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2023 Spring Symposium Spotlight: Is Congress Putting ESG in Jeopardy?

Published onMar 10, 2023
2023 Spring Symposium Spotlight: Is Congress Putting ESG in Jeopardy?

Protect investors, maintain fair, orderly, and efficient markets, and facilitate capital markets – the core missions of the Securities and Exchange Commission (SEC). Since the SEC was established in 1934, debates in Congress and throughout regulators have persisted over its role, responsibilities, and scope of power. Congress is amid another discussion on the SEC and other investment disclosure rules on Environmental, Social, and Corporate Governance (ESG) reporting. Two recent House resolutions would prevent the SEC and ERISA fiduciaries from considering ESG factors. Meanwhile, eighteen states have proposed or passed Anti-ESG disclosure proposals, while over eighty-six percent of S&P 500 firms issue ESG reports (note that “ESG” encompasses a broad range of disclosures). This blog will look at two resolutions from the 118th Congress on ESG.

Currently, the SEC does not require any specific ESG disclosures. The SEC does require publicly traded companies to disclose to prospective investors and shareholders information that is “material” to making informed investment and proxy voting decisions. Under 2010 SEC guidance, environmental impacts and risks are considered material if “there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision.” Over eighty-eight percent of global investors use ESG as a component of their investment strategy; however, fifty-five percent of global investors believe that asset managers use ESG as a marketing tool. Concurrently, the Department of Labor enacted a final rule that clarified the fiduciary duties of ERISA investment managers to allow investment strategies that use ESG factors; the rule became effective on January 30, 2023.  The rule provides a similar material standard as the SEC disclosure rule that allows ERISA investment managers to use ESG factors as a part of a maximization strategy.

Representative David Joyce introduced House Resolution 32 on January 12, 2023, which seeks to prevent the SEC from requiring ESG disclosures. H.R. 32 says that the current SEC standard on materiality is appropriate and that anything further goes beyond the SEC’s core mission.  It goes on to say that required ESG disclosure is inappropriate by the SEC because “the SEC is not tasked with or capable of formulating environmental or social policy.” The resolution also notes that climates risks that materially impact a company are already required. The resolution has five co-sponsors and has been referred to the House Committee on Financial Services.

On March 1, 2023, the Senate passed House Joint Resolution 30, which rebuked the rule passed by the Department of Labor. Representative Andy Barr introduced the H.J. 30 in the House and passed it on February 28, 2023. H.R.J. Res. 30 says, “Congress disapproves the rule . . . and such rule shall have no effect.” The next step will be to send the resolution to the President for signature or veto. The President will likely veto the resolution; however, its passage through both chambers of Congress is significant for the future of ESG factors under government regulations. 

Overall, each resolution, H.R. 30 and H.R.J. Res. 30, do not change the current SEC or the Department of Labor regulations. However, they represent a growing trend among legislators pushing back on the rise of ESG reporting and proposed regulation. Topics such as these are growing in importance and are a component of all the JBIPL Spring Symposium panels. If you want to attend this year’s Symposium, please RSVP here.

Carlo Ballesteros-Flores is in his third year at Wake Forest University School of Law and serves as the JBIPL Symposium Editor. He graduated from Wake Forest University with a Bachelor of Arts in Philosophy and Political Science. During his time at Wake Forest Law, Carlo has worked with Wake Forest Athletics assisting in developing NIL regulation, and Manning Fulton, working with businesses throughout N.C.

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