[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                     ESG PART I: AN EXAMINATION OF
                       ENVIRONMENTAL, SOCIAL, AND
                       GOVERNANCE PRACTICES WITH
                           ATTORNEYS GENERAL
=======================================================================

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                      OVERSIGHT AND ACCOUNTABILITY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 10, 2023

                               __________

                           Serial No. 118-27

                               __________

  Printed for the use of the Committee on Oversight and Accountability
  
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


                       Available on: govinfo.gov,
                         oversight.house.gov or
                             docs.house.gov
                             
                               __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
53-161 PDF                  WASHINGTON : 2023                    
          
-----------------------------------------------------------------------------------                             
                             
                             
                             
               COMMITTEE ON OVERSIGHT AND ACCOUNTABILITY

                    JAMES COMER, Kentucky, Chairman

Jim Jordan, Ohio                     Jamie Raskin, Maryland, Ranking 
Mike Turner, Ohio                        Minority Member
Paul Gosar, Arizona                  Eleanor Holmes Norton, District of 
Virginia Foxx, North Carolina            Columbia
Glenn Grothman, Wisconsin            Stephen F. Lynch, Massachusetts
Gary Palmer, Alabama                 Gerald E. Connolly, Virginia
Clay Higgins, Louisiana              Raja Krishnamoorthi, Illinois
Pete Sessions, Texas                 Ro Khanna, California
Andy Biggs, Arizona                  Kweisi Mfume, Maryland
Nancy Mace, South Carolina           Alexandria Ocasio-Cortez, New York
Jake LaTurner, Kansas                Katie Porter, California
Pat Fallon, Texas                    Cori Bush, Missouri
Byron Donalds, Florida               Jimmy Gomez, California
Kelly Armstrong, North Dakota        Shontel Brown, Ohio
Scott Perry, Pennsylvania            Melanie Stansbury, New Mexico
William Timmons, South Carolina      Robert Garcia, California
Tim Burchett, Tennessee              Maxwell Frost, Florida
Marjorie Taylor Greene, Georgia      Becca Balint, Vermont
Lisa McClain, Michigan               Summer Lee, Pennsylvania
Lauren Boebert, Colorado             Greg Casar, Texas
Russell Fry, South Carolina          Jasmine Crockett, Texas
Anna Paulina Luna, Florida           Dan Goldman, New York
Chuck Edwards, North Carolina        Jared Moskowitz, Florida
Nick Langworthy, New York
Eric Burlison, Missouri

                       Mark Marin, Staff Director
       Jessica Donlon, Deputy Staff Director and General Counsel
                     Alan Brubaker, Senior Advisor
             Jeanne Kuehl, Senior Professional Staff Member
                          David Ehmen, Counsel
                       Mallory Cogar, Chief Clerk

                      Contact Number: 202-225-5074

                  Julie Tagen, Minority Staff Director
                      Contact Number: 202-225-5051

                                 ------                                
                         C  O  N  T  E  N  T  S

                              ----------                              
                                                                   Page
Hearing held on May 10, 2023.....................................     1

                               WITNESSES

                              ----------                              

The Honorable Steve Marshall, Attorney General, Alabama
    Oral Statement...............................................     6
The Honorable Sean Reyes, Attorney General, Utah
    Oral Statement...............................................     7
The Honorable Michael Frerichs, Treasurer of Illinois
    Oral Statement...............................................     9

 Opening statements and the prepared statements for the witnesses 
  are available in the U.S. House of Representatives Repository 
  at: docs.house.gov.

                           INDEX OF DOCUMENTS

                              ----------                              

  * Article, Stanford Law Review, ``Reconciling Fiduciary Duty 
  and Social Conscience: The Law and Economics of ESG Investing 
  by a Trustee''; submitted by Rep. Biggs.
  * Case Law, WestLaw, ``Central States, Southeast and Southwest 
  Areas Pension Fund v. Central Transport, Inc.''; submitted by 
  Rep. Biggs.
  * Public Interest Comment, Mercatus Center, GMU, ``The SEC 
  Lacks Legal Authority to Adopt Climate-Change Disclosure 
  Rules''; submitted by Rep. Biggs.
  * Case Law, ``Fifth Third Bancorp, et al. v. Dudenhoeffer, et. 
  al.''; submitted by Rep. Biggs.
  * Letter, from Attorney General Landry to Rep. Comer and Rep. 
  Raskin, May 10, 2023; submitted by Rep. Higgins.
  * Article, The Post, ``While Silicon Valley Bank Collapsed, Top 
  Executive Pushed `Woke' Programs''; submitted by Rep. Timmons.
  * Article, Axios, ``SVB's Collapse was a Failure of ESG (as in 
  Governance)''; submitted by Rep. Raskin.

  * Article, Knowledge at Wharton, ``Texas Fought Against ESG-
  Here's What It Cost''; submitted by Rep. Raskin.
  * Study by Wharton School of Business Professor & Federal 
  Reserve Professor on the cost of 2021 Tax Law; submitted by 
  Rep. Bush.
  * Pew-Research Center report on Black-Owned Businesses; 
  submitted by Rep. Brown.
  * Article on ESG Dinner; submitted by Rep. Garcia.
  * Letter from AGs; submitted by Rep. Frost.
  * Article, Bloomberg News, on Investment in ESG; submitted by 
  Rep. Raskin.
  * Statement for the Record; submitted by Rep. Connolly.

  * Questions for the Record: to Mr. Marshall; submitted by Rep. 
  Gosar.
  * Questions for the Record: to Mr. Reyes; submitted by Rep. 
  Gosar.

The documents are available at: docs.house.gov.

 
                     ESG PART I: AN EXAMINATION OF
                       ENVIRONMENTAL, SOCIAL, AND
                       GOVERNANCE PRACTICES WITH
                           ATTORNEYS GENERAL

                              ----------                              


                    Wednesday, May 10, 2023

                        House of Representatives

               Committee on Oversight and Accountability

                                           Washington, D.C.

    The Committee met, pursuant to notice, at 10:16 a.m., in 
room 2154, Rayburn House Office Building, Hon. James Comer 
[Chairman of the Committee] presiding.
    Present: Representatives Comer, Gosar, Grothman, Palmer, 
Higgins, Sessions, Biggs, Fallon, Armstrong, Timmons, Burchett, 
McClain, Boebert, Fry, Luna, Langworthy, Burlison, Raskin, 
Norton, Connolly, Khanna, Ocasio-Cortez, Porter, Bush, Brown, 
Stansbury, Garcia, Frost, Balint, Lee, Crockett, and Moskowitz.
    Also present: Representative Seth Magaziner (D-RI).
    Chairman Comer. The Committee on Oversight and 
Accountability will come to order. I want to welcome everyone 
here.
    Without objection, the Chair may declare a recess at any 
time.
    I recognize myself for the purpose of making an opening 
statement.
    Welcome to the Committee on Oversight and Accountability's 
first hearing on the Environmental, Social, and Governance 
Agenda, also known as ESG. Americans should be free to invest 
their money in any legal investment strategy they choose. This 
freedom does not exist when asset managers use their clients' 
funds to push ESG into the client's return, and let us not kid 
ourselves; ESG is just window dressing for liberal activism and 
radical far-left ideology.
    Because the left are not big fans of diverse thought or 
individual freedom, they are using the feel-good language of 
ESG to force compliance to their ideology. That is why I am 
concerned that asset managers and activist shareholders are 
pushing a political agenda with their clients' money, agreeing 
to ESG pledges pushed by global advocacy groups. These ESG 
pledges and commitments are often at odds with their clients' 
best interests and happen without their clients' knowledge.
    Asset managers control an estimated $126 trillion--that is 
``trillion'' with a ``T''--and almost 30 percent of all global 
financial assets. That is a lot of money being manipulated to 
push a leftist ideology. Even beyond control by asset managers, 
ESG activists have infiltrated the broader market by 
influencing just two proxy advisory firms who, together, 
control more than 90 percent of the market. This is a 
coordinated effort by unelected shadow organizations to force 
their policies on U.S. taxpayers, investors, and retirees. And 
instead of providing Americans with financial protections they 
are due, regulators under the Biden Administration are actively 
encouraging this political takeover of the American financial 
system.
    President Biden dealt a heavy blow to workers and retirees 
when he used his first veto to kill a bill that reinforces fund 
managers' fiduciary duty to maximize returns on pensions 
instead of focusing on the ESG effort. When Biden vetoed this 
bipartisan bill, Senator Manchin said, ``This Administration 
continues to prioritize their radical policy over the economic, 
energy, and national security needs of our country, and it is 
absolutely infuriating.'' Senator Manchin is right. No 
Administration should be able to gamble with Americans' 
retirement funds to its own political agenda in the private 
market. We must expose and investigate the propriety and 
legality of this coordinated effort.
    In today's heated political environment, it is impossible 
to avoid the ever-expanding web of issues people call ESG. 
Whether it is climate change, abortion, guns, DE&I initiatives, 
or energy independence, the passions run very deep. Our country 
is based on a system of laws. Issues of policy should be 
decided by elected officials accountable to voters. I am 
concerned about the well-coordinated campaign to push ESG 
policies through markets and bureaucratic action, even though 
those policy goals do not appeal to voters and have not been 
decided by elected officials. They are trying to achieve 
through intimidation and coercion what they cannot achieve at 
the ballot box.
    This issue is not theoretical. It is very real for any 
American family planning and saving for their retirement. 
Trillions of dollars in retirement plan assets are at stake. 
Obviously, maximizing the return on investment within a 
retirement account should be the primary factor asset manager's 
focus on for their clients. The ESG agenda prioritizes leftist 
ideology over the growth over retirees' investments. This is an 
injustice to those who shoulder the burden for their retirement 
savings. Even the slightest reduction in returns from chasing 
social policy instead of value can have long-term impacts on 
Americans' retirement savings and ability to retire and spend 
quality time with their families.
    Today's hearing is specifically focused on concerns that 
Attorney Generals have with ESG policies pushed by left-wing 
activist on the asset management industry and the potential 
harm for investors and retirees, but today will not be the end 
of this committee's work. Asset managers should understand that 
they are stewards of money that is not theirs, and their 
failure to act in the best interest of their clients is 
dereliction of duty. Proxy advisors should understand they 
cannot intimidate and coerce companies to implement ESG 
policies without scrutiny.
    While this is the first official hearing of what will be a 
series of oversight actions by this Committee to explore ESG, 
we have already held several hearings to investigate related 
issues, including misguided energy policy and progressivism in 
the military. We must also continue our oversight of the Biden 
Administration's governmentwide efforts by unelected 
bureaucrats to dictate to the American people what they are 
allowed to say, spend their money on, or do what their hard-
earned savings. Whether it is the SEC and the Federal Reserve, 
the EPA and Department of Energy, the Pentagon, the State 
Department, know this: we are watching.
    I now yield to the Ranking Member for five minutes.
    Mr. Raskin. Thank you, Mr. Chairman, for launching this 
important discussion and for holding a hearing on responsible 
investment strategies that take into account all material 
considerations and risks when planning for Americans' 
retirement and savings. And, you know, that is precisely what 
insurance companies, asset managers, builders, energy 
suppliers, transportation companies, farm businesses, auto 
manufacturers, landscapers, investment firms, and countless 
others are doing right now by incorporating into their business 
plans all relevant factors, including the calamitous 
consequences of climate change, the devastating hurricanes, the 
dangerous droughts, the sea-level rise and coastal erosion, the 
storm water flooding, the spread of disease, and other costly 
natural disasters produced by destabilization of the earth's 
climate.
    But the same Big Oil and Big Gas companies that suppressed 
for decades their scientific understanding of the dynamics of 
climate change now want to deploy government to literally block 
the ability of other private companies and asset managers to 
fulfill their fiduciary duties by planning around all relevant 
risks and costs, including the risks of climate change, which 
has cost businesses, government, pensioners, and consumers 
billions and billions of dollars. Amazingly, the fossil fuel 
industry wants big brother now to march in and stop the free 
market from responding to the climate crisis that the carbon 
kings created. I hope that we will bring in this process, Mr. 
Chairman, real business people and other private asset managers 
and investment advisors to testify about how outrageous and 
indefensible it is to assault the free market in this way.
    It is clear that honest American businesses are not buying 
the propaganda of climate denialism. They have a duty of 
loyalty and care to their shareholders, and they are focused on 
the actual bottom line, and that always means, as we will hear 
from the minority witness today, facing reality, facing the 
real risks and costs that businesses encounter, not swallowing 
a bunch of mythology and lies. America's most successful 
investors and asset managers have voluntarily and freely 
embraced responsible investment principles as a fulfillment of 
their legal fiduciary duty to minimize risk, maximize returns, 
and prudently plan for long-term challenges like the ones 
associated with climate change. That is the freedom, and that 
is the decision that the fossil fuel industry and its 
supporters want to destroy, but responsible investing works, 
and we have the opportunity to explain it today.
    The proof is in the pudding. Over the last decade, 
Bloomberg's ESG Index performed dramatically better than 
Standard & Poor's traditional fossil fuel-based index. Consider 
this remarkable contrast on the sign behind me.
    [Chart]
    Mr. Raskin. Now, the ESG Index is obviously performing a 
lot better than the general stock index, but I would never say, 
Mr. Chairman, because of these stunning trend lines, which 
smart investors will certainly take note of, I would never say 
that the states or the Federal Government should force all 
investors or asset managers to steer all their investments into 
ESG stocks, like wind or solar or conservation, or whatever. I 
would never say that. If there are investors who want to 
continue to invest in just Big Gas and Big Coal and Big Oil, 
that is totally their prerogative and right to do so, and I 
would never interfere with that. But one can only regard with 
amazement the fact that the fossil fuel industry is using their 
massive wealth and power now to try to force investment funds, 
asset managers, unions, pension funds, and businesses to invest 
in the less successful carbon-dominated stocks. It makes sense 
to say in the free market that no one should be forced to do 
the demonstrably right thing with their money, but it is 
appalling to say that everyone should be forced to do the 
demonstrably wrong thing with their money. Let us let the free 
market operate.
    The new campaign against what Tocqueville called the 
enlightened self-interest of American business comes dressed as 
an attack on woke capitalism, the same epithet used by Governor 
DeSantis in his attack on the Disney Corporation, which has 
backfired so badly on him. Although every other word coming out 
of their mouths these days is ``woke,'' our friends have proven 
famously unable to define what they mean by ``woke.'' So, I did 
a little research, and I want to help with the etymology of the 
word.
    ``Woke'' comes from the Indo-European root ``weg,'' which 
means to be strong, lively, alert. That root grew into 
``woke,'' ``awake,'' ``wakefulness,'' but it also grew into the 
closely related word ``vigilance,'' and I think vigilance is 
probably the best definition of ``woke'' as you guys are using 
it. The whole point of being a fiduciary is to be vigilant, 
watchful, and alert to opportunities and risks, and that is 
what asset managers, corporate board members, and executives do 
with other people's money. The opposite of a vigilant, woke 
investment strategy is a negligent and inattentive investment 
strategy, or, to put it more simply, when it comes to climate 
change, if you don't have a woke capitalism, you are going to 
have a broke capitalism.
    Responsible investing principles, including ESGs, have been 
freely chosen by America's companies and employed by asset 
managers and pension fund managers for decades. Right-wing 
attacks on these principles, fueled by dark money, corporate 
special interests, and flawed legal arguments, threaten now the 
savings and retirement of Americans by forcing asset managers 
to ignore material risks and considerations and violate their 
fiduciary duties, and we are hearing this from all over 
America.
    After Kentucky passed a law in April of last year to divest 
state funds from financial companies that used ESG principles, 
the county Employment Retirement System responded that the 
requirement was ``inconsistent with its fiduciary 
responsibilities.'' An analysis by the Kansas Public Employees 
Retirement System of the anti-ESG legislation proposed in the 
state found that it could cause more than a billion dollars in 
losses due to the early sale of assets and could reduce returns 
by $3.6 billion over the next decade.
    In August 2022, the Florida State Board of Administration 
divested its pension from BlackRock due to the asset managers' 
ESG commitment, and in May 2023, Governor DeSantis signed into 
law a bill prohibiting state and local government funds and 
pensions from considering any social, political, or ideological 
factors. Analysis by the Sunrise Project indicates that because 
of these incomprehensible actions, Florida stands to spend 
between $97 million and $361 million more on municipal bonds 
alone to satisfy this new anti-woke political correctness 
standard. These anti-ESG laws threaten American retirements, 
especially those of public workers, like teachers, and 
firefighters, and librarians.
    At the end of the day, the only way for asset managers to 
meet their fiduciary duties is to allow them the freedom to 
invest, focusing on what will provide the greatest return for 
their beneficiaries that they have a fiduciary duty to. Even if 
you favor as a personal financial strategy exclusive investment 
in oil and coal, you should not be interfering with the rights 
of others to make other decisions, especially when their 
decisions have been yielding significantly higher returns. 
Thank you, Mr. Chairman. I yield back.
    Chairman Comer. The gentleman yields back. I am pleased to 
welcome our three witnesses today, who are all statewide 
elected officials, but first I yield to the gentleman from 
Alabama, Mr. Palmer, to introduce his good friend and our very 
first witness.
    Mr. Palmer. Thank you, Mr. Chairman. I am very pleased to 
welcome Steve Marshall, Alabama's 48th Attorney General. 
Attorney General Marshall has done an excellent job as 
Alabama's AG. He is so well esteemed that virtually every 
District Attorney in Alabama attended his inauguration, and it 
has been a personal privilege to have worked with Attorney 
General Marshall on some issues involving state and Federal 
interest.
    I would like to also recognize a former colleague of mine, 
Katherine Robertson, who is the Deputy Attorney General of the 
state of Alabama, in attendance today. And, Attorney General 
Marshall, welcome to the Oversight Committee, and we look 
forward to your testimony. I yield back.
    Chairman Comer. The gentleman yields back. Next, Attorney 
General Sean Reyes.
    Mr. Reyes. Reyes.
    Chairman Comer. Reyes--it takes me a minute; thank you--was 
appointed by the Governor to serve the people of Utah as 
Attorney General in 2013. He was then elected in 2014 and has 
since been reelected twice. Our third witness is Treasurer 
Michael Frerichs.
    Mr. Frerichs. Frerichs.
    Chairman Comer. Frerichs. Mr. Frerichs was first elected as 
the 74th Treasurer of the state of Illinois in 2015 and is now 
in his 3d term in office. I look forward to hearing from 
Attorneys General Reyes and Marshall as well as Treasurer 
Frerichs on their experiences with ESG investment strategies.
    Pursuant to Committee Rule 9(g), the witnesses will please 
stand and raise their right hands.
    Do you solemnly swear or affirm that the testimony you are 
about to give is the truth, the whole truth, and nothing but 
the truth, so help you God?
    [A chorus of ayes.]
    Chairman Comer. Let the record show that the witnesses all 
answered in the affirmative.
    Now we will begin with opening statements, and we will 
begin with General Marshall.

                      STATEMENT OF STEVE MARSHALL

                            ATTORNEY GENERAL

                                ALABAMA

    Mr. Marshall. Chairman Comer, Ranking Member Raskin, and 
Members of the Committee, thank you for the opportunity to be 
here today. My name is Steve Marshall, and it is my honor to 
serve as Attorney General for the state of Alabama.
    Alabama law, like the laws of many states, empowers me to 
represent the state's interest in court and to enforce the 
state's consumer protection laws. ESG poses unique challenges 
to Alabama's energy consumers as well as many of our state's 
leading industries, like steel, iron, coal, agriculture, 
timber, and oil and gas, but it is bigger than just Alabama. 
ESG is a clear and present danger to consumers and to our 
democracy. An unelected cabal of global elites is using ESG to 
hijack our capitalist system, capture corporations, and 
threaten hard-earned dollars of American workers.
    Since President Trump's election, the global elites have 
formed at least 10 alliances dedicated to implementing radical 
ESG plans. These alliances threaten consumers by limiting 
output, raising prices, risking retirement funds, and creating 
anti-competitive conduct. They also undermine our system of 
government because unelected elites are making policy decisions 
outside of democratic processes. Groups like Climate Action 
100+ and Net-Zero Banking Alliance require their members to 
coordinate on business activity to meet ESG standards not 
otherwise required by law. This private coordination is 
designed to accomplish what could not be done through normal 
democratic processes or the free market. ESG requires companies 
to forgo otherwise profitable economic transactions to achieve 
woke social policy.
    These global alliances hurt consumers by breaching 
fiduciary duties. Those entities entrusted with Americans' 
money have a fiduciary duty to act in their investors' sole 
interest by maximizing returns. Yet ESG acolytes have openly 
pledged allegiance to causes over profits, often failing to 
give consumers adequate notice or any meaningful say in the 
decision to virtue signal with their hard-earned dollars.
    ESG is not good for American workers. The retirement 
savings, and many Americans are invested, advised, or affected 
by an entity that is participating in Net-Zero Alliance. Woke 
agendas should not impact how retirement dollars of workers are 
invested. Americans who responsibly save for retirement should 
be confident that their money is invested in a manner to 
maximize returns and not further the goals of agenda-driven 
investment managers.
    ESG also hurts consumers by increasing energy prices. To 
accomplish their net zero goals, these alliances must work to 
phaseout fossil fuels. Energy output is then limited, which 
results in higher prices for consumers, and in states like 
Alabama, under these policies, consumers would not only face 
higher prices but also a lack of energy supply altogether.
    ESG threatens America's energy independence and national 
security. America achieved energy independence during the Trump 
Administration, but ESG weakens America by constricting 
foundational economic sectors, like energy, such that we now 
must beg foreign countries for oil. ESG also makes America 
dependent on products made in China, like solar panels and 
electric battery components. This threatens to give China and 
other bad actors a competitive advantage and leverage against 
the United States.
    These alliances also hurt consumers through anticompetitive 
conduct. Alliance members appear to be conspiring to restrain 
trade and commerce by colluding with other members to reduce 
competition amongst themselves and coordinating restricted 
investment and action toward specific companies unless ESG 
policy objectives are implemented. And let us be clear: ESG 
activity is subject to antitrust laws as the Biden 
Administration has publicly confirmed.
    ESG threatens America's democratic system. In this country, 
important policy decisions are supposed to be made through the 
process set forth in the Constitution. Congress debates issues 
and passes legislation, the President signs and enforces 
legislation, and the judiciary reviews any challenged 
legislation. The global elites are using ESG alliances to 
circumvent our system of government by shifting power to 
unelected elites, both inside and outside the United States, 
who are not accountable to American voters. Global elites are 
advancing ESG through unlawful and anti-democratic means, but 
Republican Attorneys General are fighting back to protect 
consumers from harm caused by woke ESG policy.
    Republican Attorneys General have launched investigations 
in the Net-Zero Banking Alliance, Climate Action 100+, and 
other companies, commented on policy proposals, warned 
companies to not violate the law, and initiated litigation 
where warranted. Republican Attorneys Generals are defending 
Americans from these global elites and radical ESG activists.
    We appreciate the attention this committee and Members of 
Congress are giving to ESG. This conversation and debate is one 
that must be returned to you, our Nation's policymakers. Mr. 
Chairman, thank you for the time of being here today.
    Chairman Comer. Thank you. General Reyes.

