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How a GOP-controlled house will attack ESG and corporate climate change strategy

Rep. Patrick McHenry (R-NC) and House Financial Services Committee Chairman Maxine Waters (D-CA) listen to David Marcus, CEO of Facebook’s Calibra, testify on “the cryptocurrency review proposed by Facebook and its impact on consumers, investors, and the U.S. financial system” on Capitol Hill in Washington, U.S., July 17, 2019.

Joshua Roberts | Reuters

Republicans hoping that red state campaigns against green investment might go national as their party takes control of Congress next month may be disappointed.

Incoming House Financial Services Chairman Patrick McHenry, a Republican from North Carolina, has given no indication that he plans to push a federal version of new state laws designed to isolate companies that concentrate on so-called ESG investments, which focus on environmental, social or corporate governance issues. companies in which they invest, when he spoke at the recent CNBC CFO Council Summit in Washington. DC to an audience made up of the best CFOs of companies in the market.

He also pushed back on being called a “vocal opponent” of ESG.

“I don’t think that’s an apt characterization of my point of view,” McHenry said in an interview with CNBC Senior Congressional Correspondent Ylan Mui. He is concerned that companies are leaning into politics and may not focus on the bottom line for shareholders and beneficial owners, “and they are doing it for the sake of regulatory clearance from Washington. What I think companies should do is focus on their core knit,” he said.

states ruled by Texas and West Virginia have passed laws to ban state agencies from doing business with financial companies that “boycott” fossil fuels. The world’s largest fund managers, including black rock and State Street Global advisers came under pressure from the right and last week testified in Texas on ESG and climate investments. Vanguard Group was also due to testify, but after the fund giant dropped an investment industry climate alliance, it has changed.

McHenry, classified as one of the most moderate House Republicans by the non-profit organization GovTrack US, does not seem interested in the state’s approach.

Instead, he said, he will focus on monitoring a pending Securities and Exchange Commission rule that should require companies to make detailed disclosures about greenhouse gas emissions in their operations, their use of electricity from carbon-burning sources such as coal and natural gas, and the emissions produced when people and other businesses use their products.

“Some rejected laws are misguided,” McHenry told CFOs. “He’s playing politics with corporations, in the name of the fact that corporations don’t do politics.”

But there is legislation on Capitol Hill sponsored by some Republicans that would take a similar approach to state actions.

The “No ESG at TSP” law, sponsored by Texas Republican Chip Roy, would prohibit TSP from allowing participants to invest their retirement savings in funds that make investment decisions based on environmental, social, governance or policies, depending on Roy’s office. The TSP is the largest defined contribution plan in the world and benefits federal employees and military service members.

All of Roy’s bill’s initial co-sponsors are members of the House Freedom Caucus, a group of about 40 of the chamber’s staunchest conservatives, who are engaged in a battle with Republican Leader Kevin McCarthy over who will be the president when the party takes power. the House in January. A bill of the same name was introduced in the Senate by Mike Lee of Utah, who the right-wing interest group Heritage Action considers to be 22% more conservative than the average Republican in the Senate.

Roy did not respond to multiple requests for comment. His co-sponsor of the bill, South Carolina Congressman Ralph Norman, issued a statement to CNBC, saying, “While we hope we will crack down on this ESG nonsense, new President McHenry will decide the direction. what the committee will take. Ultimately, we need tough oversight, first and foremost, and to stop every other ridiculousness coming from this administration in our committee’s jurisdiction — including ESG.”

McHenry stressed that he supports many aspects of ESG, noting its focus on responsible corporate governance, which he says “has a significant impact on economic outcomes.”

The House Financial Services Committee is investigating bankrupt crypto firm FTX, which has been described by its own new CEO, John Ray, as a “complete failure” of governance. McHenry cited the fact that FTX did not have a board of directors. “Governance is important, but when we address environmental policy, it’s necessary for Congress to address climate change,” McHenry said at the CNBC event. “It doesn’t put me at odds with governance standards or sustainability in general.”

On climate change, McHenry said it’s not primarily the job of corporations to lead the fight: Instead, he said, leadership should come from Congress and other policymakers.

“It is necessary for Congress to address climate change, rather than regulation that dictates that big business do what Congress should do,” said McHenry, whose career record on climate issues is rated at 6 out of 100 by the League of Conservation. Voters.

McHenry is critical of the SEC’s proposed rule and said oversight of the SEC’s implementation of the standard will be the focus of the committee’s concerns. “The primary role of climate response should be led by public office holders. … The SEC needs tough oversight, real oversight, in response to what the SEC is trying to implement very quickly” , did he declare.

SEC spokeswoman Aisha Johnson declined to comment on the timing of regulatory items, but said on average, rules like this can take 18 to 24 months to move from proposal to adoption. final. The commission reopened the public comment period on the rules in October.

A Democrat on the committee said McHenry’s oversight risked doing what the president had criticized: interfering with the movement of capital in the private sector to mitigate climate change. And he described the upcoming rules as a down payment on the rules allowing investors to learn more about the environmental risks of the companies they invest in.

“It’s a market-friendly solution, it’s a transparency-friendly solution,” said Sean Casten, a Democratic congressman from Illinois and former clean energy entrepreneur and CEO who co-authored the legislation. who ordered the SEC to write the next rule. “If we decide First Solar is “awakened” and Exxon ain’t, we condemn the Thrift Savings Plan to shitty [long-term] comes back,” he said.


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