Back to General Resources

House Ways and Means Hearing: Ensuring that “Woke” Doesn’t Leave Americans Broke: Protecting Seniors and Savers from ESG Activism

House Ways and Means Committee

Ensuring that “Woke” Doesn’t Leave Americans Broke: Protecting Seniors and Savers from ESG Activism

Tuesday, November 7, 2023

Topline

  • Democrats asked questions about strengthening Social Security and noted that not all Americans are able to save money for their retirement due to low-wage jobs.
  • Republicans expressed concerns about the negative impacts of the DOL’s ESG rule and how pressure on energy companies may be helping foreign adversaries such as Iran and China.

 

Witnesses

  • Hon. Preston Rutledge, Principal and Founder, Rutledge Policy Group, LLC
  • Hon. Jason Isaac, Director, Life:Powered
  • Hon. Marlo Oaks, State Treasurer, Utah
  • Mr. Mason Bolay, Senior Vice President, First Bank & Trust Company
  • Mr. Brandon Rees, Deputy Director, AFL-CIO Office of Investment

 

Opening Statements

Committee Chairman Jason Smith (R-Mo.)

In his opening statement, Smith criticized President Biden’s inflation crisis for harming working families and endangering millions of seniors and Americans nearing retirement. Smith noted that the cost of goods and services has increased by 17.7% since Joe Biden took office, forcing many Americans to reconsider their retirement plans. He went on to say current retirees are also struggling, with inflation eroding away the retirement accounts of even the most diligent savers. Smith warned that the Democrats’ radical ESG agenda threatens what’s left of seniors’ retirement and accused Democrats of trying to enshrine so-called environmental, social, and governance ideology into America’s financial system by removing protections for savers in the tax code. Smith then said families need protections to prevent Wall Street money managers from putting climate alarmism and far-left policy ahead of their retirement security. Smith also emphasized that the Trump administration’s labor department issued rules that prohibited Wall Street managers from investing American’s retirement savings in woke ESG special interests, but the Biden administration reversed course by issuing superseding rules that favor ESG funds.

 

Committee Ranking Member Richard Neal (D-Mass.)

In his opening statement, Neal said that Congressional investments empowered workers and created the environment that made it possible for the UAW to secure outstanding contracts that included wage wins, more paid leave, and stronger retirements security. He noted that these outcomes, led by Democrats, are the result of growing the economy from the bottom up and the middle out. Neal also discussed recent changes that are making it easier for working Americans to save for retirement, highlighting the Butch Lewis Act. Neal said that Democrats will continue to fight for vital programs like Social Security and will help ensure more Americans can participate in retirement saving. He then reminded the Committee that there is still work to be done with 50% of people that get up and go to work every day in America not on a qualified retirement plan. Neal closed by saying that the current Congress is too focused on partisan politics and needs to return to the productivity of the previous Congress.

 

Testimony

The Honorable Preston Rutledge, Principal and Founder, Rutledge Policy Group, LLC

In his testimony, Rutledge said the DOL has grappled with issues related to retirement plan investments that seek to provide collateral benefits. He described the history of the Department of Labor rule makings on ESG investing, and explained how the Biden administration’s labor department altered their standards for the benefit of ESG funds. Rutledge emphasized that non-economic factors cannot justify accepting lower financial returns or higher investment risk but noted that the DOL’s 2022 rule which allowed funds to consider ESG factors in their investments did not change the long-standing principle that fiduciaries may not seek lower returns or higher risks in exchange for collateral benefits. He closed by saying that the Ways and Means committee has always taken a leading role in promoting a stable retirement system and that administrative guidance has been remarkably consistent in supporting these core goals by making the focus on financial performance of retirement investments paramount.

 

The Honorable Jason Isaac, Director, Life:Powered

In his testimony, Isaac said he proudly lives a high-carbon lifestyle. He asked Congress to do everything in its power to stop the overreach on what is supposed to be a free market with fiduciary duty. He went on to say that in the past year not one of the largest ESG labeled funds outperformed the S&P 500 or the Nasdaq. Isaac said ESG-labeled funds have over $170 billion in total assets under management, which toss Americans’ hard-earned retirement savings to the wayside in the name of an insane agenda. Isaac explained that the clean energy stock bubble in 2020 was a result of low interest rates, government assistance, and investor enthusiasm that these stocks could soon outpace traditional energy stocks, but that recent poor performance shows that enthusiasm was misplaced. He closed by mentioning a bill he passed in the Texas state legislature that prevented the state of Texas from doing business with firms that divested from fossil fuels. Isaac noted that the world’s largest financial institution, Blackrock, is on the boycott list in Texas and is currently experiencing billions of dollars being divested from it because they are weaponizing retirement and pension dollars against the best interest.