                        STATEMENT OF SEAN REYES

                            ATTORNEY GENERAL

                                  UTAH

    Mr. Reyes. Chairman Comer, Ranking Member Raskin, and 
Members of the Committee, thank you for inviting me to testify 
before you on this important issue of whether environmental 
social and governance, or ESG, factors are distorting our 
financial system and harming consumers and working-class 
Americans.
    ESG involves some of the biggest and most powerful players 
in the global economy, forcing costly operational changes on 
American companies in pursuit of the 2015 Paris Agreement 
goals. These goals have never been adopted as yet by Congress 
but contemplate changes to our way of life that are far 
reaching and fundamental. They would impact everything from how 
we grow our food and what we eat to how we power our homes and 
businesses. These changes involve balancing multiple tradeoffs, 
including financial costs and benefits, how quickly or slowly 
the government imposes new technologies, and how reliable of a 
power grid we will have.
    My view is that we should trust consumers, promote American 
energy independence or even dominance, and avoid as much 
regulation as possible, but answering these difficult and 
critical policy questions is the role of the people's elected 
representatives in our republican form of democracy. That would 
be each of you in Congress and state and local policymakers, 
not me or unelected bureaucrats, foreign governments, asset 
managers, proxy companies, or anyone else.
    But ever since the signing of the Paris Agreement, there 
has been an open conspiracy to bypass Congress using the power 
of horizontal agreements by key players in our financial 
system. Some of these groups are Climate Action 100+ and the 
Glasgow Alliance for Net Zero, which include the largest asset 
managers, banks, and insurance companies globally. These 
horizontal organizations seek to use their collective market 
power over tens of trillions in assets to force burdensome 
changes on American companies. Such changes drive up the cost 
of goods, and they harm shareholders by reducing returns. In 
sum, ESG is an undemocratic tax on our economy and 
productivity.
    ESG also weakens America's national security and that of 
our allies for all the reasons that my colleague outlined. Many 
renewables require rare earth elements and other supply chain 
needs that are dominated by China. Thus, adopting these 
fundamental changes to our energy supply provides China even 
more leverage over our economy and security. The various 
problems with ESG present a multifaceted topic beyond the scope 
of any single hearing, but in addition to the more macro ESG 
concerns that General Marshall and I have raised, I present 
three very specific ESG concerns to you today. These are areas 
that the Committee can and should investigate further.
    The first is the role of asset manager agreements on 
utility companies and whether the Federal Energy Regulatory 
Commission, or FERC, is doing its job to ensure asset managers, 
who collectively own significant percentages of utility stock, 
are improperly influencing the operations of those utilities. 
The second is the role of proxy advisory firms in making 
recommendations for share voting that are based on the goals of 
pressure groups rather than shareholders' best interests. In 
one particular case, this includes a proposal for considering 
race in insurance underwriting, which violates applicable anti-
discrimination laws and, therefore, should not even be on proxy 
statements. The third is the recent Department of Labor rule 
allowing ERISA fiduciaries to consider collateral fractures and 
investments in shareholder voting. This is a severe weakening 
of the fiduciary rule, and I applaud you for the bipartisan 
action that you took in Congress to repeal this rule under the 
CRA. It is only because of the President's veto that this rule 
presently stands, and I am proud to be leading a coalition of 
26 states, along with private parties, challenging this rule in 
court.
    In conclusion, I am not here to debate the policy of E, S, 
or G. There is a time and place for that, and while it may not 
be today or in this Committee, I am convinced it is in this 
larger body of Congress where such policy should be determined. 
So, if I am not here to dispute or defend policy, what is my 
purpose? I am here to warn you about the process of involved in 
effectuating ESG goals.
    No matter how much you may agree with the policy being 
pushed, if you deconstruct the process, it is a flawed and 
dangerous one and may also be illegal. The process threatens 
your prerogative as representatives of the people. It gives no 
consideration to checks and balances or separation of powers. 
It ignores the rule of law. It undermines our American system 
of lawmaking, however inefficient and vexing it may be at 
times. The process focuses all the power centers of the 
financial sector into one organized syndicate of pressure. 
Whenever such a concentrated array of power conspires together 
for a specific outcome, we must be wary.
    As State AGs, we will exercise our power to expose these 
entanglements and protect consumers. We hope you will use your 
power to do the same. Thank you.
    Chairman Comer. Thank you. The Chair recognizes Treasurer 
Frerichs.

