House Republicans blast ideological ‘woke investing’ for threatening Americans’ retirement savings

House Republicans Tuesday again took aim at the use of Environmental, Social and Governance policies (ESG) in retirement investing during a Ways and Means Committee hearing titled “Ensuring ‘Woke’ Doesn’t Leave Americans Broke.”

“This political crusade threatens the $33 trillion Americans have saved for retirement. As a committee we have responsibility to ensure that tax advantaged retirement plans offer security to American seniors and future retirees,” said Rep. Jason Smith, R-Mo., chair of the committee.

Referred to as “woke investing” by its critics, ESG generally includes a set of standards that rates funds according to progressive-friendly, socially conscious measures. These range from the racial and gender diversity within a company’s governing board to its commitment to lowering carbon dioxide emissions. They do not speak to the fiduciary duty that companies owe their investors.

Critics say that ESG directs financial decisions toward political agendas that are often at odds with getting the best returns for investors, while having the effect of policy without any legislative process. The concern with using ESG in retirement investing, is that Americans are putting their faith in investors managing their retirement funds, but rather than ensuring the best outcomes for those investments, the money is being directed toward advancing political causes at the expense of those investors.

In November 2022, the Department of Labor (DOL) issued a final rule that allowed individuals and companies managing retirement investments to consider ESG factors in their decision, including climate change concerns. In March, Congress passed a bill that would have shot down the DOL’s rule, but President Joe Biden, as he had promised to do, vetoed the legislation.

In January, two dozen Republican state attorneys general, along with two energy companies, filed a lawsuit against the DOL, aimed at getting the ESG rule set aside, but a Texas federal court dismissed the complaint in September.

At last Thursday’s Ways and Means Committee hearing, Rep. Smith noted that inflation had driven the cost of goods and services up 17.7% since Biden took office, and as a result, one in six seniors are considering going back to work. Many Americans, Smith said, are expecting to delay their retirements as inflation erodes away the buying power of retirement accounts.

“Make no mistake, the Democrats reckless spending agenda caused this problem. And now their radical ESG agenda threatens what's left of seniors' retirement,” Smith said.

Jason Isaac, director of Life:Powered, an initiative sponsored by conservative think-tank Texas Public Policy Foundation that seeks to educate people on the importance of affordable and reliable energy to human wellbeing, said that not one of the largest individual ESG-labeled funds performed better than the S&P 500 or the NASDAQ. Returns on the top 20-largest ESG-labeled funds, he said, were negative 0.2% during the past year, while the S&P 500 was up 19% and the NASDAQ was up 25%.

“Congress must and should do everything in its power to stop this overreach and what is supposed to be a free market with fiduciary duty,” Isaac said.

Rep. Richard Neal, D-Mass., ranking member of the House Ways and Means Committee, has argued that the economy under Biden is doing well, with 14 million jobs created since Biden took office, as well as an unemployment rate below 4% for the longest stretch in 50 years.

Neal said that Congressional Democrats have taken effective action to protect Americans’ retirement savings, with such bills as the 2022 Butch-Lewis Act, which provided $36 billion to help financially troubled multi-employer pensions for union workers. While Democrats have protected Americans’ retirements, Neal said, "the ESG issue is another manufactured crisis meant to distract the base from the lack of legislating," according to reports from the National Association of Plan Advisors. 

Other Democrats also criticized the committee Republicans for taking up congressional time with the ESG issue.

Rep. Lloyd Doggett, D-Texas, called the concerns about ESG a “Republican punching bag that’s raised at election time.” Rep. Linda Sanchez, D-Calif., said that Congress should be avoiding a government shutdown rather than spending time on ESG hearings.

“We're talking about the woke boogeyman that Republicans love to invoke whenever they want to distract from their inability to govern,” Sanchez said.

Brandon Rees, deputy director of the AFL-CIO Office of Investment, testified that ESG factors were relevant to investment return decisions. He said the committee could better address retirement insecurity by strengthening social security and increasing employer contributions for employees who don’t have a defined benefit plan.

For Republican members of the committee and most of the witnesses, ESG represents a real threat to retirement investments and the state of the free market.

Life:Powered's Isaac recounted the experience of Sri Lanka. In 2022, the South Asian country’s president implemented a rapid transformation of its agricultural sector following progressive environmental policies that sought to eliminate modern fertilizers, genetically modified crops, and greatly lower carbon dioxide emissions. The nation’s economy imploded, leading to riots from which the Sri Lankan president fled.

“Today, nine and 10 people are hungry in Sri Lanka, because of one person,” Isaac said.

While the debate continues on the federal level, states are also taking action for and against ESG.

As of September, there were 20 states with laws that limit considerations of or the weight given to ESG factors in investment decisions. Eight states have laws either protecting or incentivizing ESG-related investments, and three states have laws requiring companies disclose their use of ESG factors in the course of their business.

Another factor that might sway the debate one way or another, at least as far as the climate standards of ESG are concerned, is the financial outcomes of renewable energy companies compared to oil and gas companies.

As both the Daily Caller News Foundation and Reuters reported last month, investors are pulling out of renewable funds as margins decline, suggesting that, regardless of any legislation that’s passed, the influence of ESG may fade in the face of financial losses.