

The American Petroleum Institute, for example, backs a bill by Barr that would require investment advisers and retirement plan sponsors to prioritize financial returns over ESG factors.

The Chamber, though it has been on the outs with Republicans in recent years, has a shared desire to rein in the proxy advisory firms and regulators such as the Securities and Exchange Commission. The Chamber sued the SEC last year after it reversed Trump-era restrictions on the proxy advisory firms, whose recommendations sometimes clash with corporate management over how companies should be run.

Tom Quaadman, executive vice president of the Chamber’s Center for Capital Markets Competitiveness, said the group “appreciates the efforts of the House Financial Services Committee to better understand the nature of ESG and its impacts across the U.S. marketplace and globally.”

“American markets should preserve the ability of individual investors to invest their own money based on whatever criteria they think appropriate, including their values and priorities,” Quaadman said. “Businesses also need the same freedom to, in conjunction with their shareholders, make decisions that they deem best for their own operations. The marketplace, not government, should be the one determining if investors and businesses have made good or bad decisions.”