                     STATEMENT OF MICHAEL FRERICHS

                        ILLINOIS STATE TREASURER

    Mr. Frerichs. Thank you much. Good morning, Chairman Comer. 
Good morning, Ranking Member Raskin and Members of the 
Committee. My name is Michael Frerichs, and I am the Illinois 
State Treasurer. I am the state's Chief Investment and Banking 
Officer, and in that role, my office manages approximately $52 
billion. That portfolio includes by $26 billion in state funds, 
around $17 billion in college savings and retirement funds, and 
about $9 billion on behalf of local and state governments. I 
also serve as a trustee of the Illinois State Board of 
Investment, which manages approximately $28 billion in pension 
assets on behalf about 230,000 beneficiaries.
    It is my job to protect and grow the hard-earned savings of 
families across the state as well as funds that state and local 
units of government depend upon. I take this responsibility 
very seriously. Whether it is the single mom trying to save for 
her kids' college tuition, or the town financing new schools, I 
know they are trusting the Treasurer's Office to grow returns 
on those funds over the long term and ensure that they have the 
money they need in the meantime. I am tasked with investing not 
just for the next quarter but with the goal of maximizing 
returns over the next quarter century.
    This is what brought me here today. We are witnessing a 
widespread, highly coordinated, politically motivated attack on 
investors and the hard-working people they serve. This pushback 
is anti-free market and anti-investor. It is misleading, and it 
is harmful. It harms retirement savers, pensioners, working 
people, businesses, and it harms America. This coordinated 
campaign is focused on ESG investing.
    Most people do not know what ESG is. ESG is data. ESG is 
simply additional information that investment professionals use 
to assess risk and return prospects. It is about value, not 
about values. In order to maximize returns, an investor must be 
able to manage and mitigate risk. The more data we as investors 
have, the better informed our decisions are when selecting 
investments over the long term. ESG is about looking at a wider 
range of risks and value opportunity that have a material 
financial impact on investment performance. For example, if you 
are investing in a pharmaceutical company, it is thinking about 
whether that company has exposure to massive lawsuits because 
of its role in the opioid epidemic.
    Our approach is to integrate material ESG factors into 
investment decisions along with many other considerations. We 
are not ignoring traditional financial factors, like 
profitability and creditworthiness. We are integrating more 
data into our decisions to give us a better idea of risk and 
growth prospects. This approach is backed by academic research, 
but it is also common sense. Companies that value their workers 
have less turnover and higher productivity. Companies that 
build a strong corporate governance structure will be more 
resilient and valuable over the long term.
    While I welcome healthy debate about best practices and 
fiduciary duty, I do not welcome the deployment of blacklists 
and overreaching legislation that would strip professionals of 
their freedom to invest responsibly. I do not welcome decrees 
that ignore the research, fundamentally misunderstand the role 
of fiduciaries, and impose real costs on taxpayers, pensioners, 
and hardworking families. When it comes to material data, it is 
irresponsible to tell investment professionals to ignore 
information that they can use to do their jobs better.
    Frankly, I am deeply concerned by the highly orchestrated 
attacks on the investment profession and the focus on 
restricting investors' freedom to exercise their professional 
discretion and fiduciary duty. To ask investment professionals 
to ignore material risks and investment opportunities is asking 
us to stop doing our jobs. For example, should we ignore when 
healthcare companies understaff their operations and jeopardize 
the safety of patients? Would you expect a company that does 
this to continue to increase in shareholder value? It would be 
irresponsible to ignore issues like these. It would be foolish 
to hinder professionals' abilities and their freedom to invest 
responsibly.
    This astroturf opposition to decades of work by investment 
professionals is a dangerous intrusion in our free market 
system. If unchecked, this war on investors will stifle 
economic growth, cost taxpayers and pensioners billions of 
dollars, as many studies have already found, and it will 
obstruct investors' ability to protect and grow people's hard-
earned savings.
    In closing, now is not the time to stop investors from 
considering prudent data that can lead to better returns over 
the long term. The American economy depends on investors. 
Please let us do our jobs. Thank you for your time and 
attention.
    Chairman Comer. Thank you. Thank you.
    Without objection, Representative Magaziner will be waived 
on the Committee for the purpose of asking questions at today's 
hearing.
    Without objection, so ordered.
    And I want to remind our witnesses and the Members before 
we enter into the question-and-answer phase that we have a 
five-minute clock, and we try to adhere to that five-minute 
timeframe. If someone asks a question and the five minutes 
expires, we will give you an opportunity to answer it, but 
please be mindful we have a lot of questioners, and we want to 
get through this. So, we will begin questioning.
    I recognize the gentleman from Louisiana, Mr. Higgins, for 
five minutes.
    Mr. Higgins. Thank you, Mr. Chairman. Part of the focus of 
our hearing today is based upon a recent letter signed by 21 
Attorneys General highlighting how organizations, including 
asset managers and proxy advisers, could be violating state and 
Federal law to channel funds for political objectives in the 
category of ESG, environmental, social, and government 
practices. One of our witnesses exclaimed that we are asking 
him to stop doing his job. We are not asking you to stop doing 
your job, good sir. We just expect to review whether or not 
some of your colleagues are violating the law and, of course, 
of doing their job.
    In the second paragraph of that letter, which was signed, 
by the way, again, Mr. Chairman, by 21 Attorney Generals. I 
would like to submit for the record the opening statement of my 
own Attorney General, my colleague and friend, Attorney General 
Jeff Landry, former Congressman here in this body, was not able 
to attend hearing today, but I would like to submit his 
statement for the record, Mr. Chairman.
    Chairman Comer. Without objection, so ordered.
    Mr. Higgins. Thank you, Mr. Chairman.
    Mr. Higgins. From the second paragraph of the letter signed 
by so many of our Attorneys General addressing asset managers, 
said, ``These companies are some of the largest asset managers 
in the United States''--it is important for the American people 
watching to grasp this--``collectively controlling trillions of 
dollars of investments. Many individuals and organizations 
count on these asset managers to provide sound investment 
products and advise. The top three asset managers alone cast 
about a quarter of the votes for the S&P 500 company 
shareholder meetings. They are, therefore, not only bound to 
follow the general laws discussed but also have extensive 
responsibilities under both Federal and state laws governing 
securities. Broadly, those laws require asset managers to act 
as a fiduciary and in the best interest of clients, exercising 
due care and loyalty. Simply put, asset managers are not the 
same as political or social activists and should not allow vast 
savings entrusted to be commandeered by activists, like ESG 
activist organizations.''
    So, Attorney General Reyes, I would like to address the 
question to you, sir, to clarify for America what legal 
requirements must asset managers, who act as fiduciaries, 
adhere to when investing on behalf of a client, and how do 
these requirements impact investment decision-making? And I am 
going to ask you to address not only the letter of the law but 
the spirit of the law that we are inquiring about today.
    Mr. Reyes. Thank you for the question, Congressman. I will 
try to be brief, and it is very simple. Their duty is a 
fiduciary duty under laws like ERISA. It is the highest of all 
duties that one can owe to another in a fiduciary relationship. 
And that fiduciary duty requires them, investing assets on 
behalf of others, to maximize shareholder value, to maximize 
return back to the shareholder. It is as simple as that. That 
has been the rule, the prime directive, if you will, for 
generations, and it has served our market and it has served our 
Nation well.
    Mr. Higgins. For the Committee and for Americans viewing 
this hearing, how would you assess, Attorney General Reyes, the 
performance of ESG investment versus traditional investment?
    Mr. Reyes. I believe there are a number of studies that 
show that ESG funds have globally underperformed. So, my data 
contradicts the data that we saw earlier from the Ranking 
Member, if I recall, and there are studies, but I will point to 
one. Over the past five years, global ESG funds have 
underperformed the broader markets by more than 250 basis 
points per year and average 6.3 percent return compared with an 
8.9 percent return. So, in other words, an investor who put 
$10,000 into an average global ESG fund in 2017 would have 
about $13,500 today compared with $15,250 investment in the 
broader market.
    So that is one example from one study or some market 
research that demonstrates that ESG is not necessarily a good 
bet and that asset managers should, again, be investing in the 
best interests of their beneficiaries or the shareholders, not 
for a proscribed outcome that is dictated by these horizontal 
agreements and pushed and pressured by organizations, like NZAM 
and Climate Action 100+.
    Mr. Higgins. I thank General Reyes for his clarification 
there. Mr. Chairman, I yield.
    Chairman Comer. The gentleman yields back. The Chair 
recognizes the Ranking Member.
    Mr. Raskin. Thank you, Mr. Chairman. So, Mr. Frerichs, you 
said that ESG is data, and some people call ESG, some people 
call it responsible investing. Some people just call it 
exercise of fiduciary obligations. But in any event, you are 
saying what is under attack is data. How could more data hurt?
    Mr. Frerichs. More data cannot hurt. More data is what we 
need as investors to make good decisions. I liken these attacks 
on states that would proscribe asset managers or proxy advisors 
providing this data for us, as to making us pick a fantasy 
football team without knowing the players' weights, their 
injury status, their track record. You can not make good 
decisions without useful, pertinent information, and that is 
what ESG is.
    Mr. Raskin. Go into a time machine for a second, if you 
could. How does your job differ from someone who was the 
Treasurer of Illinois 50 years ago? I mean, back in those days, 
it seemed like it would be simple if you were trying to do the 
valuation for an auto company, how many autos are pumped out 
every year, and number of man hours that go into it, and so on. 
How is the valuation of companies different today in 2023 than 
it was 50 years ago?
    Mr. Frerichs. The nature of value on the S&P 500 has 
changed dramatically over the last 50 years. If you look back 
in the early 1970's, somewhere between 75 to 80 percent of the 
total value of the S&P 500 was intangible assets, things like 
cars, things like paper, things like pencils. And you could do 
an analysis of how many acres of forest you have under 
contract, and you could see how many cars and pencils you could 
produce, and you can reach a value.
    Today the S&P 500 has about 80 percent of the value in 
things like brands, intellectual property, and those things are 
subject to different risks than those companies 50 years ago. 
We are just trying to guard against those risks. A company like 
Google is not worth how much it is today because of the number 
of petaflops of data they have. It is based on their 
reputation. Apple is not worth a trillion dollars because of 
the number of iPhones they sell but because of their 
reputation. And those are susceptible to social and governance 
risks.
    Mr. Raskin. Well, you know, some of the disagreement here 
is about facts, and I appreciate what Attorney General Reyes 
just said. He made the claim that the ESG-informed investments 
do more poorly than the Standard & Poor's general. Our data is 
completely different from that, showing that it has been over 
performing. I would like your comments on that, but then I 
would like you to comment on this. Let us say Utah sees it 
differently than Illinois. Is there any problem with you 
pursuing the investment strategy you want and Utah pursuing the 
investment strategy they want?
    Mr. Frerichs. Investing is not easy. Some people want to 
put more work into it than others. If someone does not want to 
look at this data, that is fine. They have that freedom. 
Nothing in ESG proscribes that someone has to consider these 
sources. I would say they would be not fulfilling their 
fiduciary duty if they did not, but they have that right to. 
And I would cite other studies, like a New York study, Stern 
School of Business, a recent meta study which is a statistical 
analysis that combines the results of multiple academic 
studies, looked at 245 individual studies on ESG and financial 
performance. The study found a positive relationship between 
ESG and financial performance for 58 percent of those studies. 
Only eight percent showed a negative relationship.
    You can pick and choose. Any investment strategy will have 
quarters where it performs better than others. You can pick and 
choose, but over time, ESG has been a good set of data to help 
us make better investment.
    Mr. Raskin. And you make that judgment as a financial 
expert who has a fiduciary duty to everybody in Illinois, 
right?
    Mr. Frerichs. I have a fiduciary duty to the beneficiaries 
of those pension funds, the beneficiaries of those college 
investments. I do not have a fiduciary duty to the oil and gas 
industry.
    Mr. Raskin. But you have got a fiduciary duty to maximize 
the returns, and what you are saying is you want more 
information. Like, somebody says this Purdue company just got 
57 percent in the last quarter, invest in Purdue. What about 
saying, well, that is all that you could do at that point. You 
cannot look at whether or not they are trying to get people 
addicted to drugs because that would be too woke.
    Mr. Frerichs. That was exactly what happened with Purdue 
Pharma. If you looked at their financial returns, they showed 
themselves to be a very profitable company, but we wanted to 
know more because there are risks associated with selling 
highly addictive drugs.
    Mr. Raskin. So, that is a real case for you.
    Mr. Frerichs. Real case.
    Mr. Raskin. Yes.
    Mr. Frerichs. Reputational risks, regulatory risks, 
litigation risk, and those litigation risks took a company that 
was very profitable for a long time and bankrupted it.
    Mr. Raskin. OK. This is my final question. Why shouldn't 
Congress say, well, you know what? We are the House of 
Representatives. The anti-ESG people, we are in control. We are 
going to stop states like Illinois from looking at all the 
data. What is wrong with that?
    Mr. Frerichs. Well, that is what some states are doing, and 
it is costing those states not insignificant amounts of money. 
You pointed out some of those. The state of Indiana, their 
pension system said it is going to cost an additional $6.7 
billion to comply with their anti-ESG law. The state of Kansas, 
it is about $3.6 billion. The state of Kentucky, the Kentucky 
Pension System said if forced to comply with their state's 
anti-ESG law, they would not be following their fiduciary duty.
    Mr. Raskin. But they would rather be broke than woke. I 
yield back to you, Mr. Chairman.
    Chairman Comer. The Chair recognizes Mr. Gosar of Arizona 
for five minutes.
    Mr. Gosar. Attorney General Reyes, you just heard that 
comment about science. This is about data. Can you dispute 
that?
    Mr. Reyes. Thank you. A couple of things I want to comment 
on. I think my colleague mentioned that more data is all good, 
right, and that more date cannot hurt. I disagree with that 
because I think there can be bad data if it distracts or, in 
some cases, even distorts the import and the focus of what 
fiduciaries should be solely laser focused on if it is not 
benign data. I will give you an example.
    Standard & Poor's issued ESG indicators alongside the 
creditworthiness for states. In a state like Utah that has a 
Triple A credit rating, Standard & Poor's would point out, in 
one instance, the issue of drought without taking into 
consideration a whole other host of mitigating factors that 
Utah has anti-drought measures. By itself and without the 
context, Standard & Poor's all of a sudden makes it look like 
the most important factor is not Utah's creditworthiness over a 
long history, a Triple A credit rating, but one particular 
factor of drought. And in that instance, it illustrates my 
point of distortion.
    My colleague used the fantasy football analogy, and all 
data is good data, I guess, in kind of a Moneyball sense. 
Again, I would take issue with that. To use football as an 
example, if all of a sudden, we started crowning the Super Bowl 
champion not by who scored the most points in the game but by 
who had the most green arena or who had the most 
environmentally friendly equipment, I think that data would be 
destructive. I think that is something that is not necessarily 
the indicator that we are looking for.
    And in this instance, again, I want to point out that we 
are contesting the process. And you can have all the data in 
the world, but when that data is driven to one particular 
outcome, and it is a predetermined outcome, and there is a 
cabal of players who are all pushing toward that one outcome, 
then the data is just window dressing to achieve that 
particular outcome.
    Mr. Gosar. It is manipulated. Would you give me that?
    Mr. Reyes. Yes. I want to quote from NZAM, which is, you 
know, has $59 trillion AUM, assets under management, and this 
commitment is that its ambition for all assets under management 
to achieve net zero emissions by 2050 or sooner. That is all of 
their assets, and it says this: ``The transition to net zero 
will be the biggest transformation in economic history. Our 
industry's ability to drive the transition to net zero is 
extremely powerful. Without our industry on board, the goals 
set out in the Paris Agreement will be difficult to meet.'' 
Again, I could read chapter and verse of many other public 
statements like this. This just demonstrates the concerted 
effort by all of these organizations to push a particular 
outcome, regardless of what the data may or may not----
    Mr. Gosar. I would cite a quote. BlackRock's former CIO for 
sustainable investment even said in an article for Medium in 
2021 that ESG investing ``provided for the opportunity for a 
bump in what were otherwise plummeting fees as competition had 
grown in recent years.'' So maybe if we went back to the Fisher 
Investments, which says, ``When our clients do better, we do 
better,'' instead of having these commissions on here. Do you 
think that is an opportunity to get things right?
    Mr. Reyes. I definitely think that is an opportunity, 
Congressman, and let me also mention something that was said, 
``just because it is not mandated.'' I think that was a 
reference. This data, you are not forced to look at it. Just 
because it is not mandated does not make it any more legal. You 
know, if it is allowed, again, it is data that, you know, 
distracts from a fiduciary's sole responsibility to maximize 
shareholder value.
    Mr. Gosar. I got one more thing. You brought up FERC in 
regard to energy. So, are you aware that we were dangerously 
close to having a nationwide blackout earlier this year?
    Mr. Reyes. Yes.
    Mr. Gosar. And what did that play in that investment 
portfolio in regard to where we get our energy, intermittent 
versus baseload energy?
    Mr. Reyes. That is what several FERC Commissioners 
testified to just last week in a Senate hearing, Congressman. 
That effort to transition to cleaner energy is happening so 
fast, too fast, that it would have catastrophic effects on 
reliability and security of our electric grid.
    Mr. Gosar. We are outpacing, out pushing our science, and 
you have to have dependable science that is peer reviewed and 
is repeatable. So, thank you very much. I yield back.
    Chairman Comer. The gentleman yields back. The Chair 
recognizes Ms. Ocasio-Cortez from New York for five minutes.
    Ms. Ocasio-Cortez. Thank you. Thank you very much, Mr. 
Chair. Mr. Frerichs, if you had to describe your job to a 
layperson, how would you describe it in one or two sentences?
    Mr. Frerichs. As the chief investment officer, my job is to 
maximize returns for the state of Illinois and our 
beneficiaries.
    Ms. Ocasio-Cortez. And your beneficiaries are the citizens 
and folks who reside in the state of Illinois, correct?
    Mr. Frerichs. The citizens of the state. They are the 
participants in college savings plans and retirement savings 
plans and retiree pensioners.
    Ms. Ocasio-Cortez. So, everyday people saving for college, 
saving for retirement, and who really just want to make sure 
they can put their dollar in a long-term investment that is 
stable, correct.
    Mr. Frerichs. Most of these people put their money, and 
they expect not to look at the next quarter, but we look at 
next quarter century.
    Ms. Ocasio-Cortez. And that is a distinction between what 
we see sometimes on Wall Street or in other types of short-term 
investment where you really just want to look at what is going 
to make you money by the end of the year or the end of a 
quarter, correct?
    Mr. Frerichs. Frequently, a CEO might be motivated by a 
bonus trying to hit a point for the next quarterly profit 
report, but we want to make sure they are putting the company 
on a sustainable path to be profitable for the next 10 or 20 
years because that is what families saving for college and 
people saving for retirement care about.
    Ms. Ocasio-Cortez. Yes, and in the course of your work, 
have you noticed that short-term profit-seeking behavior is not 
always consistent with long-term returns for everyday people?
    Mr. Frerichs. Correct, the example we used with Purdue 
Pharma. When they sold highly addictive drugs to Americans, 
they made money hand over fist. It is a great business model to 
sell an addictive drug to someone----
    Ms. Ocasio-Cortez. Mm-hmm.
    Mr. Frerichs [continuing]. Until when those people start 
dying off. Their relatives engaged in class action lawsuits 
that sank that company, or you can have a railroad company that 
determined we can make more money by cutting staff by 30 
percent. We can add more cars to the rail to make more money--
--
    Ms. Ocasio-Cortez. Mm-hmm.
    Mr. Frerichs [continuing]. And we do not spend time moving 
the cars around to distribute load, and then when that railroad 
has a derailment in Ohio----
    Ms. Ocasio-Cortez. Mm-hmm.
    Mr. Frerichs [continuing]. It cost that company real 
dollars because it cost investors, shareholders, and 
beneficiaries.
    Ms. Ocasio-Cortez. Yes, and it is interesting that you 
bring that up, Mr. Frerichs, because I think what we are seeing 
here is that the other side of the aisle is making the argument 
here that we should just look at the balance sheets, the short-
term returns, and the short-term investments in order to make 
long-term financial decisions. But the irony of that is that 
this Committee right now and, in the past, has been charged 
with investigating companies that have abused the public by 
deliberately leaving critical information off those balance 
sheets. You have seen that in your work, haven't you, Mr. 
Frerichs?
    Mr. Frerichs. We have all seen this. I heard talk about bad 
data. There was bad data that sunk Enron. This had nothing to 
do with ESG. You can look and find bad data anywhere. It is the 
job of an investor to sort through that data and look through 
multiple lenses.
    Ms. Ocasio-Cortez. Right. We just lived through this with 
SBF and FTX. We just saw this two years ago. We went through a 
multi-installment investigation of Dupont's poisoning with 
respect to PFAS in water. Veterans' communities, communities 
that live around military bases, airports, et cetera, dealing 
with reproductive cancers, testicular cancers from information 
that was withheld from those balance sheets. Norfolk Southern 
and the train derailment in East Palestine, those communities 
are struggling to access information that this company is 
hiding because it is not necessary to put on their balance 
sheets. Right now, we are investigating Abbott for baby formula 
and the issues that were happening with infants dying in baby 
formula, and that, too, was kept off balance sheets but also 
had financial impacts on the performances of those companies. 
They had to take that production offline.
    And so, the argument here is that our investment managers 
in different states should not take this information into 
account when making investment decisions for the public. Mr. 
Frerichs, can you really do your job if you are just looking at 
short-term returns, if your job is for the long-term financial 
health of people saving for college and retirement.
    Mr. Frerichs. No. As a fiduciary, for family saving for 
college, for people saving for their retirement, you know, they 
do not really care so much if a company is profitable next 
quarter. They care if it is profitable for the next 10, 20 
years, or quarter century.
    Ms. Ocasio-Cortez. And so, when we talk about where this 
push is coming from, why now? Why is this happening?
    Mr. Frerichs. This is happening because the nature of 
valuing companies has changed. We still do traditional 
financial analysis, but we layer on another level of analysis 
to deal with these risks, and they are material. They may deal 
with human capital, they made deal with workers, they may deal 
with the environment, but they have real-world consequences on 
the bottom line of these corporations. And if we do not have 
access to that information, it is like investing with a 
blindfold on.
    Ms. Ocasio-Cortez. Thank you very much, and I yield back.
    Chairman Comer. The gentlelady yields back. The Chair 
recognizes Mr. Armstrong from North Dakota for five minutes.
    Mr. Armstrong. Thank you, Mr. Chairman. A lot of the 
testimony brings up many of the problems of ESG in the world of 
finance. Americans rely on a sophisticated financial investment 
system every day to plan for their future, yet the complexities 
of this system allow ESG causes to take precedence over the 
most important thing of all, which is the bottom dollar. The 
purpose of investments is to grow our financial security not 
shrink it. As you and my colleagues have pointed out, 
investment in ESG funds does not bring higher returns. I would 
like to focus on a little bit on understanding of what duties 
proxy advisories currently have and how Congress can actually 
ensure economic interest legally take precedent. I got the two 
different sides of glasses, so.
    Mr. Marshall, in a few sentences, can you talk to me a 
little bit and define proxy advisors and proxy voting?
    Mr. Marshall. Well, you have seen my colleagues reach out 
to the two proxy advisory firms to be very critical of the 
nature of how they do business. Really, I think much of the 
fundamental discussion we are having today is what is a 
fiduciary and what does that fiduciary responsibility to those 
hard-earned Americans who have given their money to be 
invested. One thing that is clear is that proxy advisors are 
acting outside of the directive of those particular investors 
but instead are making their own independent value judgments 
about how they vote with regard to certain shareholder 
initiatives.
    Clearly, they are connected through various alliances to 
not only deal with global energy policy but also a set of 
preferred societal values. And we see various shareholder 
initiatives around issues that do not relate to the bottom 
line, do not relate to the return for those particular 
investors, but instead purport to be a political agenda. Then 
they are acting outside of the scope of their responsibilities 
and breaching their fiduciary duties.
    Mr. Armstrong. Mr. Reyes, what is robo-voting, how does it 
magnify the power of proxy advisor recommendations, and should 
Congress consider restricting its use?
    Mr. Reyes. Robo-voting, automatic voting, has given even 
more power to the proxy advisor duopoly that is ISS and Glass 
Lewis. That is part of what we would ask you, Congressman, to 
look at with regard to proxy voting. The market for proxy 
advisory firms, as I mentioned and General Marshall mentioned, 
is dominated by two players, Institutional Shareholder 
Services--ISS--and Glass Lewis, and their combined market share 
