Introduction
The House of Representatives majority and Senate minority are conducting an organized, police-patrol-style oversight effort (hereinafter “anti-ESG oversight effort,” “anti-ESG effort,” “oversight effort,” or “the effort”) to combat environmental, social, and governance (“ESG”) investing and federal regulatory efforts facilitating those investment strategies. The effort’s chief proponents in Congress are members of the current House Financial Services, House Oversight and Accountability, and House Education and Workforce Committees’ majorities and Senate Banking Committee’s minority. In addition, the House Financial Services Committee majority established an ESG Working Group of its members to combat what the committee Chairman’s press release called the “threat to our capital markets posed by those on the far-left pushing [ESG] proposals.” The oversight effort targets federal government actors — particularly the Securities and Exchange Commission (“SEC”) — through several committee hearings, legislation, and an ESG Working Group Interim Report.[1]
Measuring Oversight Effectiveness
For all the good to which advocates of this congressional oversight effort aspire, their effort is ineffective when analyzed under four possible measures of oversight effectiveness (“Levin-Bean factors,” “factors”), which are aptly summarized by former Senator Carl Levin and his long-serving investigative counsel Elise Bean in their 2018 article Defining Congressional Oversight and Measuring its Effectiveness. These oversight effectiveness measurements focus on (1) investigation quality, (2) bipartisanship, (3) credibility, and (4) impact on policy.
The first factor focuses on the nature of the investigation itself, whether it addressed important issues to the public, used appropriate investigative techniques, uncovered useful information, and, most importantly, produced a consensus on the facts. The second factor focuses on “the extent to which the investigation was conducted in a bipartisan manner.” Considerations include whether both parties actively participated in and endorsed the investigation, contributed to joint work products, or characterized the investigation as bipartisan. The third factor focuses on whether experts, policymakers, and the public viewed the investigation’s finding as credible. The key to measuring credibility is “gauging how third parties viewed the proceedings[,]” evidenced by whether members of Congress and other key parties characterize or treat the investigation as credible. The fourth factor focuses on the extent to which the investigation led to changes in policy or practice. Without a discernable policy impact, an investigation has limited utility, even when satisfying the first three factors.
The analysis below applies the Levin-Bean factors to the anti-ESG oversight effort.
Applying the Levin-Bean Factors
Measurement 1: Investigation Quality and Consensus on the Facts
The first Levin-Bean factor analyzes the nature of the investigation itself, gauging whether it produced a consensus on the facts. The anti-ESG effort has failed, thus far, to facilitate consensus on several key ESG discussion topics in Congress. Some of these factual disagreements center around the legality of certain rulemaking proposals and whether ESG factor consideration satisfies investors’ interests.[2] Anti-ESG proponents insist that regulators are engaging in unlawful, politically motivated efforts and that ESG strategies hurt investor returns. The anti-ESG effort’s opponents maintain their position that ESG strategies reflect investors’ free market demands. Both sides’ unwillingness to budge on their assessment of key turning points in the ESG debate demonstrates the anti-ESG effort’s failure to reach consensus on the facts of the investigation under the first Levin-Bean factor.
Measurement 2: Bipartisanship
The second Levin-Bean factor analyzes whether the investigation was conducted in a bipartisan manner. The effort’s worst oversight offense is its blatantly partisan approach. The House Financial Services Committee ESG Working Group established to address ESG investing and that produced the Interim Report identifying the Group’s issues and priorities has an exclusively partisan composition. The Group is made solely of House Financial Services Committee majority members. In addition, the Working Group was created by the House Financial Services Committee Chair and is led by the House Financial Services Committee Oversight and Investigations Subcommittee Chair, both of whom are from the same political party. The group’s name is boldly partisan in nature, branded exclusively for that same political party.[3] And, the vast majority of anti-ESG committee hearing questions and statements come from members of the same political party. The partisan nature of the ESG Working Group and anti-ESG questioning in committee hearings demonstrates anti-ESG proponents’ failure to conduct their oversight effort in a bipartisan manner under the second Levin-Bean factor.
Measurement 3: Credibility
The third Levin Bean factor measures whether experts, policymakers, and the public found the investigation’s proceedings to be credible. Financial services industry experts and many policymakers question the investigation’s funding sources and motivations, important indicators of credibility. To provide a few examples:
- Three Senators penned a joint op-ed calling the effort an “anti-capitalist crusade against free-market principles” and “a closely coordinated political effort driven by a network of dark money organizations fronting for climate denial groups and fossil fuel interests.”
- The House Oversight Committee Ranking Member called anti-ESG attacks “fueled by dark money, corporate special interests, and flawed legal arguments[.]”
- The House Oversight Economic Growth Subcommittee Ranking Member called the effort a “political crusade[.]”
- A BlackRock spokesperson accused anti-ESG proponents of being “dark money actors with a political agenda[.]”
Members of Congress and industry participants have repeatedly called into question the credibility of the anti-ESG oversight effort by criticizing the effort’s funding sources and motivations through statements to the press and in committee hearings. This criticism demonstrates the anti-ESG effort’s failure to generate credibility under the third Levin-Bean factor.
Measurement 4: Policy Impact and Changes
The fourth Levin-Bean factor assesses whether the oversight effort led to policy impacts and changes. Congressional anti-ESG advocates have failed thus far to convert their efforts into tangible legislative or regulatory successes.[4] The SEC adopted its controversial climate risk disclosure rule and Names Rule amendments and will likely finalize its ESG disclosure rule this spring.[5] Likewise, President Biden vetoed Congress’s 2022 Department of Labor ESG rule Congressional Review Act earlier this year, and the bill died after less than the required two-thirds of the House of Representatives voted to override the President’s veto.
