House GOP Doubles Down on Anti-ESG Messaging With New Measures

Republicans signaled that removing environmental, social and governance considerations from financial decision-making will remain a hot-button issue for them in 2024 political campaigns by advancing another package of bills that observers say is more about messaging than substance.

The Education and Workforce Committee passed four measures Thursday along party lines that together would generally attempt to restrict—but not prohibit—investment advisers and financial institutions from considering ESG factors in retirement-investment advice. The move follows a month-long effort by Financial Services Committee Republicans in July to pass a series of similar bills aimed at attacking the once-esoteric Wall Street investing strategy.

Together, the moves show how anti-ESG action has emerged among the top themes for the GOP in 2024 House reelection bids.

“If there is a Republican sweep in 2024, I would expect the likelihood of these legislative efforts to go significantly higher and still remain a priority,” said Ed Mills, managing director and financial services policy analyst at investment bank Raymond James. “There certainly is, for now, an anti-ESG policy push within the Republican Party.”

The measures advancing through the House also trail a failed attempt by congressional Republicans to dismantle a Department of Labor rule that explicitly allows fiduciaries to consider ESG factors when giving investment advice.

Authors of the latest measures say they’re trying to rein in ESG policies that are overly burdensome for businesses. Three of the four measures would tweak the Employee Retirement Income Security Act of 1974 (Pub. L. No. 93-406) to return to Trump-era policies at the Department of Labor.

“Advancing a radical political agenda at the expense of retirement savers is wrong,” said committee chair Rep. Virginia Foxx (R-N.C.), in a statement to Bloomberg Law. “These bills seek to ensure financial institutions are focused on maximizing returns in retirement plans rather than on woke ESG factors.”

Room for Confusion

The anti-ESG bills approved by the Education and Workforce Committee don’t outright ban retirement-wealth advisers from recommending ESG-labeled investments. The first bill—the “Roll back ESG To Increase Retirement Earnings Act"—sponsored by Rep. Rick Allen (R-Ga.), prevents advisers from considering “non-pecuniary” factors, or factors not related to money, when giving advice.

Allen said in an interview that Biden’s rules, which replaced Trump’s, impose a political ideology on retirement plans.

“The White House does not need to determine how you invest your money,” Allen said. “This administration is forcing all of this on our economy and the American people—and the American people don’t like it. The American people want choice.”

But the bill doesn’t lay out what qualifies as pecuniary, thus introducing confusion into investment decisions and creating more work for advisers to affirm their guidance is prudent, said Natalia Renta, senior policy counsel for corporate governance and power at the left-leaning organization Americans for Financial Reform.

Fiduciaries need to weigh every risk and opportunity to provide the best advice for their clients, Renta said.

“If you try to create these categories of things that you shouldn’t take into account, then that just creates confusion and [puts] retirement security at risk if fiduciaries feel unsure of what they’re allowed or not allowed to consider,” she said.

Another bill in the package—the “Retirement Proxy Protection Act,” introduced by Rep. Erin Houchin (R-Ind.)—would block advisers from promoting “non-pecuniary benefits or goals unrelated to those financial interests of the plan’s participants and beneficiaries.”

Both bills closely resemble a President Donald Trump-era rule at the Department of Labor that was aimed at eliminating any trace of ESG in retirement-investment advice but was also ambiguous, Renta said.

But Republicans see them as countering what they say is a ploy by Democrats and corporate America to impose political ideologies on financial decisions.

“There’s a fiduciary responsibility to make decisions based on what’s in the interest of the recipient and not based on politics, and not based on ESG, quite frankly,” said Rep. Bob Good (R-Va.).

Messaging

The bills from both committees aren’t going anywhere in the Democratic-controlled Senate, Raymond James’ Mills said. They’re an exercise for their sponsors to prove to their constituents—and campaign donors for 2024 reelection bids—that they oppose ESG.

For the short-term, the bills passed by the Financial Services committee send a strong signal to SEC Chair Gary Gensler, a Democrat, that Republicans disapprove of greenhouse-gas emissions disclosure rules and human capital management rules expected this year, Mills said.

“Members of Congress do bills for a variety of reasons, not always with the likelihood that they are going to be signed into law,” Mills said.

That’s broadly what the Financial Services Committee did in July during what became known as “ESG month” in Washington. The committee held five consecutive hearings on ESG-related topics that culminated in a three-day markup of its slate of bills before Congress’ August recess.

Republicans at the time were on the defensive against Democratic messaging that had accused them of being anti-free market—a strategy the GOP couldn’t shake.

Democrats on the Education and Workforce Committee used a similar playbook against the slate of anti-ESG bills that cleared the committee Thursday.

“Workers should be able to invest their retirement savings in a way that reflects their values—such as combating climate change—without sacrificing investment returns” said Rep. Bobby Scott (D-Va.) and ranking member of the panel, in a statement to Bloomberg Law. “Retirement fiduciaries—not House Republicans—are best positioned and bound by law to make prudent investment decisions on behalf of retirement savers.”