is approximately 97 percent. So, you are looking at predominant 
market players who influence many of the institutional advisors 
and asset managers for whom they provide supposedly objective 
advice for.
    A study has shown, though, that a significant number of 
institutional investors simply follow the voting advice of 
proxy voters. This is like automatic straight-ticket voting. It 
is common sense that proxy advisory firms should focus on 
providing objective advice related to maximizing value of 
shares in the companies that are the subject of shareholder 
proposals and board of director elections. Unfortunately, for 
these two particular advisors, they, again, have very public, 
purposeful statements about what their end goals and objectives 
are, including retiring coal plants, including transitioning 
away from fossil fuels and getting to net zero Paris 2015 
goals.
    It is difficult to see and to imagine that they can be 
entirely neutral and provide objective opinions for those for 
whom they are serving when they have such strongly stated 
goals. And when they start every shareholder vote, I think one 
estimate was they have 38 percent or so of the votes already 
locked in. And so, it is very difficult to overcome their 
predisposed decision-making process. Those are all issues that 
we would like for you to take up in a further hearing with 
regard to proxy voting.
    Mr. Armstrong. And, Mr. Marshall, if proxy voters are not 
acting in the best interest of their shareholders, what current 
mechanisms are in place to hold them accountable, and what 
should be accountable?
    Mr. Marshall. One thing that exists for AGs is under our 
consumer protection laws, Deceptive Trade Practices Act. I 
think one of the things that you have seen already is 
Republican Attorneys General have been active on the 
investigative side, using both our consumer protection laws as 
well as the antitrust laws. Multiple investigations are now 
pending, and we have the opportunity to be able to report back 
on those investigations. But as well, I think General Reyes has 
outlined for this Committee various ways that this body can act 
to be able to rein in what we believe is an unlawful practice.
    Mr. Armstrong. Well, as somebody who served in state 
government and the Federal government, I appreciate the fact 
that sometimes you can move more quickly than we can. With 
that, I yield back.
    Chairman Comer. The Chair recognizes Ms. Bush from Missouri 
for five minutes.
    Ms. Bush. Thank you, Mr. Chairman. St. Louis and I are here 
today for a timely and important hearing to defend the planet 
itself. The acronym ``ESG'' has been used so much today already 
that I would like to remind everyone what it stands for: 
``environmental, social, and corporate governance.'' The 
relationship between the activities of giant corporations, like 
Microsoft, Apple, and eBay, have an immeasurable impact on our 
society and on our environment.
    By now, we all know that the health of our planet is 
fleeting. All you have to do is step outside, feel the seasons 
getting shorter and the temperatures getting higher. You just 
have to turn on the news to see the latest natural disaster 
devastating communities. You just have to listen to the 
scientists and client climate experts who are telling us point 
blank that it is now or never. Act today or wish you had 
yesterday.
    My hometown of St. Louis ranks among the highest across the 
country in rates of asthma, with rates significantly higher for 
Black residents than White residents. ESG principles are the 
bare minimum corporations can abide by to protect the 
communities that serve as their domestic headquarters in cities 
like St. Louis. The cost of doing business should not be a 
lifetime of pollution for small town and cities across this 
country.
    Mr. Frerichs, do Republican attacks on responsible 
investing practices actually increase the waste and 
mismanagement of taxpayer dollars, yes or no, and if so, how?
    Mr. Frerichs. I think attacks that limit our ability to 
consider all factors to have access to data costs us, and this 
has been documented in other states. I think there is a 
misunderstanding of what proxy advising firms do. The secret 
right there is in the word ``advisory.'' They do not make these 
votes. The fiduciaries make these votes, and if a fiduciary 
decides to just turn it all over to someone else, that is their 
choice, but a good fiduciary will rely on their advice and 
other sources of information.
    You know, we are part of several coalitions we get 
information from. The example I like to use is we are trying to 
get a good clear picture of these corporations and their 
profitability over the long term. Now, you notice I wear 
glasses. I did not always wear glasses, but the nature of my 
eyes changed over the last 30 years, and I had to take steps to 
see better. And when I went to go see an optometrist, they gave 
me a choice of two different lenses and said which helps you 
see better.
    ESGs are different lenses to see. I say, OK, well, the 
first lens help me see better. They will show me two different 
ones, and eventually, after looking through several different 
lenses, we will get a much clearer picture. That is what ESG 
data does. It helps us to have a better picture about the long-
term profitability of these companies.
    Ms. Bush. Thank you for that. I ask unanimous consent to 
submit into the record a study by Wharton Business School 
professor, Daniel Garrett, and the Federal Reserve economist, 
Ivan Ivanov, on the cost of the 2021 Texas law to limit 
responsible investing.
    Chairman Comer. Without objection, so ordered.
    Ms. Bush. Thank you.
    Ms. Bush. Mr. Frerichs, could you briefly summarize the 
findings of this analysis for us?
    Mr. Frerichs. Yes. Back in 2021, the state of Texas passed 
legislation limiting the number of firms they could use for 
debt issuance, and because they limited some of the largest 
debt issuers, there was less competition. I find this difficult 
that I am the one defending the free market and the ability to 
have competition and access to data and for shareholders to 
have rights because I think I heard earlier someone mentioned 
that asset owners who own utility stocks are telling them what 
to do, as if that is a bad thing. They are owners of these 
companies. What they found is by limiting competition, it was 
costing the taxpayers of the state of Texas an initial $300 to 
$500 million a year.
    Ms. Bush. Thank you for lending your expertise. Strong 
labor unions like SEIU and AFL-CIO have fought long and hard to 
ensure large corporations and bad actors are being held 
responsible for harming workers. Workers should be able to 
determine if their state pension funds are being invested 
responsibly, and ESG principles are an important first step. 
Now unions are on the front lines of the fight to hold 
corporations accountable for their continued pollution of our 
communities. Whether fighting for paid sick leave, livable 
wages, workplace safety standards, and now ESG principles, we 
must support strong government regulations and oversight into 
all activities of large corporations.
    The Federal Government has an obligation to provide 
resources and solutions to the climate crisis at every 
opportunity. Congress must ensure that with each piece of 
legislation we put forward that there is some component to it 
that addresses the climate crisis. Thank you, and I yield back.
    Chairman Comer. The Chair recognizes Mr. Grothman from 
Wisconsin for five minutes
    Mr. Grothman. Sure. Mr. Marshall, can you give some 
examples of decisions that a business would be kind of muscled 
into doing because of strong ESG sort of policies being 
implemented by, say, major pension funds?
    Mr. Marshall. Let me just speak to specific examples in 
Alabama that we have concerns about. The agriculture industry 
is obviously very important to us. One of the things being 
targeted, for example, is farmers' use of certain types of 
fertilizer, how it is that they use their land itself, and the 
products they use to be able to produce what food goes on to 
the tables of families across our country. So, imagine that a 
farmer is dealing with a member of Net Zero Insurance Alliance 
who comes to that farm and says, as part of our underwriting, 
we think that you need to be able to change the fertilizer that 
you are using. We need to be able to change your land 
management, or else we are not going to insure you, or we are 
going to make it cost-prohibitive.
    Mr. Grothman. Could you see a situation in which, say, a 
bank is kind of muscled into giving out more loans to people 
who have not saved money, for example?
    Mr. Marshall. Congressman, I think we could not only see 
that, but we could also see the opposite, right? We know that 
the Net-Zero Banking Alliance group boycotts certain industries 
as well as limits funding of certain projects, so that not only 
could we see a bank coerced to lend in ways they would not 
previously but also see the exact opposite, and that is to keep 
capital from other industries that are suddenly disfavored.
    Mr. Grothman. OK. And that could be both individuals who 
perhaps have saved a lot of money. Maybe we do not want to give 
them loans as much. We know recently we have had situations on 
a nationwide level in which we try to penalize people who have 
down payments for things. Will this perhaps affect who people 
hire? Like right now there are certain disfavored groups in our 
society. People do not like men. People do not like, you know, 
people with European background, that sort of thing. Could this 
be something where you are encouraging businesses not to hire 
or promote people or have on their board of directors people 
from unfavored groups by people who view people as a group and 
not as an individual?
    Mr. Marshall. And also, the concern about hostile workplace 
environments. There is a great push by ESG proponents to have 
corporations take policy decisions about societal issues that 
are occurring today, and to the extent that you are an employee 
of a certain company that believe very differently than the 
public position that that corporation has taken, taken as a 
result of being bullied by ESG proponents, then that concern 
would be whether or not that employee faces potential harm.
    Mr. Grothman. Could you give me an example?
    Mr. Marshall. Sure. Let us assume that a company has taken 
a position on the issue of abortion and said that they believe 
that abortion should be lawful, and yet there are fundamentally 
employees at that company that believe the exact opposite. No. 
1, they are going to be stigmatized if, in fact, they express 
their particular views, but also the concern is whether or not 
they are going to be denied opportunities for employment and 
advancement.
    Mr. Grothman. So, I will just share the wealth here, Mr. 
Reyes. Would that result in people being discriminated against, 
say, for a place on a board of directors based on political 
viewpoint?
    Mr. Reyes. Yes, and that has been stated by these 
organizations. They are not shy about it. They are very 
forthright, and they said that we will oppose, and we will not 
support directors with certain social or environmental 
backgrounds.
    Mr. Grothman. What type of potential directors would be 
hated by this group?
    Mr. Reyes. Again, any number of them who do not support, 
for example, on the social side, racial discrimination audits, 
and I will give you an example. There was a Traveler's 
Insurance case where a group of activist shareholders, I think 
it was Trillium Group, forced a shareholder vote on an audit 
that they demanded, which was a racial profiling audit, that 
would require Travelers Insurance Company to potentially 
violate state laws in numerous states if resolution passed.
    Mr. Grothman. So, these are the type of people who judge 
people by where their great, great grandparents came from, and 
they----
    Mr. Reyes. Yes. The irony of that is that what they were 
supporting actually violated anti-discrimination laws, so.
    Mr. Grothman. Wow. And as the result, companies may have to 
or will feel pressured to hire people based on these criteria, 
let us call it ancestral criteria. Is that right?
    Mr. Reyes. I think that is a fair assumption, Congressman.
    Mr. Grothman. OK. Thank you very much.
    Chairman Comer. The Chair recognizes Ms. Stansbury from New 
Mexico for five minutes.
    Ms. Stansbury. Thank you, Mr. Chairman. As a social 
scientist who has worked on climate and sustainability issues 
for many years, in fact, all of my career, I actually welcome 
the discussion today on sustainable investing. As we know, it 
is crucial to the future of our planet and also our economy, 
but obviously that is not what this hearing is actually about. 
I have watched and listened today and seen as this hearing has 
devolved into yet another crusade in the political culture 
wars. But I am disappointed, Mr. Chairman, to see the use of 
this Committee's precious time to air yet another dark-money-
funded, conspiracy-laden attack on American freedom. But I am 
surprised to see that in this case, it is an attack on the 
market itself.
    It is amazing to me to see the kinds of attacks we have 
seen on American freedom by the Majority, attacks on our 
bodies, banning books, and now we are talking about banning the 
way that businesses are able to invest their own capital in 
public bodies, but what is especially amazing about this is how 
radically out of touch it is with the American public. And, in 
fact, what is particularly insane about these bans on ESG is 
how out of touch they are with voters themselves, including 
Republican voters.
    And, Mr. Marshall, I know you have been at the forefront of 
this effort, but I want to ask you are you aware that the 
majority of Americans and Republican voters are actually 
opposed to ESG restrictions?
    Mr. Marshall. I can tell you that I have had multiple 
comments from individuals throughout my state, the 5 million 
almost Alabamians that I represent.
    Ms. Stansbury. Thank you, Mr. Marshall. I am going to 
direct your attention to this chart behind me.
    [Chart]
    Ms. Stansbury. A recent poll that was released in Politico 
shows that the vast majority of Americans are opposed to 
restrictions on ESG. In fact, 63 percent of American voters 
overall and over 70 percent of Republican voters--70 percent of 
Republican voters--are actually opposed to restrictions on ESG. 
But it is not just the public. It is American businesses as 
well--corporations, investment firms. Mr. Marshall, are you 
aware that the vast majority of American businesses are also 
opposed to these restrictions?
    Mr. Marshall. Congresswoman, would you like me to be able 
to answer the first question that you asked me?
    Ms. Stansbury. Mr. Marshall, are you aware that the vast 
majority of American businesses are also opposed to these 
restrictions?
    Mr. Marshall. I am going to answer the first question that 
you cut me off on, which is that as I have gone around----
    Ms. Stansbury. Thank you, Mr. Marshall. In fact, Mr. 
Marshall, media outlets, such as Fortune, Forbes, the 
Washington Post, have recently published articles warning 
American investors about these attacks on ESG and explaining 
why they are bad for business. Now, let us talk about why they 
are opposed, because profitability fundamentally depends on 
risk management, and, Mr. Frerichs, you know this because you 
are an asset manager. And corporate America understands the 
real and significant risks posed by global climate change and 
the other social and environmental factors that are presented 
as part of ESG factors and data as they are presented in 
investing.
    So, my question is why on earth is the GOP waging a war on 
ESG, especially when it is so completely unpopular with 
American corporations, the market, investors, American voters? 
In fact, 19 states have actually moved under extreme governors 
and state officials to try to ban ESG investing. We are talking 
about legislation, executive orders, and the very lawsuit that 
we are here discussing today. So, my question is, why is this 
happening? And I think, Mr. Frerichs, as you have indicated, I 
think, in your testimony, we have to follow the money, and the 
reality is, is that this is a well-coordinated and political 
attack. Is that not true, Mr. Frerichs?
    Mr. Frerichs. It would seem that the fossil fuel industry 
is leading a charge here. We had talks about how banks are 
muscling companies. We have seen that. We have seen banks being 
muscled. Legislation in Texas is muscling banks to invest in 
the fossil fuel industry. Banks like to be diversified, and if 
they decided that they wanted to invest in renewable resources, 
like biofuels from Iowa, or wind turbine blades from Ohio, or 
solar panels being installed in Arizona, they would be punished 
for that. That is the real shame here.
    Ms. Stansbury. Right. So ESG has become another boogeyman 
in the culture wars. This is not about fiscal responsibility. 
You know, it is evident. We are sitting here in the very week 
that we are debating a potential default on the American debt 
ceiling, and yet the GOP is claiming that this is about fiscal 
responsibility and fiduciary responsibility to shareholders and 
the public. That is not what this is about. It is a well-
funded, dark-money-funded culture war attack not only on the 
American economy but on the American people. And with that, I 
yield back.
    Mr. Sessions. [Presiding.] The gentlewoman yields back her 
time. The gentlewoman from Colorado is recognized for five 
minutes.
    Mrs. Boebert. Thank you, Mr. Chairman, and thank you to our 
panelists for being here today. As we have heard today, there 
are numerous concerns related to so-called environmental, 
social, and governance policies being indoctrinated into 
accounts by woke asset managers. Today's hearing will help us 
better understand what Congress can do to ensure that 
stakeholders will not encourage woke corporate activism as we 
have seen recently with Anheuser-Busch, Disney, and even Nike 
because, as we all know around here, when you go woke, you go 
broke. So, Attorney General Reyes, for background, could you 
elaborate on how asset managers can violate their duties by 
signing ESG pledges?
    Mr. Reyes. Sure. There are a number of ways. There are 
Federal laws that could be implicated. There are state laws, 
including state consumer protection laws, state securities 
laws. There are common law, contractual agreements that 
fiduciaries can violate. All of those different laws come into 
play, and one of the reasons why we filed a lawsuit against the 
current Administration's Department of Labor rule weakening the 
fiduciary role and the duty and the responsibility of 
fiduciaries is because we think it, among other things, 
violates major questions, doctrines, violates the APA, the 
Administrative Procedures Act. So, all of those different ways 
are legal reasons why we are concerned, Congresswoman.
    When you hold yourselves out as being objective, and you 
represent to your customers and your shareholders that you are 
being objective, then you must live up to that and not have a 
predisposed, predetermined end goal in mind. And I will make 
one comment, my colleague and my friend, the good Treasurer, 
mentioned proxy advisors do not vote the shares. He is right, 
but in many ways, they are de facto voters because many of 
those fiduciaries have so many thousands of different 
investments that they rely almost solely on the proxy advisors. 
And when the fiduciaries are part of the same horizontal 
agreements as the proxy advisers are, they are all part of one 
and the same scheme, there really is no free market in that. 
They keep talking about free market, and that is why we are 
here because there is nothing free about the course of nature 
of these arrangements.
    Mrs. Boebert. And, Mr. Reyes, you state in your testimony 
horizontal organizations are made up of asset managers, banks, 
and insurance companies. Now, I am aware several State Attorney 
Generals are investigating several of the Net-Zero Banking 
Alliance groups, including JPMorgan Chase. What have those 
investigations found to date?
    Mr. Reyes. Not ready to disclose all of our findings yet, 
but I will say comfortably enough that we are continuing our 
investigations, and we hope that you would----
    Mrs. Boebert. So, Mr. Reyes, considering the Silicon Valley 
Bank has collapsed and JP Morgan Chase bought the bank, has 
there been any indication that there has been any involvement 
in ESG policies while reestablishing the bank?
    Mr. Reyes. There may be, but I am not willing to comment on 
that based on our investigation.
    Mrs. Boebert. Thank you so much. Attorney General Marshall, 
as the Department of Labor under the Biden Administration has 
considered requiring fiduciaries to consider ESG in employee 
retirement savings decision, several 401(k)'s and thrift 
savings plans allow managers to use their voting rights on 
behalf of these retirement accounts. A prime example of this is 
BlackRock, a primarily left-wing activist fund that uses its 
status as the fiduciary for several investment funds to coerce 
companies into introducing these ESG politics into their 
retirement account savings. How can Congress help ensure that 
these companies are not introducing ESG policies into their 
investment funds and, instead, are maximizing returns for 
future seniors that will need to live off of this money in 
these accounts?
    Mr. Marshall. Yes. Congresswoman, one thing that we heard 
earlier from one of your colleagues is how partisan this issue 
is. This body has demonstrated through the Senate, by 
attempting to overturn the new Safe Harbor Rule under ERISA and 
saying that it was an improper way to consider the investments 
for 152 million Americans and their retirement accounts. This 
body can clarify clearly under ERISA the role of a fiduciary, 
what that means for the investment return of the individuals 
who have invested their accounts, and make it clear that 
objective criteria, not subjective ESG criteria, are used for 
making those decisions.
    Mrs. Boebert. Thank you very much for that suggested 
solution, and, Mr. Chairman, I yield.
    Mr. Sessions. The gentlewoman yields back her time. The 
gentlewoman from Ohio is recognized for five minutes.
    Ms. Brown. Thank you, Chair and Ranking Member, and our 
witnesses. I continue to be surprised by the position of my 
friends on the other side. Aren't the values of free market a 
fundamental view of their Party? Environmental, social, and 
governance investing is one critical tool that businesses use 
to make financially smart investments. This type of investing 
emphasizes corporate models that are both financially smart and 
socially good, which is truly a win-win.
    One aspect of corporate models that is too often overlooked 
is the governance and social strategies component. These 
strategies often center around diversity in the work force, 
both at the executive levels and within a particular 
organization and throughout the broader industry. The inclusion 
of people of all backgrounds, especially those from 
marginalized communities, is an essential part of America's 
corporate success. We thrive as a Nation when every one of us 
is empowered and has an opportunity to succeed. Diverse voices 
at the table make companies stronger and their products, goods, 
and services more inclusive and effective.
    According to a 2019 McKinsey analysis, companies in the top 
quartile for ethnic diversity on executive teams were 36 
percent more likely to have above-average profitability. 
Another study shows that employees are 5.4 percent more likely 
to want to continue working at a diverse company. Clearly, 
businesses have a moral obligation as well as a financial 
incentive to make sure there is a seat at the table for 
historically marginalized groups, but there is still so much 
work to be done.
    So, Secretary Marshall or Secretary Reyes, do you know what 
percent of the 5,403 board members of Fortune 500 companies are 
women of color?
    Mr. Marshall. Congressman, I do not.
    Mr. Reyes. No, ma'am.
    Ms. Brown. The answer is seven percent. Moving on, this 
year, the Pew Research Center published a report on Black-owned 
businesses in the United States which continue to face systemic 
structural barriers to equal opportunity, including lack of 
investment. I hope you all will have a chance to read it, and I 
ask unanimous consent that this be entered into the record.
    Mr. Sessions. Without objection.
    Ms. Brown. Thank you so much.
    Ms. Brown. Secretary Marshall or Secretary Reyes, can you 
tell me the percentage of business nationwide that are Black-
owned?
    Mr. Marshall. Congressman, I cannot.
    Mr. Reyes. No, ma'am.
    Ms. Brown. Black-owned businesses make up only three 
percent of classifiable companies despite the Black Americans 
making up 12.4 percent of the U.S. population. Mr. Frerichs, in 
your experience as Illinois's top investor, how does diversity 
at all levels of a company help investors meet their fiduciary 
responsibilities and position themselves for success?
    Mr. Frerichs. Thank you very much for that question. The 
research has been fairly clear, and this is not by a left-wing 
organization--McKinsey is not a left-wing organization--that 
diversity is good for boards. I heard comments made earlier 
about discrimination against people from a certain ethnic 
background. There are still plenty of White men serving on 
corporate boards. The vast majority are, but research has shown 
that homogeneous boards underperform diverse boards, and it is 
not just the research. It is common sense.
    If you bring people from the same backgrounds, the same 
educational schools, the same cultural backgrounds together, 
you are going to find a lot of groupthink. A good board does 
well when there is discussion and back and forth and 
differences of opinions, and so diverse boards reduce 
groupthink and produce better results.
    Ms. Brown. Thank you, and I would say that answer 
demonstrates the need for increased diversity both within 
individual corporations and throughout the broader business 
sector. Yet, unfortunately, punishing companies for these 
private corporate choices has become an element of the 
Republican platform from D.C. to Disney. While historically 
marginalized communities continue to face unique economic 
barriers, Republicans oppose corporate freedom to implement 
strategies for social investment, which even benefits the 
bottom line. In fact, the Republican platform appears to center 
around taking away the choice, the choice to promote diversity, 
equity, and inclusion, the choice of a woman to have control 
over her own body, and the choice to read a book and live 
without the fear of gun violence.
    I urge my friends on the other side of the aisle to 
reconsider these misguided priorities, and with that, Mr. 
Chairman, I yield back.
    Mr. Sessions. The gentlewoman yields back her time. The 
distinguished gentleman from South Carolina is recognized for 
five minutes.
    Mr. Fry. Thank you, Mr. Chairman. Thank you for having this 
hearing today. Thank you to our witnesses for your time.
    Under Federal and state law, asset managers owe fiduciary 
duties to their clients. What does that mean? Well, it 
essentially means that they put their clients' interests first. 
This is a concept that is old as time. It has become clear, 
however, that asset managers may have violated that fiduciary 
duty, based on your findings, to their clients through signing 
radical ESG pledges. Attorney General Reyes and Attorney 
General Marshall, you and several other Attorneys General, 
including Alan Wilson from South Carolina, penned a letter to 
53 asset managers. In this letter, you said that ``state and 
Federal laws require these asset managers to act as a fiduciary 
in the best interests of their clients in exercising due care 
and loyalty.''
    So today, I want to take a quick look at the history of 
fiduciary, starting with the basics. The Bible says that no one 
can serve two masters. The Romans defined as a ``fiduciary'' as 
a person holding the character of a trustee or character 
analogous of a trustee in respect to the trust and confidence 
involved in it and the scrupulous good faith and candor which 
it requires. The case of Keech v. Sandford, a 1727 English 
trust law, holds that a trustee owes a strict duty of loyalty 
and care so that there can never be any possibility of a 
conflict of interest. Under ERISA, a person who provides 
investment advice has that same fiduciary obligation to provide 
the advice in the sole interest of the plan participants.
    It is clear that the history of fiduciary is not a new 
concept, so why are these asset managers now struggling with 
that duty? When someone invests their money, they have the 
intention that this money will grow and that they will get a 
return on that investment. However, these asset managers are 
throwing money in support of ESG initiatives that are contrary 
to those who have those holdings. Attorney General Reyes and 
Attorney General Marshall, will asset managers be forced to 
choose between their legal duties to achieve financial returns 