Despite federal agencies’ success promulgating ESG rules, the anti-ESG oversight effort perseveres. Anti-ESG advocates in Congress continue to push legislation through committee markups that would curb ESG regulatory efforts. However, tangible legislative and regulatory success at the federal level, either through passing laws or halting rulemakings, remains elusive. Failure to reach any significant or tangible policy goals demonstrates the anti-ESG effort’s shortcomings under the fourth Levin-Bean factor.
The Anti-ESG Effort’s Ineffectiveness
As demonstrated above, applying the four Levin-Bean factors to the anti-ESG effort reveals the effort’s ineffectiveness. Under the first factor, anti-ESG proponents and opponents in Congress are failing to reach a consensus on key facts focused on the legality of ESG rulemakings and ESG’s role in investor choice. Under the second factor, the oversight effort’s partisan ESG Working Group, Interim Report, and hearing questions demonstrate anti-ESG proponents’ failure to conduct the effort in a bipartisan fashion. Under the third factor, Members of Congress and industry participants have repeatedly questioned the oversight effort’s credibility through statements in committee hearings and to the press. Under the fourth factor, the oversight effort has not led to any tangible policy impacts or changes through passing laws or suppressing ESG rulemakings. Altogether, the anti-ESG oversight effort satisfies none of the four potential measurements of oversight effectiveness.
Recommendation
Improving the anti-ESG effort’s effectiveness under the Levin-Bean factors requires overhauling both the effort’s substance and process. On substance, anti-ESG proponents would better serve their cause by broadening their inquiry’s scope to include additional areas of consumer financial risk and threats to investor returns, instead of maintaining the effort’s current narrow and divisive ESG focus.[6] On process, a more effective oversight effort would require abandoning the partisan ESG Working Group and establishing a new, bipartisan coalition of Members recruited through a Noah’s Ark-style recruitment strategy. The new group’s investigative reports should discuss risk-based legislative and regulatory changes based on shared, bipartisan principles crafted in consultation with relevant federal agencies, industry groups, investor protection advocates, and subject matter experts.
The enthusiasm behind the anti-ESG effort can be salvaged and put to better use as part of a new, revamped oversight initiative structured with the Levin-Bean factors in mind and focused on financial risk and investor protection more broadly than under the current effort.
[1] See e.g. Markup Before the H. Comm. on Fin. Serv., 118th Cong. (July 27, 2023) (passing a bill that would prohibit banking regulators from engaging with a covered international organization on the topic of climate-related financial risk without first reporting to Congress describing the activities and funding sources of the covered international organization); see also e.g. Oversight of the SEC: Before H. Comm. on Fin. Servs., 118th Cong. (2023); see also e.g. Oversight of the U.S. Securities and Exchange Commission: Before S. Comm. on Banking, Hous., and Urb. Affs., 118th Cong. (2023).
[2] See generally Frances Schwartzkopff, GOP Fury Over ESG Triggers Backlash With US Pensions at Risk, Bloomberg (Aug. 25, 2022), https://www.bloomberg.com/news/articles/2022-08-25/esg-pros-say-republican-anti-woke-bashing-hurts-regular-savers#xj4y7vzkg (“A Harris Poll of US savers conducted on behalf of Nuveen last year found that more than two-thirds of people asked want their employer to offer pension plans that incorporate ESG factors.”).
[3] See e.g. Jason Halper and Timbre Shriver, Launch of Financial Services Committee Republican ESG Working Group, Cadwalader (Feb. 24, 2023), https://www.cadwalader.com/cwt-climate/index.php?eid=159&nid=36 (“The creation of the working group is yet another example, if one were needed, of the partisan divide in the U.S. on the subject of ESG.”).
[4] See generally Sarah Green Carmichael, Republicans Wasted Their Summer Attacking DEI and ESG, Washington Post (Aug. 10, 2023), https://www.washingtonpost.com/business/2023/08/10/republicans-wasted-their-summer-attacking-dei-and-esg/d965c500-3774-11ee-ac4e-e707870e43db_story.html.
[5] Off. of Info. and Regul. Affs., Off. of Mgmt. and Budget, Exec. Off. of the President, https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202310&RIN=3235-AM96 (last visited Oct. 7, 2023) (showing a spring 2024 timeline for finalization of the SEC’s ESG disclosure rulemaking proposal); Off. of Info. and Regul. Affs., Off. of Mgmt. and Budget, Exec. Off. of the President, https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202310&RIN=3235-AM87 (last visited Oct. 7, 2023) (showing a spring timeline for finalization of the SEC’s climate risk disclosure rulemaking proposal).
[6] See also, e.g. Letter from Kenneth Bentsen, President and CEO, Sec. Indus. and Fin. Mkts. Assoc. to Vanessa Countryman, Secretary, SEC 1 (June 17, 2022) (showing industry support for “increased disclosure of material climate-related information that is useful to investors”) https://www.sifma.org/wp-content/uploads/2022/06/SIFMA-Comment-Letter-Climate.pdf; see also e.g. Letter from Kevin Cramer et al., U.S. Senator to Gary Gensler, Chair, SEC 1 (April 5, 2022) (showing a conservative Senator’s support for the risk materiality test) https://www.sec.gov/comments/s7-10-22/s71022-20122544-278541.pdf.