ATR Supports Prioritizing Economic Growth Over Woke Policies Act

On September 13, 2024, ATR sent a letter to the U.S. House Rules Committee in support of the Prioritizing Economic Growth Over Woke Policies Act. ATR also supports an amendment to the bill (amendment #16), which would reduce the number of activist shareholder resolutions submitted to public companies. This legislative effort will ensure that investing and proxy voting will focus solely on financial returns and not ancillary ESG factors.

You can read the letter here or below:

September 13, 2024

Re: Support for Rules Committee Print 118-48, Text of H.R. 4790, (Prioritizing Economic Growth Over Woke Policies Act)

Dear Chairman Burgess and Ranking Member McGovern:

We strongly support the Prioritizing Economic Growth Over Woke Policies Act. The bill includes a multitude of commonsense policies that would protect the U.S. capital markets from non-financial factors, such as environmental, social, and governance (ESG) criteria. Ancillary ESG considerations subordinate financial returns in favor of nonfinancial benefits. This contravenes the common law meaning of a fiduciary duty, which is to invest assets and vote proxies solely in the interest of the beneficiaries of the funds being managed.

The bill under consideration restricts the Securities and Exchange Commission (SEC) from operating outside its statutory authority. The SEC would only be allowed to require public traded companies to disclose material information and not ancillary information, such as the greenhouse gas emissions data required in the SEC’s climate disclosure rule. Under this legislation, the SEC would also be required to study the detrimental impacts of the European Union’s Corporate Sustainability Due Diligence Directive and its potential impact on American businesses, consumers, and investors.

The legislation also applies accountability to proxy advisory firms. The two major proxy advisors, Institutional Shareholder Services, Inc. and Glass, Lewis & Co., provide proxy voting advice and analytics to institutional investors, such as asset management firms and pension fund boards. The firms control “more than 90% of the proxy advisory market [and] have assumed outsize influence over corporate voting matters.” Proxy advisory firms assert significant influence over institutional investors when voting on shareholder resolutions that impact the broader managerial issues affecting a company. The bill would, among other things, require proxy advisors to register with the SEC, mandate greater transparency on the fees ESG funds charge investors, and prohibit institutional investors from automatically voting identically with the recommendations posed by the proxy advisors (e.g., robovoting).

Importantly, the legislation would ensure that elected officials in Congress are actively consulted before U.S. banking regulations are implemented. Federal financial agencies, such as the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Federal Housing Finance Agency (FHFA), and Office of the Comptroller of the Currency (OCC) would need to notify Congress of recommendations from the Financial Stability Oversight Council (FSOC) before implementation. The bill also requires agencies to keep Congress informed and in the loop before any regulatory frameworks may be adopted from international organizations, such as the Financial Stability Board, Basel Committee on Banking Supervision, and Network for Greening the Financial System. U.S. agencies would also be required to keep records of any interactions with the international organizations. This is to ensure unelected bureaucrats do not circumvent the legislative process.

Although ATR strongly supports the legislative package under consideration, we believe it can be improved by adding amendment #16 by Rep. Andy Biggs (R-Ariz.). The amendment places a cap of the number of shareholder resolutions that can be submitted during a public company’s annual meeting. Additionally, the amendment requires resolutions to have a material effect on the financial performance of the company. The amendment even defines “material” as ensuring investors are focused on pecuniary returns. These provisions are supported by several center-right organizations.

The amendment offers a reasonable and practical approach to combatting activist shareholders. This is the only pending legislation that has the power to stop the sheer number of activist shareholder resolutions that are being submitted every year. According to one opinion piece:

Although support for ESG-related proposals is dwindling, the overall number of ESG-related resolutions being submitted is increasing. According to one report, “[t]he number of resolutions on environmental and social topics increased by 23 percent in 2023 to 337, from 273 in 2022.” 

The number of activist shareholder resolutions continues to increase at a staggering rate. Last year, ESG-related proposals represented about 65 percent “of total submissions.” Activist proposals continue to represent a large swath of total shareholder resolutions.

ATR supports amendment #16 and encourages the Rules Committee to make it in order.

We appreciate the opportunity to comment on the legislation under consideration and strongly support its passage. We also commend the House Committee on Financial Services’ work to defend the U.S. capital markets and broader economy from ESG criteria and woke ideology that aims to undermine investment decision-making and proxy voting in corporate America.  

Sincerely,

Americans for Tax Reform

CC: Members of the House Committee on Rules