and ESG policy goals, and can you outline that?
    Mr. Marshall. I think clearly there is a conflict, and one 
of the things that I would identify previously is the role of 
pension funds in states. And we have had two of our Attorneys 
General, both in the states of Kentucky and Louisiana, in 
examining the question of fiduciary duty, concluded the 
consideration of ESG factors would, in fact, violate state law. 
The laws in Kentucky and Louisiana are very similar to the laws 
throughout our country, very similar to the way that this body 
has defined ``fiduciary'' under ERISA and has identified that 
as the sole interest duty of loyalty. Very specifically, the 
Michigan Supreme Court many years ago said business 
corporations organized and carried out primarily for the profit 
of stockholders.
    The role of asset managers is to maximize the return on 
that investment. Again, particularly for the hardworking 
Americans who have invested their retirement dollars, their 
concerns principally is what is going to be there when I am 
done? It is not necessarily all, and some of the factors that 
are subjective in ESG, but, instead, to those objective factors 
that qualify to determine what investments should be 
recognized.
    You know, interestingly, my colleague from Illinois 
referenced glasses and an optometrist that had given him the 
glass prescription. An optometrist uses devices to objectively 
determine what your vision is to be able to make sure that you 
have the right glasses, that you are not using the wrong ones. 
ESG criteria, very differently, are not objective. They are 
subjective, and one of the reasons why we know that is the 
rating agencies themselves cannot agree on what the factors 
should be, and they also score individuals quite differently 
depending on their subjective view of those companies.
    One thing that is also clear is that certain subjective ESG 
factors are in conflict. For example, let us take solar power, 
that if you have a company you want to be able to score well 
because they have converted to solar energy, we also have to 
recognize that that solar energy is coming from materials that 
are manufactured in China where forced labor practices are not 
acceptable. Which one do you favor more?
    Mr. Fry [continuing]. Attorney General, and Attorney 
General Reyes, I want you to answer this one if you can for me 
because I am crunched for time. But are asset managers required 
to tell their clients when they enter in these ESG-related 
pledges? I mean, doesn't that seem to be kind of a problem 
because my understanding is that they do not have to disclose 
that.
    Mr. Reyes. I am sorry. Could you repeat? I know your time 
is up, but I did not----
    Mr. Fry. Are asset managers required to tell their clients 
when they enter into these ESG-related pledges?
    Mr. Reyes. Not currently, and that would be something that 
the Trump rules that the Department of Labor ruled just 
changed, previously required. If it was a tie and it is an 
intricate answer, but yes, there had to be transparency and 
disclosure and an explanation. Those rules have now gone away 
because of the current Administration's hostility toward that. 
So, it would be advisable, but there is not a requirement per 
se. You could read into their fiduciary duty, and I think 
implicitly, there ought to be, but right now there is no 
statutory duty.
    Mr. Fry. Thank you both. Thank you, Mr. Chairman. With 
that, I yield back.
    Chairman Comer. [Presiding.] The gentleman yields back. The 
Chair recognizes Ms. Porter from California for five minutes.
    Ms. Porter. Thank you very much. Attorney General Marshall, 
we have different political views, but I am going to predict 
that we might be able to agree on something right at the 
outset. I think the United States should have the strongest 
possible capitalist economy that it can. Do you agree?
    Mr. Marshall. I do.
    Ms. Porter. All right. And capitalism is a lot like 
democracy. You get choices, and just like a democracy lets you 
choose between different candidates who may have very different 
political views, capitalism is supposed to let you choose 
between more than one product, service, or investment that 
meets your needs. Do you agree that choice is a fundamental 
premise of capitalism?
    Mr. Marshall. I do not disagree.
    Ms. Porter. All right. ``Do not disagree.'' I am going to 
take that as agree.
    Mr. Marshall. I will say it again. I agree with you.
    Ms. Porter. Thank you. Mr. Marshall, when you buy a car, 
what criteria do you look at to make your final decision? What 
is important to you?
    Mr. Marshall. The quality of the vehicle and the cost.
    Ms. Porter. OK. The car that is best for you may not be the 
car that is best for me. I drive a minivan, and you maybe would 
not be caught dead in one. For all I know, maybe you are a 
Tesla guy.
    Mr. Marshall. I drive a pickup, Congressman. Let me make 
that clear.
    Ms. Porter. Well, I was going to get that. I have a lot of 
constituents who buy low-emission vehicles. You may have a lot 
of constituents who buy trucks to use for towing or hauling. 
The thought process behind shopping for a car is not so 
different from the thought process that goes into investing in 
a company. You gather information to see if you are getting 
what you want as a consumer, or, in this case, an investor. Mr. 
Marshall, what kind of information would an environmentally 
conscious investor be looking for? Let us assume that these 
investors exist. What would they be looking for to make an 
investment that meets their needs?
    Mr. Marshall. I could not answer that question for you. I 
do not know exactly how you define what it is you are talking 
about.
    Ms. Porter. OK. So, I think they are going to be looking 
for information about what the company's policies are to 
mitigate climate change risk, how they are addressing 
fluctuating energy costs that might be related to changes in 
market prices and availability of fossil fuels. They might be 
looking at how water shortages caused by drought might affect 
their business model, how supply change interruptions caused by 
climate migration. There are any kinds of things they could be 
looking for. The point here is that a lot of investors want to 
know more than just dollar and cent disclosures when they are 
making the decision to invest or buy. Maybe you do not. Maybe 
all you want to look at is the dollars and cents. But 
environmental, social, and governance disclosures give those 
investors the option to take that information into account.
    And it is not just progressives. Plenty of conservatives 
have dumped their stock in Disney or stopped buying Bud Light 
because they think that they are too woke. Mr. Marshall, if a 
company became less woke based on market pressures, would you 
take legal action against them as AG?
    Mr. Marshall. You would have to give me a little more 
information to know whether or not we could.
    Ms. Porter. If Disney changed its policy on LGBTQ+ 
Americans, would you sue them? If they changed their policy to 
fail to protect LGBTQ Americans, would you sue them?
    Mr. Marshall. I think the analysis for us would not 
necessarily be whether or not that individual company changed 
its policy. The question is whether or not they were compelled 
to do so for otherwise unlawful reasons. It is one of the 
reasons why you see currently that there are active antitrust 
investigations involving multiple players on the ESG front, 
including Climate Action 100+ and the Net Zero Bank Alliance.
    Ms. Porter. OK.
    Mr. Marshall. Can I finish, please?
    Ms. Porter. Yes.
    Mr. Marshall. Very quickly.
    Ms. Porter. Mm-hmm.
    Mr. Marshall. And our evaluation there is whether or not 
their actions incur corporations to make decisions that 
otherwise would not be appropriate for them to make.
    Ms. Porter. OK. So, let us break this down. It is very 
important to be clear with the American people. The Labor 
Department's rule does not impose a mandate. It permits 
fiduciaries to consider ESG standards if they believe those 
considerations are prudent in their decision-making and what 
the information is they want to provide investors. There is no 
mandate under the Department of Labor, and I think these 
antitrust concerns are, at best, misplaced.
    There is simply no evidence that there is a violation of 
the Sherman Act going on. There is no evidence that this is 
what is happening. It is up to each of these companies. These 
initiatives are no different than other initiatives that 
corporations have that come together. These are private actors 
making their decision. It strains credulity for me to hear 
people suggest that BlackRock is some kind of leftist commie 
organization. For crying out loud, BlackRock is about 
delivering value, and in doing that, they are looking at a lot 
of different kinds of propositions about value, including good 
governance, including the effect that climate change may have 
on their bottom line. That is the whole point.
    This is about freedom. That is what we are talking about. 
Capitalism delivers freedom, and that happens when markets let 
people choose what they want. That is all that you are trying 
to block here. You are trying to block people from looking at 
disclosures that they find valuable. If they do not find them 
valuable, do not look at them. And I think capitalism is about 
choices. I heard you say you do, too, so I hope you will 
reconsider your policy. I yield back.
    Chairman Comer. If you want an opportunity to respond, we 
will----
    Mr. Reyes. A bathroom break----
    Chairman Comer. The Chair recognizes Mr. Palmer for five 
minutes.
    Mr. Palmer. I thank the Chairman, and I thank the witnesses 
for appearing today. Attorney General Marshall, Alabama's 
economy depends on robust industries: agriculture, timber, 
energy, auto manufacturing, aircraft manufacturing. How would 
the ESG initiatives potentially harm the state economy and 
impact consumers, not only in Alabama but nationwide?
    Mr. Marshall. I think first and foremost, Congressman, is 
on energy prices. If you look, particularly what has driven 
inflation and what has hit Americans in the pocketbook, 
including Alabamians, it has been an increased cost of energy, 
part of that attributable to decreased investment in what is 
currently producing the energy in our country itself. But 
beyond that, particularly, for example, within agriculture, it 
is going to be the attack on agriculture as it relates to their 
responsibility, according to the left, for increased carbon 
emissions.
    Let us take, for example, our cattle industry. As you well 
know, that is a significant portion of our agriculture economy. 
We also know from data the cows themselves are the largest 
emitters of methane gas. And the question is going to be, do we 
find farmers discriminated against in their banking 
relationships. Do we see farmers discriminate against in other 
financial relationships that impact their ability to do their 
job? The reality is, Congressman, I do not think many in my 
state are ready to give up their hamburger. I do not think they 
are wanting to put tofu on their grill. The issue is whether or 
not we can produce the food products this country needs and to 
be able to do it in a way that we can make it affordable to 
Americans.
    Mr. Palmer. I do not think I am willing to give up my 
pickup or many of my friends who drive pickup trucks are 
willing to do that either. I want to point out something here. 
In this headlong rush to eliminate hydrocarbons from our 
economy, it is really insane. The very things that you have to 
have to build a renewable structure--cement, steel, plastics--
the majority of that is produced in China, but it all requires 
enormous amounts of natural gas. But there is one other thing 
that I would like to point out: over 80 percent of the cost of 
fertilizer that is necessary for food production is natural 
gas, and if we eliminated natural gas from that process, it 
would cut world food production in half. And what we are seeing 
with ESG-driven investments, I think, is not only a threat to 
our economy. It is a threat to our food supply in many 
respects, but it is also a huge help to China.
    I made this point this morning in a speech that I gave that 
this headlong rush to renewables Europe engaged in created the 
energy crisis, not the war in Ukraine. The war in Ukraine 
exposed it, and if they were to go 100 percent renewable, they 
would no longer be relying on Russia or United States or 
anybody else for natural gas, but they will be reliant on 
China. And that is one of the big concerns that I have about 
this big push to ESG is how this empowers China. Would you 
agree with that?
    Mr. Marshall. I do agree with that. And interesting, if you 
look at the history of energy transformation, our country has 
been driven by two sources, one which is economic and the other 
is through technology, and it has usually taken a century or 
more for that to be able to take place. The current change is 
not driven by any action that this body has s taken, but 
instead it is by global elites who believe there ought to be 
global energy policy, not Congress acting, not those that are 
accountable to the people, but, in fact, it is those outside of 
our country dictating what our policy should be. And it is 
benefiting China, who, by the way, is not tied into the Paris 
Accord, as many of our developed countries are, and it gives 
them an unfair competitive advantage over American companies as 
well by access to cheap energy.
    Mr. Palmer. Well, as I have pointed out in another hearing, 
China's objective is not to save the planet from climate 
change. China's objective is to rule the planet as the world's 
sole superpower, and they want to do that by 2049. And we have 
this artificial target of trying to achieve net zero by 2050, 
which under no engineering scenario, no technologies scenario 
is achievable. So now we are getting down where ESG is not only 
a threat to our economy. It is a threat to our national 
security. That is my opinion.
    I believe that as we continue to divest ourselves from our 
hydrocarbon infrastructure and go more to renewables, it will 
make us reliant on China for the very materials that we need to 
sustain our energy infrastructure for our economy and our 
national security. Would you agree?
    Mr. Marshall. I would agree. I think we should have learned 
our lesson during COVID when we saw how dependent we were on 
products produced outside this country when we needed them 
during the pandemic.
    Mr. Palmer. Mr. Chairman, I want to, again, thank the 
excellent witnesses, particularly the gentleman from Alabama. I 
yield back.
    Chairman Comer. Thank you. The Chair recognizes Mr. Garcia 
of California for five minutes.
    Mr. Garcia. Thank you very much, Mr. Chairman, and I want 
to thank all of our witnesses for their service. Thank you for 
being here. I know, for me, I am not here to particularly 
defend any sort of corporate strategy or investment. I think 
most of the Democrats, and the Democrats on this Committee are 
really focused on supporting people, and we are not here to put 
working people above big corporations. And companies we do know 
also want to consider certain goals that they have when they 
are investing, whether it is because climate is obviously 
changing, and it is having an impact. Companies obviously 
prioritize diversity because America is actually more diverse, 
and it helps them do business in a diverse society. So, these 
are decisions that make financial sense, and I think 
corporations are making these all the time.
    I think we should also be as honest about what we are 
actually doing here. I think the Majority is clearly trying to 
score political points with some sort of panic around whatever 
wokeism is. I am not even sure what wokeism still is or how to 
actually describe it. We have many business leaders in the 
community that are criticizing this Republican far-right agenda 
that is ignoring climate change and that really is not 
operating in any sort of reality but in some sort of Fox News 
bubble and ecosystem.
    So, the far right wants revenge, and they want to revenge 
on corporations, on working people, on everybody. The interest 
campaign that is happening across this country and certainly 
here in this Committee is also heavily orchestrated and what 
and wide reaching. ESG efforts have a lot of ties to dark money 
also across this country, and I want to just give an example.
    I want to ask unanimous consent to submit for the record A 
February 2023 article from the group, Documented, which 
describes a private anti-ESG dinner on June 1 of last year 
during an annual Heritage Foundation meeting. So, if I can 
please have that article submitted for the record. Attendees at 
this dinner included representatives of Consumers Research, 
which is an anti-Union and anti ``woke organization.'' Now, Mr. 
Frerichs----
    Chairman Comer. Without objection, so ordered.
    Mr. Garcia. Thank you, sir.
    Mr. Garcia. Mr. Frerichs, a dinner like this, what does 
this tell you about coordination behind these kind of anti-ESG 
attacks?
    Mr. Frerichs. I think that it is not a surprise. We see it 
when letters are signed that there is someone behind it.
    Mr. Garcia. Thank you, and at the heart of these anti-ESG 
campaigns is also a name that should be very familiar to the 
American public, and that is longtime conservative activist, 
Leonard Leo. We all know that Leonard Leo spent his career 
installing conservative justices to the Supreme Court in an 
effort to overturn Roe v. Wade and so much other progress 
across this country. You also may remember Mr. Leo from recent 
press reports that have said that he asked Kellyanne Conway and 
her polling firm to ``give Ginni Thomas another $25,000.'' He 
emphasized that the paperwork should have ``no mention of 
Ginni, of course.'' Now, we know that Mr. Leo has set his 
sights on our democracy, on our Court. He has amassed $1.6 
billion to do it, and so this is incredibly problematic for us 
as a country, and this is actually what this Committee should 
be looking at.
    I also want to note an October 2022 article by the New York 
Times, and it notes that Mr. Leo's network and his campaign to 
push some of the country's biggest corporations on making 
investments pushing environmental, social, governance causes, 
all links back to this kind of anti-ESG movement that is 
happening and that we are discussing today.
    So again, Mr. Frerichs, as your perspective as Illinois 
State Treasurer, how do orchestrated campaigns, clearly as this 
one, also that have folks like Mr. Mr. Leo involved, how does 
it actually hinder the free market that our Republican 
colleagues seem to always be uplifting and care so much about?
    Mr. Frerichs. When they pass legislation that prohibits 
disclosure of information, that hinders our ability to make 
good decisions. When they pass legislation that punishes 
certain companies from making business decisions, it costs 
taxpayers in their states, and it is it is not insignificant 
dollars. We have documented billions and billions of dollars 
this legislation is going to cost American taxpayers.
    Mr. Garcia. Thank you for that. Now, you signed a letter, 
along with 13 other State Treasurers, opposing anti-ESU 
legislation and noted that these radical bans have very real 
consequences for taxpayers. You have discussed a lot of this 
today at this hearing, and I appreciate that. The letter warned 
that if these anti-ESG bands succeed, ``There will be two kinds 
of states moving forward: States focused on short-term gains 
and states focused on long-term beneficial outcomes for all 
stakeholders,'' and you have alluded to this earlier today. Can 
you explain one more time, because I think this is a really 
critical piece of what you have focused on today, what exactly 
do you mean by this part by this quote, in particular?
    Mr. Frerichs. So, when we are investing college savings 
funds or retirement savings, I am not so much interested in the 
quarter profitability for a company but their ability to be 
profitable for the next quarter of a century. That is because 
as a fiduciary, I am looking out those beneficiaries' long-term 
interests. We are not day traders. We do not hop in and out of 
these companies. We are universal investors, and rather than 
trying to boycott certain companies, we try to work with them.
    Mr. Garcia. Thank you. Thank you, sir, and I just, you 
know, I hope that the next Committee meeting, we can actually 
investigate Mr. Leo and his anti-ESG campaigns and support that 
is happening and are causing destruction across this country. 
And with that, I yield back.
    Chairman Comer. The gentleman yields back. The Chair now 
recognizes Mr. Burchett from Tennessee for five minutes.
    Mr. Burchett. Thank you, Mr. Chairman. I appreciate you all 
being here, and I apologize that I am the 435th most powerful 
Member of Congress, and that by the time they get to me, 
sometimes my questions have already been asked. So, when I ask 
you a question that you have been asked for the third time, I 
expect each you to look at me with great respect and realizing 
that that is an incredibly important question at that time, and 
I appreciate that. So, thank you, guys.
    How do you say your name?
    Mr. Frerichs. Frerichs.
    Mr. Burchett. Frerichs. You are allowed to smile when a 
Republican says something. You will not get any trouble, I 
promise.
    Mr. Frerichs. Sure.
    Mr. Burchett. You are good, brother.
    (Laughter.)
    Mr. Burchett. From me anyway. Mr. Reyes. Did I say it 
right, Mr. Reyes?
    Mr. Reyes. Yes.
    Mr. Burchett. Yes, sir. Mr. Reyes, could you explain to me 
asset managers' fiduciary duties to their clients?
    Mr. Reyes. Again, maximize shareholder value, shareholder 
profit or return. And, again, and just to follow on the last 
comments by the Congressman, if you will allow me. We want, as 
Republicans and Republican AGs, climate debate. We want 
discussion, we want dispute, we want determination, but we want 
that here in Congress. And I am not sure why anybody on either 
side of the aisle would want to abdicate, would want to allow 
anyone else to usurp your power in Congress to make these 
rules. This is the frustrating thing about all of this. This is 
not just about ESG information and facts. It is about ESG 
policy being pushed, again, by a process that totally bypasses 
Congress and undermines our democratic system.
    Mr. Burchett. Thank you.
    Mr. Reyes. And let me say this, Congressman. If the 
policies that we are talking about are so self-evident and so 
popular, as has been referenced before, with the American 
people, let them stand on their own merits here in Congress. 
Let them be passed into law. Do not let them be forced through 
a market that is anything but free with these ESG horizontal 
agreements.
    Mr. Burchett. Along those same lines, could there be a 
scenario maybe that asset managers would have to choose between 
ESG initiatives and maybe their fiduciary duty to some of their 
clients?
    Mr. Reyes. Absolutely. Those are times competing interests. 
Sometimes they can be aligned. Sometimes you can have social 
good. You can have stakeholder capital along with shareholder 
all aligned, but at other times, they are definitely in 
conflict.
    Mr. Burchett. What kind of risk could these clients face if 
some of these asset managers perhaps would choose an ESG policy 
over maybe a financial return?
    Mr. Reyes. Well, again, the risk short term is, as I have 
referenced earlier, a capital risk, a diminution in the value 
of their investments, but the long-term risk is broader, and 
that is the concern that we have. The more existential threat 
is to our system and government, you know, foundations.
    Mr. Burchett. OK. I wonder is it true that over 300 asset 
managers signed onto the Net Zero Asset Managers Initiative.
    Mr. Reyes. I believe that is correct or more.
    Mr. Burchett. OK. And do they control, I think, over $59 
trillion possibly an asset?
    Mr. Reyes. AUM. I believe that is right. I think that was 
in my written statement.
    Mr. Burchett. OK.
    Mr. Reyes. I believe that is correct, Congressman.
    Mr. Burchett. Yes, and are you also aware that the largest 
asset manager in the world was BlackRock, and they signed on to 
the NZAM Initiative?
    Mr. Reyes. They did, and State Street and Vanguard, it is 
about $26 trillion in assets, which is more than the U.S. GDP.
    Mr. Burchett. Right. One of the initiatives of NZAM is to 
achieve zero emissions by 2050, in accordance with the Paris 
Agreement. Is that accurate?
    Mr. Reyes. Yes, sir.
    Mr. Burchett. OK. Would you consider that to be a radical 
investment strategy?
    Mr. Reyes. Yes, sir, given the----
    Mr. Burchett. I realize ``radical'' is a little strong, 
but----
    Mr. Reyes. The lack of certainty that this would even 
become a law, that there are going to be requirements, there 
are a number of reasons why I would say that, yes, that is a--
--
    Mr. Burchett. OK. Mr. Marshall, would you agree with that?
    Mr. Marshall. I would, Congressman. I also agree that you 
get more questions per capita in five minutes than anybody else 
on this panel.
    Mr. Burchett. Yes, sir. Well, I work on that, and I 
appreciate you being from Alabama. I know that is a two-year 
school being in Tennessee. It is a fully accredited four-year 
school, and----
    (Laughter.)
    Mr. Burchett. I forget, do you all play football down 
there? I cannot remember.
    Mr. Marshall. Mr. Chairman, can I beg----
    Mr. Burchett. You are out of order.
    (Laughter.)
    Mr. Burchett. OK. Mr. Marshall, under the Climate Action 
100+ Initiative, the signers pledge to ensure 166 targeted 
companies take necessary action on climate change. Does that 
sound right to you all?
    Mr. Marshall. That is my understanding.
    Mr. Burchett. Are any of these signers, do you think they 
are aware that they have a combined $68 trillion in assets 
under management?
    Mr. Marshall. I think they understand it because they 
exercise that amount of money to be able to coerce policy 
changes for companies as a result of that.
    Mr. Burchett. OK. And those are in alignment with the Paris 
Agreement. I am out of time. I appreciate you all very much 
putting up with this. I know you come in here thinking, whoa, I 
am going before Congress, and I do not think we are even 
feeding you all, but anyway, that is all right.
    (Laughter.)
    Mr. Marshall. Thank you for your hospitality.
    Mr. Burchett. It is the Democrats' job to feed you all, so 
thank you.
    Chairman Comer. The gentleman yields back. The Chair 
recognizes Mr. Frost from Florida for five minutes.
    Mr. Frost. Thank you, Mr. Chairman. Less than two weeks 
ago, my home state of Florida became one of the first states to 
pass a law targeting ESG factors and investment 
recommendations. Just like other anti-woke witch hunts, the 
Florida Legislature and Governor are hoping to take their 
campaign of environmental negligence, social oppression, and 
incompetent governance to the national level. Florida Governor 
Ron DeSantis signed this bill into law even after business 
leaders, legislators, and public officials warned that similar 
legislation could hurt investors' bottom line and perpetrate 
systematic justices. In January, a consulting firm estimated 
that just for Florida alone, prohibitions against responsible 
investing could cost taxpayers more than $300 million, and when 
a company chronically employs people of color in its lowest-
paying roles or spills toxic pollutants into the Gulf of 
Mexico, I believe they become a greater financial risk. They 
also become more of a risk to the people of the state.
    Americans do not want to sponsor bigotry, corruption, and 
the destruction of our climate, and it is not just everyday 
Americans. Many different folks have been talking about this in 
the business community. It never ceases to amaze me how far the 
Republican anti-woke agenda can get from what Americans 
actually want. Mr. Frerichs, thank you so much for being here. 
Are you familiar with the November 2022 letter that Republican 
AGs circulated related to responsible investment?
    Mr. Frerichs. Vaguely.
    Mr. Frost. Are you also familiar with the letter circulated 
by 16 Attorneys General that eviscerated the Republican attack 
against the effectiveness and importance of responsible 
investing?
    Mr. Frerichs. I have not read both letters recently, but I 
am aware of both of them.
    Mr. Frost. Mr. Chairman, I request unanimous consent to 
enter into the record a letter from Attorneys General that 
clearly outline that responsible investing is sound fiscal 
policy.
    Chairman Comer. Without objection, so ordered.
    Mr. Frost. Thank you, Mr. Chair.
    Mr. Frost. A bill similar to the Florida bill was 
introduced in Kansas. That bill was projected to cost $3.6 
billion over 10 years and lower pension system returns. That 
bill was met with so much backlash from stakeholders, that a 
Kansas legislator was forced to drop the toughest version of 
the bill. In Indiana, after researchers reported that an anti-
ESG bill would cost its pension system $6.7 billion over 10 