 

The Honorable Marlo Oaks, State Treasurer, Utah

In his testimony, Oaks considered ESG a dangerous investment scheme. He explained that ESG investing encourages firms to attempt to solve large issues such as climate change and abortion, which should be the job of a democratically elected government. He noted that proponents of the framework argue ESG is designed to provide investors with more information to make better-informed decisions but concluded that it is misleading. Oaks said that ESG hijacks corporate governance to advance ideological often divorced from, and even detrimental to, long-term shareholder value and that when politics force an ideological agenda and get enough participants to behave one way, markets could stop functioning. Oaks concluded that ESG represents the greatest threat to our economic engine, which has produced more innovation, wealth, and opportunity than any other economic system in the world, and that is the real problem.

 

Mr. Mason Bolay, Senior Vice President, First Bank & Trust Company

In his testimony, Bolay said a one-size-fits-all policy, such as ESG, has repeatedly demonstrated ineffectiveness in promoting economic and sustainability efforts to define and steer lending and investment for or against ESG factors. He noted that governance of banking institutions should remain focused on the risk they manage and be tailored to account for their size, complexity, and specific norms in the regions they operate. Bolay stated that it is essential to prioritize stability and profitability to attain the retirees’ objectives and emphasized that making decisions based on ESG considerations may not be conducive to achieving long-term financial benefits. He closed by asking Congress to pass an improved Farm Bill.

Mr. Brandon Rees, Deputy Director, AFL-CIO Office of Investment

In his testimony, Rees said Congress should not be playing politics with workers’ retirement savings and noted that the consideration of ESG factors by retirement plans is already well-regulated by the Department of Labor. Rees described the “real issues” facing Americans today, including the fact that most Americans are ill prepared for retirement. Rees said the median account balance for defined contribution plans and IRA accounts is about $30,000 which is not nearly enough money for a dignified retirement. He also explained that nearly half of Americans do not have a retirement or individual savings account at all, meaning social security is their only form of retirement security. This, Reese said, makes the protection of Social Security much more vital. He urged Congress to focus on the genuine retirement income security crises that we face in our nation rather than ESG-related, woke hysteria. Rees also asked members of the Committee to restore balance between working people and corporations and urged them to enact a law protecting the right to organize. He closed by recommending an update to the DOL’s fiduciary rule so that it applies to investment advice.

 

Question & Answer

Foreign Adversaries & Energy Production

Rep. Mike Kelly (R-Penn.) asked Isaac about American investments in China and how US fund managers investing in China was impacting retirees. Isaac said some funds are pulling funds from American firms and putting them in Chinese firms using the example of Blackrock’s investments in Chinese real-estate firms Evergrande and Country Garden Holdings. He explained that Blackrock took Americans’ retirements and pensions and invested them into Chinese firms that are failing to the detriment of retirees.

 

Rep. Brad Wenstrup (R-Ohio) asked Isaac to discuss the dangers of an ESG-fueled investment boycott and how steering Americans’ retirement funds toward green energy benefits geopolitical adversaries like China. Isaac said that he calls ESG the China ESG agenda and noted that it’s working as planned.

 

Rep. Greg Murphy (R-N.C.) asked Isaac if Chinese businesses tend to focus on obtaining high ESG scores. Isaac said it is the last of their concerns.

 

Rep. David Kustoff (R-Tenn.) asked Isaac if China is using the ESG movement in American savings to advance their own geopolitical interest. Isaac agreed with the statement and said that despite rhetoric in the United States about clean energy production, demand for fuels like coal have increased and nations are now turning to nations like China to fill the gaps.

 

Rep. Mike Carey (R-Ohio) asked how Rees is planning to protect the pensions of workers in the industries that ESG rules are targeting to eliminate. Rees disagreed with Carey’s perspective and added that investors need to be considering risks related to providing a just transition for working people in the energy sector to ensure that they can continue to in the clean energy sector in good union jobs.

 

Carey then asked Isaac to discuss the long-term ramifications on the oil and gas industry if ESG investing continues, and how would it be more prevalent. Isaac said the greatest threat is deindustrialization.

 

Social Security and Taxes

Smith asked how the tax system would be threatened if retirement plan managers put ESG considerations above financial considerations. Rutledge said investments for retirement plans must be examined by the plan managers to determine whether it’s the fund with the greatest potential for return which in some cases could be an ESG fund, but in others could not.

 

Rep. John Larson (D-Conn.) was vocal about how the Committee was wasting their time on this hearing and said that members should be discussing Social Security, which he reiterated is the responsibility of the Committee. He also recognized that only 4% of Americans have a 401k.

 

Rep. Danny Davis (D-Ill.) asked Rees how critical Social Security is for low-income, Black, and Brown workers. Rees said 40% of seniors rely on social security as their only source of income and reiterated that this committee needs to be focused on the retirement income security crisis, not distractions like ESG.

