House Financial Services Subcommittee Examines Proxy Advisory Influence on ESG Standards

The House Financial Services Subcommittee on Oversight held a hearing titled, “The Fall of ESG: Scrutinizing the Failed Use of Environmental, Social, & Governance Standards and the Influence of Proxy Advisors.” The hearing focused on the role proxy advisory firms play in making recommendations to shareholders on ESG-based policies. At the opening of the hearing, Subcommittee Chairman Bill Huizenga (R-MI) noted proxy advisory firms’ “heightened influence is increasingly concerning when considering the fact that the two largest proxy advisory firms control an estimated 97 percent of the market.” Republicans on the Subcommittee contend that proxy advisory firms are making recommendations that run contrary to increasing shareholder returns and instead prioritize ESG initiatives. Democrats on the Subcommittee note that ESG data help investors determine which companies they should invest in. Some Democrats on the Subcommittee also flagged the link between climate and governance risk with financial risk. One witness noted that ISS, Glass Lewis, and other advisory firms do not have a transparent process for how they develop their policy recommendations, noting the proxy advisory firms operate as a “quasi-regulator.”

Click here to watch an archived video of the subcommittee hearing.