years, lawmakers were also forced to rewrite the bill before it 
could pass. Similar pushback stalled efforts like this in North 
Dakota as well. Mr. Frerichs, why do you think these bills are 
facing so much backlash even in Republican states?
    Mr. Frerichs. I think they are facing backlash because they 
are anti-free market. They are going to cost the taxpayers 
money. It is being pushed by a special interest out there. You 
know, I heard talk about we want Congress to make these 
decisions. If Congress is going to make the same decisions that 
are costing these states billions of dollars, they will cost 
this country trillions of dollars. I would say what happened to 
the argument of states' rights? In Illinois, we want the right 
to consider all of this data. If another state does not want to 
and they want to get lower returns, that is their choice. We 
believe in choice. Do not take away our choice.
    Mr. Frost. Yes, I ask myself the same questions about 
rights of local government and states' rights. You know, in my 
state of Florida, that has completely gone out the window. This 
is not your father's Republican Party. If states like Florida 
or Texas blacklist the largest municipal bond underwriters--
mind you, these bonds fund some of the most basic functions of 
cities like in Orlando--this could impose a hidden tax 
amounting to hundreds of millions of additional dollars on 
those trying to engage in good business practices. Who would 
ultimately bear this hidden tax?
    Mr. Frerichs. The taxpayers in the state of Florida. If 
nothing is done in terms of climate change, there is great risk 
to the homeowners of Florida, especially along the coasts. 
There is risk to farmers in Florida. I heard people say that 
they care about agriculture. Climate change is a real risk. We 
have seen an increase in storms in some states, an increase in 
droughts, in others, recent flooding. But all of this disrupts 
our agriculture, which feeds this country. These are things 
that need to be considered.
    Mr. Frost. Exactly. We have seen an increase in storms, and 
we have seen those same storms become longer and worse in 
devastating effects. Entire cities in Florida were decimated 
due to the hurricanes last year. These anti-ESG laws benefit no 
one, not everyday Americans who want to see our financial 
sector invested in for what is good for America, not 
stakeholders, and, once again, Republican lawmakers are trying 
to restrict individual liberty and force compliance with 
policies that the majority of Americans oppose. This is 
especially shown by the backlash that many of these bills have 
faced in both Democratic-and Republican-controlled states. 
Thank you so much for your time, and I yield back.
    Chairman Comer. The gentleman yields back. The Chair 
recognizes Mr. Fallon from Texas for five minutes.
    Mr. Fallon. The new rule by the Biden Labor Department--
thank you, Mr. Chairman--to allow ESG to be taken into account 
and prioritized over fiduciary duty not only violates current 
law but also common sense. So, what is more powerful? I thought 
we were proud to be a rule of law Nation, so the rule of law 
should be more powerful than the law of rule. Retirement, I 
mean, it is pretty straightforward. Under Federal and state 
law, asset managers owe a fiduciary duty to their clients. 
Essentially, this means that they put their clients' interests 
first. When asset managers enter into ESG pledges or 
commitments, they violate their fiduciary duty and instead 
place undue risk on their clients' investments. If you have a 
retirement plan, a fiduciary must make investment decisions and 
exercise shareholder rights based on solely whether or not they 
enhance retirement savings. That is straightforward. That is 
simple. It is clear, and it is smart. Quite frankly, anything 
else is an attack on capitalism.
    So, we had a chart here earlier from one of my colleagues 
that had ESG investments all really high, and the traditional 
investments were lower. So that was compelling. Is it true 
because if it was, it would seem that it would already fit into 
the definition that I just read about being and acting in your 
clients' best interest, but unfortunately, it is not.
    Bradford Cornell of UCLA and Aswath Damodaran of New York 
University reviewed shareholder value created by firms with 
high and low ESG ratings and scores provided by professional 
rating agencies, and their conclusion was, ``Telling firms that 
being socially responsible will deliver higher growth profits 
and value is false advertising.'' What they found at the micro 
level was also on the macro level over the past five years. 
Global ESG funds have underperformed in the market by 250 basis 
points, 6.3 percent as opposed to the 8.9 percent you would 
have received under traditional investments. This means that an 
investor that is going to put in $10 grand comes out with 
$13,500 instead of $15,250.
    So, it is interesting to note, too, a new report from 
researchers from the Universities of Utah, Hong Kong, and Miami 
found there is no evidence that socially responsible investment 
funds improve corporate behavior. Now, why is that, and that is 
very simple. The production of goods and services declines only 
when people stop buying them, not when others stop investing in 
the companies that produce them. This is merely another attempt 
by the far left to perform an end around of current law, 
meddling in free markets to compel behavior and achieve their 
dreams of a non-existent socialist utopia.
    What you get, and you are paying for it, what you get is 
more risks, more danger, less stability, and fewer returns. And 
the ESG ratings, by the way, themselves are all over the board, 
so consider this: broadly accepted financial accounting 
practices have enabled competing rating agencies--competing, 
competitors, like Fitch and S&P and Moody's--to reach similar 
credit evaluations 99 percent of the time. ESG counterparts 
cannot say the same thing. MSCI and Sustained Analytics, they 
only reach the same ratings 54 percent of the time, just about 
1 in 2. So, the ratings are incredibly discretionary.
    Attorney General Marshall, is this the role of the Federal 
Government? Should Joe Biden be able to gamble with retirement 
funds and pensions of the American worker?
    Mr. Marshall. No, and we have heard during this hearing 
today that this a Republican issue. In fact, dealing with ERISA 
has been a bipartisan issue that the Senate showed very 
strongly when they voted overturn the rule that the Department 
of Labor had advanced, as well as the one that we are currently 
litigating. The concern has to do, what does it mean to be a 
fiduciary, and what are we doing to be able to protect the 
hard-earned dollars and investments of American workers. 
Clearly, this Administration has gone too far.
    Mr. Fallon. Attorney General Reyes, Federal, state, and 
local governments defined benefit plans make up $7.6 trillion 
of the $33-and-a-half trillion of the U.S. investment 
retirement market. How does funneling these workers' retirement 
funds toward varying lobbying efforts impact these governments' 
ability to function independently?
    Mr. Reyes. I am going to quote from the Vanguard CEO when 
he pulled Vanguard out of the NZAM. He said, ``We cannot state 
that environmental, social, and governance investing is better 
performance wise than broad index-based investing,'' said 
Buckley. ``Our research indicates that ESG investing does not 
have any advantage over broad-based investing.'' This ERISA 
rule, again, critically important to 152 million working 
Americans. That is out of a total of 158 for $12 trillion of 
their hard-earned dollars. And, again, as you noted earlier, 
Congressman, the rule is violative of ERISA on its face, and we 
believe defective for a number of other reasons that we are 
confident we will prevail on in court.
    Mr. Fallon. Thank you. Thank you, Mr. Chair. I yield back.
    Chairman Comer. The gentleman yields back. The Chair 
recognizes Ms. Balint from Vermont for five minutes.
    Ms. Balint. Thank you, Mr. Chair, and thank you, gentlemen, 
for being here. I am sure it has been quite grueling to get to 
this point. So, I want to just say I am a former public school 
teacher, and I earned a state pension through that work, and I 
really see my job today as trying to explain to Vermonters why 
the topic of today's hearing matters to them. So, if you have a 
public pension or retirement plan, or if your retirement 
savings are invested in the market, this matters to you, and 
considering environmental, social, and governance factors in 
investment decisions, I believe, is just good fiduciary 
practice. And, in fact, considering ESG factors, also known as 
responsible investing principles, are part of an asset 
manager's fiduciary duty to their clients, who are regular 
people. They are teachers, first responders, nurses.
    Mr. Frerichs, how would you define an asset manager's 
fiduciary duty to the layperson? How do you explain it to 
regular people who may be watching this?
    Mr. Frerichs. To make investments, to get the greatest 
return for the time period that the pensioners, so the 
beneficiaries, would need them.
    Ms. Balint. So, would you say an asset manager has a 
responsibility always to act on behalf of the client's best 
financial interests when they are managing their accounts?
    Mr. Frerichs. Most certainly.
    Ms. Balint. Would you agree that an asset manager's 
fiduciary duty requires the consideration of issues that affect 
a company's financial performance and its bottom line?
    Mr. Frerichs. Correct. I would.
    Ms. Balint. And so, you said earlier, and I thought this 
was great. You said we are not day traders, right?
    Mr. Frerichs. Yes.
    Ms. Balint. We are looking for investments in the long 
term, and certainly I think about that with my pension. I want 
to make sure that whoever is managing those investments is 
thinking about factors over the long term. So, to make it 
extremely clear for everyone, how do ESG factors help an asset 
manager assess investments because that is what we are talking 
about here: am I making the right investments? Flesh that out 
for us, if you could.
    Mr. Frerichs. These factors all deal with risk. We are 
universal investors. When you are investing hundreds of 
billions of dollars, you do not sort of pick and choose a 
couple of companies out there. We try to engage with do the 
companies we invest in and make sure they continue to be 
sustainable over the long run. We want these companies to be 
profitable, but if you make short-term decisions, now if you 
trying to be profitable this quarter, there are easy levers to 
pull. You can stop spending on R&D, you can lay off employees. 
You can raise prices, and that will make you profitable in the 
short run, but in the long run, your customers with those 
increased prices may leave you. Those employees that you laid 
off, the remaining ones may be despondent. They may be 
demoralized. They may slow down. They may go on strike. If you 
stop investing in R&D, your competitors will overtake you in 
the future. And so, the question is the timeframe.
    Ms. Balint. Mm-hmm.
    Mr. Frerichs. Do we want companies making decisions for the 
short run or for the long term? And as someone in charge of 
managing college savings funds, retirement funds, pensions, we 
invest for the long run.
    Ms. Balint. And the other thing that I thought was really 
interesting is, as a colleague said earlier, this is not a 
mandate, right? This is about----
    Mr. Frerichs. No.
    Ms. Balint [continuing]. Being permissive. So, do 
Republican efforts to prohibit the consideration--just the 
consideration--of these factors create legal risks for 
fiduciaries going forward?
    Mr. Frerichs. Yes. Let me say investing is hard. There is 
lots of information out there, lots of data you have to 
consider. If someone does not want to do that work, that is OK. 
I would say they are not doing their fiduciary duty if they do 
not do that, but if they limit my ability to have access to 
data, to consider all kinds of variables out there, they are 
making it difficult for me to maximize returns for the 
beneficiaries for the long run.
    Ms. Balint. So essentially, they are taking tools away from 
you that would enable you to make the best decisions on behalf 
of your clients.
    Mr. Frerichs. Correctly, and I am not trying to take any 
tools away from them. If they do not want to look at these risk 
factors, they do not have to. We do not mandate that, but what 
state legislators are doing is they are mandating that our 
asset managers that are advising firms cannot provide us with 
this data, and that is dangerous. It is dangerous for 
Americans. It is dangerous to pensioners. It is dangerous for 
those teachers who are retiring on a small pension.
    Ms. Balint. I am so glad that you just boiled it down 
because that is what we are talking about here. We are saying 
you cannot have the information that you need to make the best 
possible decisions for your client.
    Mr. Frerichs. Exactly.
    Ms. Balint. It is absurd, right?
    Mr. Frerichs. Yes.
    Ms. Balint. OK. I just want to be clear. So, you know, 
responsible investing means gathering information about and 
considering ESG factors or mount others that help you 
determine, you know, best choice for your client, and I just 
want to say this is just such a dangerous path that we are 
going down here. It goes along with the book banning that we 
had earlier. Taking away information from people is not what 
this government is supposed to be about. Thank you.
    Mr. Frerichs. Thank you.
    Chairman Comer. The Chair recognizes Mrs. Luna from Florida 
for five minutes. Beforehand, I want to publicly say 
congratulations on your great news.
    Mrs. Luna. Thank you. It is like the best kept secret in 
Washington. I am expecting, so, yes, thank you guys.
    Chairman Comer. And I thought it was interesting how many 
Members of Congress have delivered a baby?
    Mrs. Luna. I will be number 12, so it is .1 percent.
    Chairman Comer. Twenty in the history of Congress.
    Mrs. Luna. Twelve.
    Chairman Comer. Twelve? Twelve ladies have delivered babies 
while in Congress. I think that is a pretty interesting 
statistic, so congratulations, and you are recognized for five 
minutes.
    Mrs. Luna. Thank you, Chairman. I want to start out by 
saying I think investments made on behalf of the American 
people by assets managers should serve in the interest of the 
investor, not woke ideologies being pushed by corporate 
financial institutions and to entities, like the SEC. Honorable 
Reyes, I actually really liked how you kind of unloaded with 
some facts, and so if I have time at the end of this, I want to 
yield to just kind of let you speak on what you think it is 
important for the American people to know, but if I could just 
real quickly ask you a few questions. What are the challenges 
faced by companies in dealing with increasing numbers of 
shareholder proposals, especially those related to ESG metrics?
    Mr. Reyes. Well, they are being forced to, themselves, 
choose a path that may not be yielding the best returns to 
their own investors. They may be forced to make choices that 
push their own customers away from their own products. I mean, 
there are a whole host of different problems that this type of 
pressure can have on a particular company. And then on the 
other side, there are a lot of problems, as we have already 
discussed extensively, with investors and the potential loss 
of, you know, capital investments. All of those things are 
problematic, Congresswoman.
    Mrs. Luna. How often are clients informed that their asset 
managers are prioritizing ESG metrics over their financial 
return?
    Mr. Reyes. Asset managers are required to disclose what 
they are investing in, but I do not think it is readily 
apparent to most people that their investments are necessarily 
being invested with an ESG bent, right? So again, transparency 
laws and requirements would behoove, I think, the whole 
process, and that is what we are here, again, to talk about. 
Not the policy, but the process, how this is being effectuated. 
Is it being done fairly and in a free market, or is it being 
done coercively?
    Mrs. Luna. I think it is very interesting that obviously 
there are many things that my colleagues across the aisle and I 
probably disagree on, probably agree on some and mostly 
disagree on most. But I think it is very interesting that in 
this type of situation that you have people that sometimes 
blindly trust and really do not know that they might 
necessarily be investing in something that goes against what 
their moral principles are, whatever it might be.
    Mr. Reyes. Yes, I do not think most of us even understand 
the power that we have to vote our shares. The vast majority 
Americans are working hard and trying to raise families and not 
paying attention, so that is part of the problem. They rely too 
heavily on proxy services or their asset manager to make those 
decisions for them. Again, let me make this point, 
Congresswoman. We have never disputed your own ability to 
invest whatever assets you have the way that you want to, 
including an ESG program, but when you are an asset manager 
investing on behalf of others, it is an entirely and wholly 
different circumstance, and you have to live up to that 
fiduciary duty.
    Mrs. Luna. So, we have about two minutes left, and I want 
to yield the rest of my time to you. What is the most important 
takeaway for the American people to know from this hearing 
today?
    Mr. Reyes. Well, again, I would like to point back to the 
three things that we talked about. One was the DOL rule, but we 
have already covered that, I think, sufficiently. The second, 
going back to why the SEC would not exclude a shareholder 
proposal that violates state laws against anti-discrimination 
laws, and that is something that I hope that the Committee will 
take up and have a hearing on. The ICC could have easily 
excluded that. They chose not to, and, again, this is in the 
context of proxy groups. It was because of, my contention, the 
pressure of a proxy service that the shareholders garnered 
enough votes. They did not win, but they came a razor's edge of 
prevailing, 47 percent, to literally put their own company in 
harm's way by violating a number of state laws. So, that is 
one.
    The other is, going back to FERC, and if this Committee 
would look at organizations like NZAM and Climate Action 100+, 
again, $68 trillion, $59 trillion AUM, and view them to see if 
they are a holding company, as we believe they should be 
construed under FERC. They are acquiring more than $10 million 
and other utilities. It is problematic because if they are a 
holding company, then they are violating a number of FERC 
regulations, including owning more than 20 percent of a 
particular utility. They own multiple utilities in excess of 20 
percent. FERC requires asset managers to be passive, and these 
horizontal organizations are anything but passive. They are 
bluntly and very self-aggrandizingly clear about what their 
intent is, and that we believe also violates FERC's 
prohibitions on asset managers being not passive and trying to 
operate the utilities.
    So those are the areas, again, that I would like for the 
Committee to be able to take up. Again, appreciate your time. 
Congratulations to you. I have six kids of my own, and this is 
the best news I heard all day.
    Mrs. Luna. Thank you, Chairman. I yield my time.
    Chairman Comer. The gentlelady yields back. The Chair 
recognizes Ms. Lee from Pennsylvania for five minutes.
    Ms. Lee. Thank you, Mr. Chairman. Every day, it seems like 
there is a new acronym that my Republican colleagues are afraid 
of or fear mongering and driving up some fear around. I am 
having a really difficult time keeping up with them, so I think 
like some of my colleagues before me, I hope that we can use 
this time to kind of get to the heart of what this is about. 
Mr. Frerichs, I was wondering if you can help me with a quick 
hypothetical, and, of course, please forgive me if any of this 
is a bit repetitive, but we are all just trying to figure out 
how to deliver this information best to our districts.
    So, let us say I am a first-time investor looking to start 
my retirement fund, and we are discussing how to invest the 
money I have earned, or I have saved. Excuse me. Yes or no, 
would you consider the average earnings over the past few years 
of a company and the growth of the overall industry?
    Mr. Frerichs. Yes, most certainly.
    Ms. Lee. Would you look at it if the board had been 
recently accused of fraud or mismanagement?
    Mr. Frerichs. That would be a risk.
    Ms. Lee. Would you consider how compliant a company is with 
EPA regulations?
    Mr. Frerichs. Oh, certainly. You might be able save money 
by dumping chemicals illegally, but it will cost. You can 
either pay now or you can pay later.
    Ms. Lee. Thank you. Adding to that, why would you look at 
all of those factors when advising me on how to invest my 
money?
    Mr. Frerichs. Because all of them will have an impact on 
the returns you make.
    Ms. Lee. Thank you. Having as many data points, it sounds 
like, as possible minimizes risk and maximizes value, making 
our retirement accounts stronger. The pandemic, rising 
inflation, and stagnant wages have hit Americans hard over the 
past few years. Across the board, people are saving less for 
the future, so every single dollar counts. This Republican 
crusade against responsible investing is putting Americans' 
hard-earned savings at risk, and we cannot sit by and let that 
happen. Mr. Frerichs, how will banning responsible investing 
lead to worse returns for Americans relying on public pensions 
for retirement?
    Mr. Frerichs. Let me try to make an analogy here. We talked 
earlier about buying cars. You know, there are many factors you 
use in buying a car. You have got to look at the car, you got 
to sit in the car, feel the car, smell the car, see if you like 
it. You also might consider price. We also say that they should 
publish miles per gallon. Now, this is like saying, no, no, no, 
that is an environmental impact. You should not be able to know 
the information on MPGs in your car. Miles per gallon will 
directly affect your cost down the road. You ought to have 
access to that. These factors that we talked about are similar 
to that, and these efforts to deny us information on 
environmental and social and corporate governance issues are 
making it more difficult for us to be good consumers.
    Ms. Lee. Thank you for that. Republicans would rather force 
our public servants to throw away hard-earned money and extra 
fees than simply allow financial professionals to invest 
responsibly. They are willing to risk the retirement savings of 
our teachers, our firefighters, our municipal workers, our 
public servants, all to protect wealthy corporate interests. 
Limiting responsible investing is not even a popular concept in 
Republican-controlled state legislatures. As my colleague from 
Florida before me mentioned, the Indiana bill as one such 
option. Mr. Frerichs, who will be stuck paying the price if 
Republicans are successful in restricting and banning 
responsible investing?
    Mr. Frerichs. It is ultimately on the pensioners, on the 
beneficiaries of these retirement funds. If they are getting 
reduced benefits, reduced interest returns, or they are paying 
more additional costs, like they are in Texas or like your 
colleague from Florida pointed out, ultimately it falls on the 
taxpayers.
    Ms. Lee. Thank you. Typically, responding to these extreme 
conspiracy theories is not worth turning our attention away 
from so many of the important issues facing our country, but 
propping up their corporate buddies' interest at the expense of 
Americans' retirement is despicable, and we just cannot let 
that happen. Thank you, Mr. Frerichs and the panel. Mr. 
Chairman, I yield back.
    Chairman Comer. The Chair recognizes Mrs. McClain from 
Michigan for five minutes.
    Mrs. McClain. Thank you, Mr. Chairman, and thank you all 
for being here today. I appreciate it. In my opinion, simply 
put, ESG is politization of investing in and continues to be 
weaponized by the radical left.
    I pulled the definition. ``The primary responsibility of 
fiduciaries is to run the plan solely in the interest of 
participants and beneficiaries for the exclusive purpose of 
providing benefits and paying plan expenses. Fiduciaries must 
act prudently and must diversify the plan's investments in 
order to minimize the risk of large losses.'' Am I correct in 
that?
    [A chorus of ayes.]
    Mrs. McClain. That is the definition, right? So, I just 
want to make sure we are all on the same page. Mr. Reyes and 
Mr. Marshall, are asset managers required to tell their clients 
when they enter into these ESG-related pledges?
    Mr. Marshall. I think General Reyes has answered 
specifically. The answer is no----
    Mrs. McClain. No.
    Mr. Marshall [continuing]. That there is not a direct 
disclosure requirement.
    Mrs. McClain. Right. So, I want to make sure that everyone 
understands. I am an investor. I am going to invest in ABC 
fund, right? But you have made an agreement or a pledge with an 
ESG investment, right. That is based on your belief of what is 
ESG compliant or whatnot, and you do not have to tell me that 
you have entered into that pledge. Am I correct in that?
    Mr. Marshall. Yes.
    Mrs. McClain. OK. Could you imagine if we did that, like, 
with pro-life or something? I think my colleagues on the other 
side would actually go crazy. So, a follow-up to that, if you 
are telling me that money managers can invest clients' money 
into ESG-approved companies without the knowledge of investors, 
yes, we can do that, right? So, I heard the left talk about 
transparency. Is that a definition of transparent, not being 
transparent with the investors on the pledges that you have 
made behind their backs?
    Mr. Marshall. Yes, I think one of the major issues for 
Attorneys General is for our consumers, to make sure they are 
fully informed on business transactions in which they engage.
    Mrs. McClain. I mean, I am all for people to have choice in 
where their money goes and what they look at, right? But if we 
are going to be honest and we are going to be transparent, 
wouldn't it make sense? What is the harm in saying, hey, I 
entered into a pledge that requires me to do some ESG stuff? 
What is the harm in that? What are we trying to hide? I do not 
understand that. Why the lack of transparency?
    Mr. Frerichs. I will say from Illinois' perspective, that 
is not a problem. We publish all of our corporate engagements 
online----
    Mrs. McClain. So, everyone does that or just Illinois?
    Mr. Frerichs. We do that in our office. That is the only 
office I can control.
    Mrs. McClain. OK, because I do not think, by the answer to 
my first question, our asset managers, and perhaps I will 
repeat it, are asset managers required to tell their clients 
when they enter into ESG-related pledges. I believe the answer, 
and we can check the record, was no. So, to me, that is lack of 
transparency. Maybe I have a different definition of 
``transparency,'' but go ahead, Mr. Reyes.
    Mr. Reyes. Congresswomen, since you brought it up and maybe 
it was a hypothetical that you were just throwing out, but if 
truly there were a pro-life agenda and information in there 
were indexes to establish what companies were doing to foster 
pro-life or pro-Second Amendment, whatever----
    Mrs. McClain. Pick one.
    Mr. Reyes. Pro-life. Under the same arguments and logic, 
having a larger work force would certainly help the economy and 
in 18 years, you know, when you have a person of majority being 
able to enter the work force, but certainly even sooner, than 
2050 goals ostensibly, and even more impactful criteria, would 
then my colleagues be equally open to considering all of that 
information? I do not know, but it is a good hypothetical.
    Mrs. McClain. I do not know either, but I have an opinion 
on where I think they might stand. But at any rate, in my 
opinion, ESG investments distribute money based on political 
agendas. That is not their job. It is not up to them to have a 
political agenda. Rather, their earnings are best returned for 
savers. I mean, at the end of the day, rate of return needs to 
matter because then we are going to go back when all of these 
investments fail, and we are going to look at the investment 
companies and say, well, you did not return your investment. We 
have to be transparent with the American people, and if we 
cannot be transparent with our ideological views, then what are 
we hiding? And that is the purpose in this. Let us just be 
transparent, and let us be transparent with a concept through 
all of our investing. And with that, I am over, so thank you.
    Chairman Comer. The Chair recognizes Ms. Crockett from 
Texas for five minutes.
    Ms. Crockett. Thank you, Mr. Chair, and before I begin, let 
me first just say thank you so much. I sit on the Ag Committee, 
so you were like feeding my soul as you were talking about the 
struggles of our farmers because I have been listening to my 
farmers talk about the droughts. And I am from the state of 