 

Rep. Linda Sanchez (D-Calif.) asked Rees how Congress can address the working people’s mounting retirement insecurity. Rees said Congress needs to strengthen Social Security and increase employer contributions to employees’ retirement savings accounts.

 

Rep. Judy Chu (D-Calif.) asked how the Saver’s Match can help low-income workers who might be left behind by more traditional tax advantages for retirement savings and what are ways Congress can further help these workers. Rees said that the Saver’s Match is essential for low-income workers who have otherwise not benefitted from the tax code provisions to save for retirement because their incomes are too low to benefit.

 

Rep. Dwight Evans (D-Pa.) asked how Congress can strengthen the long-term stability of Social Security so that benefits are expanded. Rees said Congress needs to lift or eliminate the income cap on FICA taxes.

 

Retirement Security & Fiduciaries

Smith asked what returns investors are seeing from ESG-labeled funds and what the performance indicates that the ESG agenda is aligned with maximizing retirement security. Isaac said ESG is not aligned with maximizing retirement security or fiduciary principles. Smith then asked how the fees of ESG funds compare to the fees of traditional funds and Isaac said that they are typically higher and noted Chinese coal companies are a part of the portfolio of some of these funds. Smith then asked about the impacts on Americans’ long-term retirement savings by these ESG management fees have. Isaac noted that there has only been a 4.5% return on ESG funds that typically have higher fees compared to an 11.5% return of traditional funds.

 

Smith also asked why it’s important that retirement plan trustees manage funds for the exclusive benefit of American savers and not for ESG or other non-financial goals. Rutledge said a fiduciary should be able to direct savers to the best performing investment.

 

Neal asked Rees about retirement security for workers in the context of the success of UAW strikes. Rees said the UAW members higher pay and increased employer contributions to their defined contribution plans are historic and thanks Congress for their work on the Butch Lewis act which saved 750,000 Americans’ pension plans.

 

Rep. Drew Ferguson (R-Georgia) asked if the government should allow shareholders and participants in funds to sue fiduciaries for failure to give the best return on investment. Oaks said that there are examples of this already occurring including in New York where a pension fund is being sued for pursuing ESG in their fund investments. Oaks went on to say that this kind of legal action is required to protect the fiduciary standard. Isaac added that state attorney generals are also suing, and that these actions have encouraged firms like S&P Global to reverse course on some of their ESG centric policies.

 

Rep. Mike Thompson (D-Calif.) asked if current federal law imposes the fiduciary duty on private sector retirement plan investors to make prudent investments on behalf of their clients, and if so, how that works. Rees said the DOL has long regulated retirement plan fiduciaries in the consideration of ESG factors and that they understand that the consideration of ESG factors must be considered through the lens of loyalty and prudence in protecting retirement savings of the working people that they’ve been entrusted to protect. Thompson followed up asking if anti-ESG laws could cause future harm for retirees. Rees said yes and noted his written testimony references state laws will cause billions of dollars of damage to retirees in the future.

 

Rep. Bill Pascrell (D-N.J.) asked Rees how future legislation can build upon the successes of Butch Lewis to further strengthen retirement security. Rees said ideally employers would be required to assist their employees in finding contribution plans when the employer does not provide a defined benefit plan.

 

Rep. Ron Estes (R-Kans.) asked how citizens already struggling with inflation take back their retirement plans and protect them from ESG activism. Oaks explained that the issue goes beyond simply not investing in ESG labelled funds, as many large asset managers will use their passive funds stakes in companies to act as activists, changing that firm’s policies to be more ESG centric.

 

Rep. Claudia Tenney (R-N.Y.) asked how Congress can counter ESG rules and protect retirement security when these types of rules have been put in place. Oaks said there needs to be a continuation of lawsuits to protect the fiduciary standard in this country.

 

Small Financial Institutions

Smith asked Bolay what effects ESG rules have on smaller banks. Bolay replied saying that new mandates or requirements on small banks makes it more difficult for them to operate within their communities.

 

Rep. Carol Miller (R-W.V.) asked Bolay how ESG policies had the potential to harm community banks and small businesses. Bolay said that Main Street has always taken care of Main Street and that it’s best to allow community banks to take care of Main Street rather than issue top-down policies.

 

Kustoff asked how ESG policies affect community bank customers. Bolay responded saying that community banks do not appreciate mandates that tell banks who to and who not to lend to and that any such mandate would be detrimental to community banks.

 

Rep. Brian Fitzpatrick (R-Penn.) asked how the DOL’s new fiduciary rule would impact Bolay’s community bank’s ability to provide retirement services to their customers. Bolay said he is still combing through the proposal but that his understanding of the rule was that it permits but does not require firms to look at ESG factors and that so long as it stays that way it should not get in the way.

 

 

For more information on this meeting, please click here.

For an archive of past SIFMA hearing coverage, please click here.