Texas where we are enduring droughts, floods, as well as 
freezes, so we have everything as a result of the thing that 
really does exist called climate change. So, thank you for 
that.
    I am tired of my colleagues on the right using these 
hearings as a tool for their 2024 campaign. Pretty soon, this 
Committee's Majority will need to file with the FEC an in-kind 
contribution. Instead of talking about how Speaker McCarthy's 
manufactured crisis on the debt ceiling has led to declines in 
the stock market, instead of talking about how investors are 
scared about whether U.S. will pay its bills, today we are 
talking about their fear of what my colleagues call radical 
woke-ism.
    ESG is not--I repeat--ESG is not radical or woke, and being 
from Texas I can tell you where radical looks like because, 
clearly, we have had some tragedies just this past week because 
of radical rhetoric, if we are going to talk about what radical 
looks like. ESG, like any financial information, is just good 
business. It is another tool in the toolbox to consider 
advantageous investments and business decisions. Asset managers 
have a legal fiduciary duty to maximize profits, but it is 
ignorant to say that to maximize profits you have to do it at 
the expense of ESG. That is just false.
    ESG impacts our investment strategies that incorporate 
long-term risks to make long-term down payments as well as 
returns on future breakthroughs. They allow financial 
professions to manage and promote risk reduction for client 
investments to maximize returns. I am surprised our Chairman is 
opposed to this because just last week, he praised the GAO's 
High-Risk List as a valuable tool for, ``Congress can make more 
informed decisions.''
    It is only responsible then that asset managers present all 
information posing financial risk to clients to allow them to 
make more informed decisions, especially Americans wanting to 
responsibly manage their retirement savings. The asset managers 
offer ESG information because large companies use ESG in their 
business decisions and investments. Why? Because there are real 
financial and monetary returns when ESG impacts are 
incorporated.
    Attorney General Marshall, yes or no, ESG risks have 
monetary value that impact financial benefits and corporate 
opportunities?
    Mr. Marshall. I disagree with all of ESG criteria.
    Ms. Crockett. Actually, if you look at Royal Dutch Shell's 
annual reports dating back to 2005, it stated, ``Shell assesses 
the underlying economic, political, social, and environmental 
drivers shaping the markets and margins to evaluate commercial 
opportunities and potential new business models.'' It has done 
so in almost every report, if we look back at examples from 
2010 and 2022. Even Fox News, who my colleagues love, a 
publicly traded company, in its 2022 annual financial report 
noted that environmental, including climate, social, and 
governance matters, have costs that pose material adverse 
effects on its business, financial conditions, and operations.
    By Republican standards then, Fox and Shell are advancing 
radical woke propaganda. I do not see efforts to cancel them or 
call them out. As Attorney General Marshall said in his written 
testimony, ``Global elites are using ESG, a woke economic 
strategy to hijack our capitalist system,'' but I digress. 
Attorney General Marshall, will you file lawsuits against Fox 
for breaching its fiduciary duties, or is it just the 
investment advisors publicly providing information on ESG that 
you want to target?
    Mr. Marshall. Fox does not have a fiduciary duty to the 
citizens of my state.
    Ms. Crockett. Just to be clear, ESG is not woke or radical. 
It is just good business. Do not take my word for it. A New 
York University economic study examined over a thousand reports 
reviewing the relationship between ESG and financial 
performance. It overwhelmingly found a positive relation 
between ESG and financial performance for returns on assets, 
returns on equity or stock prices. Why are we wasting valuable 
time examining ideas that are not in the public interest and 
which the public has no interest in?
    I have 30 seconds left, and with that, I would like to 
yield to the honorable Treasurer to just offer any thoughts, 
any additional thoughts that you may have?
    Mr. Frerichs. Yes. I will just say I heard talk about how 
these ESG data, there is not agreement, that it is difficult, 
it is all over the board. It is because we are looking at 
different industry, and there are different risks in different 
industries. Product safety is a big risk in consumer products.
    Ms. Crockett. Yes.
    Mr. Frerichs. In business services, it is not as big of a 
risk. Climate change is a big issue for property insurance but 
not so large and supplemental insurance.
    Ms. Crockett. Absolutely.
    Mr. Frerichs. I will repeat that investing is hard. You 
have to consider different industries. You have to consider a 
lot of different factors. A lot of people would like to just 
outsource that. Maybe they do not like their choices, but we 
take this very seriously, and when you pass legislation to deny 
us that data, it makes our job that much more difficult.
    Ms. Crockett. Thank you so much.
    Mr. Frerichs. Thank you.
    Ms. Crockett. With that, I yield.
    Chairman Comer. The Chair recognizes Mr. Langworthy for 
five minutes, from New York.
    Mr. Langworthy. Thank you very much, Mr. Chairman, and 
thank you to our witnesses for joining us here today.
    Asset managers wield tremendous power and responsibility 
over trillions of dollars of in assets, and it is important 
that they make investment decisions based solely on financial 
performance and risk management rather than being swayed by 
political and social activism. Now, while some view ESG 
policies and initiatives, like Climate Action 100+, is a noble 
cause, it is important to remember that the companies targeted 
by these initiatives are also vital to the American economy and 
provide jobs and livelihoods to millions of our citizens. If 
these initiatives are successful in imposing additional 
regulations and restrictions, it could lead to significant job 
losses and increased financial hardship for many Americans, 
which leads me to my first question.
    Attorney General Marshall, Climate Action 100+ has 
identified companies targeted by asset managers, such as 
Lockheed Martin and Procter & Gamble, which produce military 
equipment and pharmaceuticals. If there were to be significant 
change in the allocation of capital toward these companies, how 
might it affect national security and public health in the 
United States?
    Mr. Marshall. Well, I think it absolutely could impact it 
based upon the ability of those companies to fulfill their 
mission. Congressman, one thing that has been talked about here 
is the market, and what has been ignored by your colleagues on 
the left is the fact that the market is not driving individuals 
to boycott certain segments of industry. They are not asking 
people to not be financed because of the particular jobs that 
they do. That is driven by outside agencies, not the market 
itself. We need to let the market prevail, and if we do so, we 
have the opportunity to provide goods and services not only to 
the people of this country, but also to be able to maximize the 
value to investors.
    Mr. Langworthy. Thank you. The list also comprises energy 
producers and utility companies that rely on fossil fuels. If a 
shareholder proposal were to mandate a company like Xcel 
Energy, which provides natural gas and electricity to millions 
of Americans, to entirely abandon fossil fuels, how might that 
impact the customers and the employees of that company?
    Mr. Marshall. Well, look at California, No. 1, by the way, 
about whether or not we are going to have rolling blackouts, 
whether or not we have reliable energy, and whether or not we 
have affordable power that the citizens of my state can be able 
to pay. When we have this radical transformation of energy 
policy not dictated by the body in which you sit, but instead 
by global elites, then there is not the opportunity to debate 
what are the consequences of those decisions. We are already 
beginning to see that, but yet, what may occur in the near 
future, we still do not know.
    Mr. Langworthy. These companies, whether or not ESG 
advocates agree, are essential to the American economy. They 
provide employment to hundreds of thousands of people as well 
as essential services to millions. The International Energy 
Agency concedes the technology to achieve a net zero by 2050 
does not yet exist. Does an investment strategy ground in the 
basis of that target increase risk to investors?
    Mr. Marshall. I think absolutely, and particularly risk as 
it relates to how it is that we are going to be able to provide 
cheap energy, which has been the driver of this company across 
the board to all Americans and all states.
    Mr. Langworthy. America is already in an energy price 
crisis, but if these major energy producers, they lose their 
financial backing or they are forced to abandon fossil fuels--
either of the Attorney Generals can answer this--would you 
expect energy prices to rise if they lose a significant 
financial backing?
    Mr. Marshall. Absolutely. I mean, first of all, the 
technology is not to where renewables are going to supply what 
already is being supplied by those plants that are fueled by 
natural gas or coal. And if, in fact, we are unable to acquire 
the resources we need for the power to be generated, which we 
saw recently, that cause the increased price for consumers, 
then America needs to be ready. We need to be ready to pay 
higher prices and also have unreliable energy, which we have 
been able to depend on for at least my lifetime, Congressman, 
and for others as well.
    Mr. Reyes. And on that point, again, Congressman, I will 
reiterate what the FERC commissioners just gave us a dire 
warning about the stability of the grid and the security of the 
grid, given current circumstances.
    Mr. Langworthy. And just in my closing seconds, Attorney 
General Reyes, I know that many of the companies who do conform 
to ESG initiatives, they are relying on rare earth minerals, 
specifically resources that just are not readily available in 
the United States. There is an overemphasis on companies that 
rely on these resources, which primarily come from China. Does 
that compromise American national security, in your opinion?
    Mr. Reyes. It absolutely compromises our national security, 
and, in addition, something we haven't mentioned earlier, there 
are other issues about our Southern border security that ESG 
also compromises. Thank you, Congressman.
    Mr. Langworthy. Thank you very much, and I yield back, Mr. 
Chairman.
    Chairman Comer. The Chair recognizes Mr. Moskowitz from 
Florida for five minutes.
    Mr. Moskowitz. Thank you, Mr. Chairman, and I want to thank 
the witnesses for being here today and attending what could be 
called the Oversight Committee hearing on the death of the free 
market. I mean, boy, how things have changed in the Grand Old 
Party. I mean, it used to be about free markets, and it used to 
be about corporate freedom, and it used to be small government, 
and it used to be, you know, government out of businesses, 
government out of the bedroom. Boy, has that pendulum really 
swung here.
    I mean, we want government everywhere. I mean, this is like 
corporate socialism where we now want the government to tell 
people that they have to invest in certain companies. Like 
individuals cannot make the decision? I mean, it is a wild sort 
of turn of events for the Grand Old Party. I mean, if Ronald 
Reagan was here and he was listening to people talk about, you 
know, that we need government to make sure that people have to 
invest in companies that, you know, make guns, you know he 
would not even recognize you guys.
    But some of the witnesses, you know, when they were talking 
about ESG, they talked about it as if it was a deadly weapon 
that is going to destroy our country. You know, it is not. You 
know, it is not a widely supported investment strategy used to 
minimize and maximize returns, one that is shown to offer, you 
know, greater long-term resilience, lower risks due to 
factoring in all potential costs to society, but I want to 
focus on this deadly weapon part.
    You know, I am from Parkland where the shooting was at my 
high school, Marjorie Stoneman Douglas, so if you want clear 
clarity on what a deadly weapon is, I can assure you it is not 
ESG. It is a kid with an AR-15 and unlimited ammunition walking 
into my school and killing 17 people. So, let us have a real 
sort of grip of reality of what investment strategy is or is 
not versus what a deadly weapon is. You know, after the Marjory 
Stoneman Douglas school shooting, you know, Walmart and Dick's 
Sporting Goods announced that they would stop selling assault 
rifles, and, you know, I applauded them for doing that. And if 
I want to invest in a company because they have decided to make 
a policy change, I should have that ability to do so or not do 
so, by the way.
    I am pretty sure I just saw, you know, some of my 
colleagues, you know, going out and you know shooting Bud Light 
cans because, you know, they did not like what Bud Light was 
doing. Should we have government mandate that they got to go 
invest in Bud Light because we want to support Bud Light? I 
mean, that is what you guys are advocating. I mean, it is 
really kind of crazy.
    And so, you know, I do not know what we are doing here, Mr. 
Chairman. You know, this is part one. There is going to be a 
part two. I mean, part one was just so fascinating, I cannot 
wait for part two. But, you know, this Committee has not taken 
any action on gun violence. We want to talk about a deadly 
weapon. This committee has not looked at all into AR-15s or 
deadly weapons or school shootings or mass shootings. I mean, 
do you think parents in this country care about ESG? No, they 
care about dropping their kid off at a movie theater or at a 
mall, you know, or at school. They do not care about ESG. You 
know, this is stuff that, like, 10 percent of Twitter cares 
about, OK?
    And I just want to know when we are going to get serious 
here. And so, Mr. Chairman, I ask when is this Committee going 
to have a hearing on gun violence?
    Chairman Comer. You were not here last year, but all the 
hearings pertained to the Washington Commanders football team. 
They pertained to the Equal Rights Amendment. They pertained to 
abortion. They did not have a single hearing with a single 
Biden Administration official. They did not have a single 
hearing on anything relating to how tax dollars were being 
wasted by this Administration. So maybe you should take the 
lead and campaigning for your side of the aisle, and then if 
you all win the majority, then you can have hearings on the 
Washington Commanders football team again.
    Mr. Moskowitz. Reclaiming my time, Mr. Chairman, you know, 
that is fine. I was not here, but, you know, you are in charge 
now, and mass shootings are completely out of control. And so, 
you have the power to make the decision decide whether we 
should have hearings on D.C. public urination or on mass 
shootings. You are the Chairman. I am just a lowly Democratic 
freshman, and so I implore that this Committee start to look at 
mass shootings and the real weapons that are destroying 
people's lives, which are AR-15s. Thank you Mr. Chairman.
    Chairman Comer. The Chair recognizes myself for five 
minutes. General Reyes, in the letter that you led with your 
Attorney General colleagues, you said, ``The 2023 proxy season 
will present multiple occasions on which asset managers will 
have to choose between their legal duties to focus on financial 
return and the policy goals of ESG activists.'' Can you provide 
some examples that illustrate these occasions?
    Mr. Reyes. Sure. Let me give you one very concrete example. 
I alluded to it earlier, Mr. Chair, but that resolution 
pertaining to Travelers Insurance----
    Chairman Comer. Mm-hmm.
    Mr. Reyes [continuing]. Is back up again for this season of 
proxy proposals and for shareholder resolutions and voting, and 
I did not get a chance to perhaps articulate clearly enough the 
problematic nature of that situation. So, you have a very 
activist faction of ownership, backed by one of the two largest 
proxy voting agencies, pushing a particular agenda that they 
have agreed upon to conduct racial audits, which may be 
appropriate or may not be appropriate for other companies or 
other industries but certainly are not appropriate for the 
insurance industry.
    The directors of Travelers have brought this to the 
Securities and Exchange Commission pleading for relief to 
exclude, which the SEC has the power to do, that type of proxy 
proposal--excuse me--that type of shareholder proposal from 
being even considered, but the SEC has sat on its hands and not 
done anything to exclude that, so it is back up again. This 
would require Travelers to then ask for information based on a 
person's race.
    Chairman Comer. Mm-hmm.
    Mr. Reyes. They would solicit information for underwriting 
purposes and for identification, which clearly violate numerous 
different states' laws.
    Chairman Comer. And I think that is a very good point that 
I do not think my friends on the Democrat side of the aisle 
understand. When they talk about ESG, they are just talking 
about what mutual funds, pension managers can invest in, or 
treasurers can invest in their pension funds. And Kentucky has 
the second worst funded pension in America, but we will always 
say thank God for Illinois because it was the one state worse 
than Kentucky's. But what I do not think the Democrats 
understand is this affects banking and insurance. It is not 
just investing, and we have got a problem in our banking 
industry right now, and, you know, we are not going to get into 
that, but this ESG is a political movement that is gaining 
ground. It is gaining ground on Wall Street, and it is 
affecting consumers not just investors.
    But you have previously described how the insurers face the 
dilemmas by pursuing ESG goals. Do you think these insurers are 
facing these ESG-related proposals that push for unlawful 
altercations of underwriting activities?
    Mr. Reyes. Well, clearly, it is the same resolution that 
was proposed the previous year. They are just hoping that they 
can win over another 3 or 4 percent and carry the day, which--
--
    Chairman Comer. So what risk are the insurers exposed to 
with the adoption of ESG factors in underwriting?
    Mr. Reyes. They would be potentially liable----
    Chairman Comer. Liability, exactly.
    Mr. Reyes [continuing]. In dozens of states----
    Chairman Comer. Money.
    Mr. Reyes [continuing]. For breaking the law, or excuse me, 
Mr. Chair, you alluded to banking. Although we have not seen 
yet concerted efforts to de-bank solely based on ESG criteria, 
that is not out of the realm of possibility.
    Chairman Comer. It is not, and if we look at the website 
for the San Francisco Fed, it was all about ESG policy, and 
some of the banks, Silicon Valley sticks out in my mind.
    Mr. Reyes. Well, we just sent a letter to JPMorgan Chase 
with concerns over de-banking regarding religious liberties.
    Chairman Comer. Right.
    Mr. Reyes. And it is only one step removed----
    Chairman Comer. Exactly.
    Mr. Reyes [continuing]. To then migrate over. If they start 
to see more and more insurance companies and asset managers 
withdraw from some of these large horizontal agreements, then 
you may see more pressure on banks to start de-banking.
    Chairman Comer. Exactly. And I think that is of the utmost 
importance. Mr. Moskowitz, I do not think, understands the 
issue. He is thinking in terms of Wall Street, but this has a 
potentially detrimental effect on our ability to bank and 
insure. This significantly increases liability costs for many 
industries, which will be passed along to consumers. I do not 
think my friends on the other side of the aisle have fully 
comprehended what inflation is and what causes inflation. But 
you know, my time has expired here, but, you know, I am just 
amazed at the defense of ESG policies and the defense of, you 
know, why we have to have this type of radical political 
ideology ingrained in our investing when we just had a press 
conference and showed bank records that showed the Biden family 
getting millions of dollars from places like China and Romania, 
and I wonder what type of ESG policies China and Romania have. 
You all probably cannot answer that, but maybe that is 
something my friends on the other side of the aisle could look 
into.
    The Chair now recognizes Mr. Burlison for five minutes.
    Mr. Marshall. Mr. Chairman?
    Chairman Comer. Yes?
    Mr. Marshall. Mr. Chairman?
    Chairman Comer. Yes.
    Mr. Marshall. I am sorry. Down here. This is General 
Marshall.
    Chairman Comer. Oh yes. Yes. I am sorry. I thought it was a 
Member. Yes, General Marshall.
    Mr. Marshall. May I briefly be excused?
    Chairman Comer. Yes.
    Mr. Marshall. OK. Thank you.
    Chairman Comer. I am sorry. I am sorry, Mr. Burlison. It is 
Ms. Holmes Norton next for five minutes.
    Ms. Norton. Thank you, Mr. Chairman. When Chairman Comer 
announced this hearing, he stated that he shared the concerns 
of the Republican Attorneys General testifying today that ESG 
principles are being used by progressives to shape corporate 
behavior. This is a question for Mr. Frerichs. I disagree. 
Instead of a mixture of political theater and disinformation, 
Republicans are pandering to anti-ESG stalwarts, including Big 
Oil proponents, by attempting to influence the criteria of 
financial professionals.
    ESG has wide-reaching support from climate activists to 
investment industry to investors, all for different yet 
legitimate reasons. Climate advocates support ESG principles 
because they may accelerate the transition to a low carbon 
economy and could help slow the climate crisis. The investment 
industry supports ESG because integrating responsible 
investment factors into the investment process can lead to 
prudent risk management and potentially better retirement 
outcomes for millions of Americans. Investors support ESG 
because, as consumers, they demand to invest their hard-earned 
money in companies that reflect their values and promote 
governance. Mr. Frerichs, as the Illinois State Treasurer, you 
are the main investor and asset manager for public funding in 
your state. Do you support using ESG principles as part of 
responsible investing for the state of Illinois?
    Mr. Frerichs. Well, certainly we do. It is fundamental to 
our risk analysis, which is our main responsibility for our 
pensioners, for our college savers to make sure that they do 
not suffer some of the risks that we have seen with collapses 
of companies, like Enron, like Purdue Pharma.
    Ms. Norton. Would you say there is widespread support for 
ESG in Illinois across political spectrums?
    Mr. Frerichs. I would say within the investment community, 
there has been increasing support. A significant percentage of 
investors, public asset managers out there consider this ESG 
data in their investments. The only thing radical going on 
right now, the only major change going on is this pushback. I 
hear a lot of concern for banks being bullied or muscled or 
told what to do, but I only know of one piece of legislation in 
the state of Texas that told banks where they have to invest. 
If you had asked me 30 years ago what I thought the odds of me 
defending the free market against a Republican legislature 
trying to have a planned economy mandating what businesses have 
to invest in, I would have laughed, but that is where we are 
today.
    Ms. Norton. Well, Mr. Frerichs, support up for ESG is 
derived not only from investors wanting to ensure their money 
is going to worthy companies but also the financial benefits of 
responsible investing. According to research, returns from 
responsible investment taking into account ESG factors offers 
greater long-term resilience and lower risk due to factoring in 
all potential costs to society, such as climate change and 
pollution. For example, companies that are less reliant on 
fossil fuels are more likely to be considered good long-term 
investments than companies that remain heavily dependent on 
them. Similarly, corporations that are more diverse and more 
reflective of the U.S. population are better suited to meet the 
needs of consumer demands of an increasingly diverse 
marketplace. Mr. Frerichs, can you explain why these types of 
considerations are so important to investors?
    Mr. Frerichs. Well, I could ask a question. Do you know 
which companies out there were happy that they made efforts 
over the last several years to carbonize? European countries 
affected by Vladimir Putin's war against Ukraine and with a 
rising spike in energy costs are happy they made those 
decisions. They limited risk from things like that aggression, 
but they also benefit from this climate transition. This is not 
all about costs. There are opportunities that come with climate 
change, and businesses that are positioning themselves to be at 
the forefront there are businesses that are going to be 
profitable in the future. Those are the businesses we want to 
be investing in.
    Ms. Norton. ESC is widely supported across the country and 
the political spectrum. Countless investors and asset managers 
have pivoted to focus on responsible investing because of the 
benefits it provides for the world and Americans' wallets. I 
yield back.
    Chairman Comer. The Chair recognizes Mr. Timmons from South 
Carolina for five minutes.
    Mr. Frerichs. And for Congressman Timmons, I am not running 
away, but I could also use a slight break. I will be back 
shortly.
    Mr. Timmons. Can you go in five minutes, please?
    Mr. Frerichs. Sure.
    Mr. Timmons. Sorry. I am literally only asking you 
questions.
    Mr. Frerichs. Great. OK.
    Mr. Timmons. Sorry. I appreciate that. We will let you 
leave right after this. So, I guess let us just talk about the 
goals of ESG. The ESG movement is designed to protect the 
environment. We all want that. It is to facilitate a cleaner 
environment for generations to come, social. We want every 
business and their teams to facilitate a working environment 
that everyone is accepted, is paid a reasonable wage 
appropriate with their skill set, and as governance. I am in 
the military, I am in the Air Force, and we have talk about 
this a lot. We want every decision-making room to reflect the 
people that they serve, whatever those percentages are, so 
those are the goals.
    And so, you referenced two things that I just totally 
disagree with have anything to with the ESG: litigation risk 
for pharma and understaffing for whatever business you are 
referencing. Those are not ESG. That is a legitimate thing to 
take into account as it relates to the profitability of a 
business. If they are going to get sued and lose hundreds 
billions of dollars, that is going to affect their bottom line. 
Understaffing, it could result in a worse/good product, which 
could also subject it to major challenges in their 
profitability.
    So, and you also reference football being merit based, and 
I would argue that professional sports might be the single most 
merit-based because they want to win, but almost zero 
professional team reflects the makeup of the people that they 
serve, whether it is United States or whether it is local. So, 
I mean, I do not see that as being relevant.
    So, you also talked about the fact that this is important, 
everybody wants to do this, but I am OK with Illinois doing 
whatever you all want to do. But you currently have $140 
billion deficit with your pension, and when you go into 
austerity measures, you are going to come to Congress, and you 
are going to say we have a massive deficit. We are going to 
have to go into austerity measures. It is going to impact all 
these people. It is going to be so sad. But I would argue that 
the decisions you are making, specifically as it relates to 
enforcing your proxy voting rights, I mean, I guess this is the 
governance social component of it, but it is not merit based. 
It is not designed to make a return on that investment.
    And so, in a world where gender, where sexual orientation, 
where race have become fluid--I mean, these are things that 
change--how do you justify putting emphasis on that as it 
relates to your proxy voting rights? How do you not see that 
that is not merit based and that is going to result in a lower 
return, and it is going to cause more problems than you are 
having right now with your pension?
    Mr. Frerichs. I have explained this before, and I will 
explain because I think there is a misunderstanding of what ESG 
is. ESG is data, and you said all those goals that I have. 
Those are not my goals.
    Mr. Timmons. So, there is no data----
    Mr. Frerichs. My goals are to maximize returns for----
    Mr. Timmons. There is no data that shows that if you have a 
certain number of men and women or minorities on a board, that 
that board is going to produce better results. I would actually 
even argue that there is recent evidence that shows the 
opposite. SVB and Signature Bank, most of their emphasis was 
not on the nuts and bolts of banking. It was on diversity and 
inclusion. It was on ESG, and they failed. And you know what is 
the problem? My constituents, the people that I represent, have 
to pay for it because the systemic risk measures that were 
taken by Treasury and by the FDIC results in higher FDIC 
premiums for the banks that I serve.
    So again, I do not care what you do in Illinois, but do not 
come to me when you bankrupt your pension. Do not come to 
Congress when you bankrupt your pension and think we are going 
to bail you out like we bailed out SVB and Signature Bank.
    Mr. Frerichs. Not asking.
    Mr. Timmons. Well, you are not yet. You are not yet----
    Mr. Frerichs. Not asking.
    Mr. Timmons [continuing]. Because you are actually 
violating your fiduciary obligations to the pension by not 
focusing on a return on the investment. You are focusing on 
things like gender and race and sexual orientation, which that 
has nothing to with merit.
    Mr. Frerichs. Yes. I believe these recordings are 
videotaped, and you will find, if you listen to my comments, 
that those are, in fact, my requirements. My requirements, 
returning a fiduciary duty. Silicon Valley Bank did not fail 
because a focus on woke. It failed because they did not listen 
to their risk managers.
    Mr. Timmons. They did not have risk managers. I am sorry. 
They did not have risk managers because they had three 
diversity officers.
    Mr. Frerichs. That is why they failed.
    Mr. Timmons. But they had three diversity officers. Do you 
not see the emphasis on ESG on diversity as being a problem----
    Mr. Frerichs. You said there is----
    Mr. Timmons [continuing]. To pursuing profit, which is 
basically what happened there, and it is what you are doing.
    Mr. Frerichs. You mentioned diversity on boards. There are 
no quotas out there, but research has shown, multiple research 
undertaken shows that diverse boards outperform homogenous 
boards. We are not excluding anyone----
    Mr. Timmons. Well----
    Mr. Frerichs [continuing]. In saying that getting more 
different opinions from different backgrounds on the table 
produce better results.
    Mr. Timmons. In this case, having people that have 
experience in banking would result in SUV and Signature not 
failing. Instead, they were focused on diversity inclusion. 
They were focused on gender and race and on sexual orientation 
and pronouns, and that is why we need to stop this, and we need 
to focus on fiduciary obligations and getting return for 
investors. Thank you. I yield back.
    Mr. Frerichs. They focused too much on one specific risky 
industry. They did not have risk managers they were listening 
to. That was the cause----
    Mr. Raskin. Mr. Chairman----
    Mr. Frerichs [continuing]. Of their demise.
    Mr. Sessions. [Presiding.] Just a moment. Does the 
gentleman yield back his time?
    Mr. Timmons. Yes.
    Mr. Sessions. The gentleman yields back his time. Does the 
gentleman seek----
    Mr. Raskin. I seek unanimous consent just to introduce an 
article on this very point saying SVB's collapse was a failure 
of governance and describing it as a textbook case of corporate 
mismanagement, and it is from Axios. So, I would like to 
introduce----
    Mr. Sessions. Without objection----
    Mr. Raskin. Thank you.
    Mr. Sessions [continuing]. We will enter that into the 
record.
    Mr. Raskin. Thank you.
    Mr. Sessions. Does the gentleman seek further time?
    Mr. Raskin. No.
    Mr. Sessions. Thank you very----
    Mr. Raskin. Thank you much. Thank you.
    Mr. Sessions. The gentleman, Mr. Ro Khanna, is recognized 
for five minutes.
    Mr. Khanna. Thank you, Mr. Chair. Attorney General 
Marshall, I want to see if we can find----
    Mr. Sessions. Excuse me just a minute. Will the gentleman 
hold on just one a moment, please? Does the gentleman seek 
agreement that he could go use the outside services?
    Mr. Khanna. Go ahead.
    Mr. Sessions. OK. I am trying to make sure because I do not 
want to interrupt if that is the question. OK. Sir, the rooms 
might be outside and to the left.
    Voice. We got one back there.
    Mr. Sessions. OK. Got back there. OK. Excuse me. The 
gentleman now will be recognized for five minutes.
    Mr. Khanna. Thank you, Mr. Chair. Attorney General 
Marshall, I want to see if we can find some common ground. I 
assume you would agree with me that if BlackRock or a company 
wanted to prioritize investments for things that were made in 
America, that would OK.
    Mr. Marshall. The question is whether or not that is going 
to maximize the return for the investor and that fund.
    Mr. Khanna. I mean, I believe that it is fine for companies 
to prioritize goods made in America, made in Alabama, made in 
the United States regardless of profit maximization. You would 
disagree with that?
    Mr. Marshall. I would disagree with that. The role the 
fiduciary is to maximize the benefit for that individual for 
whom they represent.
    Mr. Khanna. OK. Well, I----
    Mr. Marshall. If I can finish, please, sir. It is a sole 
interest duty of loyalty that exists for that fiduciary, and, 
in fact, investing in a company that produces American goods is 
not profitable nor does it provide a return, then that 
individual would be acting contrary to their duty of loyalty to 
that particular investor.
    Mr. Khanna. Well, we just disagree with this. I think your 
view is more of a globalist view. I would be curious what 
President Trump thinks actually because my view is that 
American investment firms should prioritize investing in making 
things in America. I thought that was half of the former 
President's campaign, so we just have a philosophical 
disagreement on that. Let me ask a second question. I assume 
you would be fine if BlackRock says even though the vast 
majority of a profit maximization would mean investing in 
China, which by the way they have said that is the highest 
returns, we are going to choose not to invest there because of 
the human rights violations of the Uyghurs. Would you be for 
them maximizing their profits and investing in China or would 
you support them not investing in China because of human rights 
concerns?
    Mr. Marshall. Obviously, BlackRock has multiple investment 
vehicles for which people can choose. If, in fact, they have a 
global fund in which they are investing in China, then the 
investor has an opportunity to determine whether or not----
    Mr. Khanna. But would you say it is fair for BlackRock to 
make a decision that they should not invest in China, even if 
that is higher returns, because they have a problem with the 
human rights view and the Uyghurs?
    Mr. Marshall. I think the question is: what is the purpose 
of the fund, what is the defined investment----
    Mr. Khanna. The purpose----
    Mr. Marshall [continuing]. Goal that is there.
    Mr. Khanna. Yes, they are----
    Mr. Marshall. And then they can make a decision about 
whether or not it is an appropriate return for that particular 
investor.
    Mr. Khanna. So, if they made a decision and Larry Fink said 
we are not investing in China in regions with the Xinjiang 
where there are Uyghurs, would you be fine with that?
    Mr. Marshall. Tell me again this----
    Mr. Khanna. Uyghurs are basically oppressed in China, and 
if BlackRock said we are not going to invest there because we 
are concerned about the human rights violations, would you be 
fine with that?
    Mr. Marshall. BlackRock has an opportunity to define the 
fund, how it would be invested, and how it is that they choose 
for those who choose to invest it.
    Mr. Khanna. So, you would be fine. If they made a decision 
on human rights grounds, would you be fine with that?
    Mr. Marshall. It is a broader issue than that, Congressman, 
as far----
    Mr. Khanna. Well, no, I was just asking----
    Mr. Marshall. Sir, you are not letting me answer my 
question.
    [Cross talking.]
    Mr. Marshall. You may have an agenda that you want to ask 
for this question, but what I am answering for you----
    Mr. Khanna. I reclaim my time. Let me ask you this. 
Chairman Gallagher--I am on the China Committee--we have had 
Republicans lecture BlackRock saying that they should have the 
values not to be investing in China even if it is profit 
maximizing because of the human rights violations with the 
Uyghurs. Would support that view?
    Mr. Marshall. First of all, I do not know exactly the 
circumstances that you are talking about.
    Mr. Khanna. Well, that is shocking that you do not know of 
the Uyghurs and the human rights violations there.
    Mr. Marshall. I cannot tell you that I know anything about 
it, sir.
    Mr. Khanna. Well, I suggest maybe you should read up on it 
because it is a huge concern for America, but would you support 
that view? I mean, I am just trying to say where do you think 
values matter. Would you have supported the view that we should 
not be investing in Germany during World War II?
    Mr. Marshall. I think the issue for investment companies is 
whether or not they are complying with their fiduciary duty.
    Mr. Khanna. Attorney General Marshall, I guess here is my 
point. Do you think there is ever a point that values, values 
of standing up against the human rights views of China, values 
of standing up against Nazism, values of standing up against 
Stalinism, do you believe there is ever a time that value 
should trump profit maximization?
    Mr. Marshall. They have the right to choose not to invest 
in companies that they believe create certain risks. That is 
what the market provides.
    Mr. Khanna. Once you open that door, once you say that they 
have the right to, as you said, not invest in companies that 
have certain risks or I would say companies that offend certain 
fundamental human values, then the question is who gets to 
decide what those values are. And my view is it should not be 
the government deciding what those values are. It should not be 
you or I. It should be in the free market these companies. If 
you are saying it is fine that they should not be investing in 
China with human rights violations, then what is the difference 
between that and a company that says they do not want to invest 
in something because of climate?
    Mr. Marshall. I do not believe that a small cabal of 
financial institutions ought to decide what are preferred 
societal values or global energy policy.
    Mr. Khanna. But that is not the case. The case is you are 
not even letting the cabal, are not even letting them invest in 
America. And then you are telling them do not invest in China 
on the Uyghurs, and I hope you are, and then you are saying, 
though, that you are defining these values narrowly. Anyway, my 
time has expired.
    Mr. Sessions. The gentleman yields back his time. Thank you 
very much. I will yield myself five minutes.
    Gentlemen, thank you, all three of you, for being here. You 
have withstood questions and ideas from about 15 on each side. 
This has gotten to be a little bit larger conversation than 
perhaps you thought you might be engaged in, but it is pretty 
normal for us. And we try and tout the things we believe in, 
and we try and perhaps do not tout those things we do not agree 
in. But thank you to all three of you for being here and 
putting up with us.
    I am an old guy. I believe that the role of government is 
not to pick winners and losers. I believe it was to serve 
appropriately. People provide government services, to so in a 
fair and equitable way, to not overtax and not under-deliver. 
But I believe that government has a role, and it is not 
necessarily the activist governments that we have seen lately.
    If you go back about two hours ago, there was a discussion 
about prudent risk management, lowering risk, oh, look at the 
long-term, maybe 20 years of a return. Well, that is good if 
you can do that, but I would say to the gentlemen, the Attorney 
Generals, that I have looked at the trends as of late in each 
of the last probably five years, but three years I have gone 
back and looked. California, New York, and Illinois have all 
lost hundreds of thousands of people. A hundred and fifty-one 
billionaires have moved out of California. That is economic. 
People moving, notwithstanding 109 out of 111 counties or in 
Illinois have decided to leave the state.
    States have their own opportunity to do as they would 
choose, but activist governments, just like our Federal 
Government now, are lending them self to picking winners and 
losers, making decisions for people, and doing things of their 
own regard, even in midst of our Nation being probably a 50/50 
country. And I find that this argument that we are into today 
about the role of ESG as being very germane to whether is going 
to be successful or not. We are dividing our self in this 
country, and people arbitrarily are moving, notwithstanding, to 
my home state of Texas, but in that process, dividing us.
    Mr. Marshall, Mr. Reyes, please tell me, you come from two 
states that I do not think you try and divide each other. You 
do not try and pick winners and losers, but you do see where 
there are marketplace problems out there where people are doing 
that. Are you rejecting those ideas or are you simply trying to 
philosophically say let us let our state businesses decide 
where it goes, schools decide where they go, and try and be 
successful? Mr. Marshall?
    Mr. Marshall. It is clearly the latter. One of the things 
that we have attempted to advance here today is this is not an 
objection to the individual investor. This is a question about 
whether those with outsized influence, as a result of the 
assets in which they manage, have the ability to dictate public 
policy that ought to be decided by accountable legislative 
bodies, as well as companies' pension funds, being able to 
dictate societal values in places in which they are not 
present. That is the purpose of this hearing today, I believe, 
and it is the focus of what we have talked about.
    Mr. Sessions. Thank you. Mr. Reyes?
    Mr. Reyes. Definitely the latter, Mr. Chairman, and we are 
proud in Utah to be a fiscally conservative state that have 
seen in migration from many of those states that you have 
referenced because they value the cleanliness and the success 
and the business opportunities, the family friendly environment 
of our state, and then ironically, quickly try to change our 
values and our way of life, importing the very things they just 
fled from. ESG is a part of those policies and a process that 
thwarts the free market that caused them to leave where they 
came from and enjoy where they are living now in the great 
state of Utah.
    So, I appreciate on behalf of my citizens who are very 
concerned about this on many levels--this being ESG--not just 
data, not just data in a free market, in a vacuum that allows 
people to make decisions without coercion, but in an 
environment where every major pressure point is choking out 
decisions and the free will of everyday Americans and hurting 
them at their pocketbooks, hurting them in their long-term 
savings, hurting them at the gas pump. And these are the things 
that we hope that you will continue to hold hearings on with 
regard to this ESG movement. Thank you.
    Mr. Sessions. Thank you very much. I simply call it active 
government making decisions on behalf of free people, and I 
agree with you. I want to thank the gentleman from Illinois. I 
believe that his presence today says volumes about hot only 
what he believes in but, very clearly, my colleagues that are 
my dear friends also viewed you as an advocate to express their 
ideas, as an evaluator. And I want to thank you very much.
    I yield back my time, and we now would recognize the 
gentleman from Rhode Island for five minutes.
    Mr. Magaziner. Well, thank you, Chairman and Ranking 
Member. Thank you for letting me join you today. I asked to 
join the Oversight Committee today because of my background as 
a State Treasurer for eight years where I was a colleague of 
Treasurer Frerichs, and my experience as an investor in the 
private sector before that. And the message that I want to 
deliver, because people need to understand it, is that these 
attacks against ESG investing are based on a fallacy. They are 
based on the argument that somehow incorporating environmental 
and social and governance factors is a breach of fiduciary duty 
to clients or to beneficiaries. That is not true. The opposite 
is the case. As fiduciaries, we would not be doing our jobs if 
we did not consider environmental and social and governance 
risks when making investment decisions.
    And, in fact, investors and companies that have failed to 
incorporate ESG risks into their decision-making have lost a 
lot of money as a result. Do you want some examples? BP. After 
the Deepwater Horizon spill, BP stock dropped 55 percent, 
eliminating $88 billion of shareholder value because that 
company failed to adopt proactive safety protocols. Volkswagen. 
Their emissions scandal caused their stock to drop nearly 30 
percent, also costing investors billions of dollars. We have 
heard about Norfolk Southern and Purdue Pharma. The list goes 
on and on. Companies that do not manage their environmental 
risk, their labor risk, their consumer protection risks 
appropriately open up investors, including retail investors, 
pensioners, retirees to financial losses.
    So, investors would not be doing their jobs if they did not 
think about these issues when making investment decisions. And, 
in fact, because we have a free market in this country, 
investors are voting with their feet. We have heard about how 
big companies like BlackRock and others that integrate ESG 
factors in their decision-making process control trillions of 
dollars. Yes, because investors have chosen to take their 
business there because they want their asset managers to be 
incorporating all of these factors into their decision-making 
process. And the data has borne out. Over the last five years, 
according to Morningstar, two-thirds of funds that emphasized 
ESG in their investment process have ranked in the top half of 
performance relative to their peers. That is mutual funds.
    So, again, ESG investing, it is common sense, and it has 
been going on for years as well. Private investors have been 
doing this for decades. The Department of Labor has been 
allowing this for public funds for decades. The SEC has allowed 
proxy voting proposals on ESG issues for decades. What is new 
here is this trumped-up opposition, no doubt funded by and 
pushed by the oil and gas industry that is desperately trying 
to hang on because they know that the smart capital is moving 
toward a clean energy future. Again, if you want an example, if 
you had invested $100 in ExxonMobil stock five years ago, that 
hundred dollars would be worth $142 today. Pretty good. If you 
had invested that same hundred dollars in First Solar, a 
publicly traded company, it would be worth $267 today.
    So, the industries of the future are winning, and the 
industries of the past are now trying to rig the game by 
employing government interference to prevent investors from 
doing their jobs. And I would note this government interference 
is being run oftentimes by people who have no investment 
experience themselves at all. The two Republican witnesses who 
are here, who may be very credentialed in other ways, between 
the two of them have zero degrees in investments or economics 
or finance, are not CPAs, are not chartered financial----
    Mr. Reyes. I ran a tech venture fund, just so you know, 
Congressman.
    Mr. Magaziner. Yes, fair enough.
    Mr. Reyes. Yes. OK.
    Mr. Magaziner. But no degrees, no securities license----
    Mr. Reyes. But just to be clear on the record, I just 
wanted----
    Mr. Magaziner. Reclaiming my time. Reclaiming my time, all 
right? I have spent a career in this, as has Treasurer Frerichs 
and many others who were not given the opportunity to come here 
today. Our Republican witnesses have experience trying to 
overturn elections that were freely and fairly won but not 
incorporating smart ESG factors into investment decisions.
    So listen, we know what is going on here. This is a 
taxpayer-funded effort to run interference for the oil and gas 
industries, prevent investors from doing their jobs and 
exercising their judgment, and prevent investors from having 
the options for where to move their money. It is un-American. 
It is not in keeping with the free market or sound investment 
principles. And with that, I am out of time, and I yield back.
    Chairman Comer. [Presiding.] The Chair recognizes Mr. 
Burlison from Missouri for five minutes.
    Mr. Burlison. Thank you, Mr. Chairman. You know, I am an 
investment advisor representative. I do have a securities 
license, and I sat across the table from people when you manage 
someone's accounts and the burden is on you to make sure they 
make it all the way to end of life, and that their funds do not 
run dry. And I will tell you when you are facing someone and 
you are looking at them across the aisle, you realize that 
burden. It weighs on you, and when your clients' portfolios go 
down, you feel the pain. But you know what I would never do? I 
would never, and I would think it would be fiscally 
irresponsible, to apply my morality on my clients' funds, 
right? Mr. Marshall, would you not agree that people have 
different moralities, and if your investor is applying their 
brand of morality on your funds, would you be pleased with your 
performance?
    Mr. Marshall. I would not, but that is the goal of those 
that initiated ESG concepts to the United Nations, which said 
that they want to transform the world by creating a global 
energy economy as well as being able to set preferred societal 
values.
    Mr. Burlison. Yes. And, Mr. Reyes, the problem is that we 
have a situation where the tail, folks like Mr. Frerichs, is 
wagging the dog and using his position and voting position to 
be able to change the direction of companies, and these 
companies are where are our citizens and their retirements are 
invested.
    Mr. Reyes. That is that is correct. I would not want 
anybody's morality, whether it was progressive, conservative, 
or something in between, voting with my dollars. And when I and 
my team invested on behalf of others, it was the same. We would 
not interject our own political preferences or personal 
preferences.
    Mr. Burlison. Well, and the impact on states is 
unbelievable. We heard that Illinois is over, I saw reports, 
$110 billion in a pension deficit. It may be more, right? And 
so, the problem is that in order to make that up is that the 
state has to kick in more dollars in order to get that fund to 
be solvent. That is what happens in every state. When you 
become below a particular level of solvency for your pension, 
you start having to kick in more, and the impact on the 
taxpayers is devastating.
    So yes, we can talk about whatever moral decision that you 
want to make. You can make voting right decisions to direct 
people's money toward your brand of morality. But when you mess 
around with other people's money and they get hurt, who pays? 
Do you? No. You do not pay. They do, and that is what this is 
about. We are trying to make sure that people are not messing 
around with retirees' funds.
    So, let me ask this question. It was mentioned that we just 
want to have more information out there, so let me ask a 
question. Mr. Marshall, and you guys can go down the line and 
just say, in Missouri, our Treasurer issued a rule that said if 
your money manager is using ESG in their metrics, then your 
client should probably know about that, right? More information 
would be good information. Would you agree with that?
    Mr. Marshall. I do not disagree at all.
    Mr. Burlison. Mr. Reyes, do you agree with that?
    Mr. Reyes. Agreed.
    Mr. Burlison. Do you agree with that, Mr. Frerichs, more 
information is good information?
    Mr. Frerichs. Mike Frerichs, I agree with that.
    Mr. Burlison. Thanks.
    Mr. Frerichs. And I disclose all this on our website. We 
are public and transparent.
    Mr. Burlison. OK.
    Mr. Frerichs. I agree with you, but I would disagree with 
your statement that this about me pushing my values. This is 
about pushing value for companies. When we hold----
    Mr. Burlison. Right, and, Mr. Frerichs, businesses are not 
going to heaven or hell, are they? There is no----
    Mr. Frerichs. No, but businesses do declare bankruptcy, 
like Purdue Pharma.
    Mr. Burlison. Well, and that is math.
    Mr. Frerichs. That was a bad investment.
    Mr. Burlison. That is math. There is no morality to math. I 
reclaim my time.
    Mr. Frerichs. I completely agree with that statement.
    Mr. Burlison. But again, I reiterate that as an investment 
advisor, who actually had to deal with clients and actually 
worry and stress about whether or not, when they are making 
that decision, I am retiring, am I going to make it all the way 
through, and you are sweating that for them, you are stressing 
about that for them, it is not your money. But when you know 
them, you are looking at them in the eye, you know that you 
cannot mess around with their money and apply your morality. 
Thank you, Mr. Chairman. I yield back.
    Mr. Frerichs. I sweat the 850,000 families who are saving 
for college education to make sure they can graduate----
    Mr. Biggs. Point of order.
    Mr. Frerichs [continuing]. Without more debt.
    Mr. Biggs. There is no question before the gentleman.
    Chairman Comer. The Chair recognizes----
    Mr. Biggs. He yielded back.
    Chairman Comer. Oh, Mr. Biggs, yes.
    Mr. Biggs. Thank you, Mr. Chairman. So, I have been running 
back and forth from hearing to hearing today. Always 
interesting to hear people say things, just make them up, 
fantasy. We got to hear from one of our colleagues across the 
aisle a moment ago saying this hearing is a result of trying to 
protect oil and gas industry. You know, sometimes you get to 
fabricate, you get to promote a fantasy, and that is what we 
just heard, but that is too bad. That is too bad.
    It has been nearly a decade since this Committee under 
Chairman Issa exposed Operation Chokepoint, the Obama 
Administration's weaponization of regulatory power to starve 
lawful businesses of their access to capital and banking 
services. Unfortunately, the latest iteration of Chokepoint is 
being undertaken by unaccountable international organizations, 
large asset managers acting in breach of their fiduciary 
responsibilities, and is encouraged by the Biden 
Administration, which is pushing the advancement of ESG 
priorities beyond agency authorities and at the expense of 
their statutory missions.
    General Reyes and General Marshall, I understand that one 
of my Democratic colleagues has accused Committee Republicans 
of promoting corporate socialism today, another fabrication and 
fantasy. Given that ESG is being forced on the public by the 
Biden Administration and by activists, Mr. Reyes, Mr. Marshall, 
would either of you like to respond to the claim made by one of 
my colleagues?
    Mr. Marshall. I think we are advocating corporate 
independence, the ability to make decisions for your business 
based upon what is best in the return for shareholders as a 
result of the work that you are doing. One of the things that 
we clearly have seen is a concentration of wealth in a very few 
that has caused for them to be able to create policy changes 
within companies that are not generated by their board, not 
generated by shareholders who generally are involved, but 
instead by a small group who happens to hold significant 
amounts of shares in those companies.
    The other thing, Congressman, that we have heard today is 
what is truly a fiduciary duty. It is clear that this is a 
U.N.-generated project, ESG factors themselves. That is where 
it came from, and even the U.N. acknowledged in a recent report 
in 2021 that the definition of ``fiduciary duty'' needs to be 
changed in order to validly consider ESG factors. That is not a 
part of the financial return. It is clearly designed to create 
a very different political agenda and not one consistent with 
investor return.
    Mr. Biggs. Yes. So, I want to leverage this since we only 
have 2 1/2 minutes left because what you are talking about, the 
way I understand, is mixed-motive investing. So, there is a 
2020 Stanford Law Review article by Max Schanzenbach and Robert 
Sitkoff, entitled, ``Reconciling Fiduciary Duty, Social 
Conscience, the Law and Economics of ESG Investing by 
Trustees.'' Are either of you are familiar with that piece?
    Mr. Marshall. I am not.
    Mr. Reyes. I am not, sir.
    Mr. Biggs. OK. Well, the articles goes on to describe for 
trustees acting with mixed motives, he says, ``Acting with 
mixed motives triggers an irrebuttable presumption of 
wrongdoing under the sole interest rule.'' Does that sound 
accurate to you the way you understand the sole interest rule?
    Mr. Marshall. Yes.
    Mr. Reyes. That is accurate, Congressman.
    Mr. Biggs. So, Mr. Chairman, I would like to submit to the 
record several decisions, Fifth Third v. Dudenhoeffer, Central 
States v. Central Transport case, and several articles by 
Valmer. But I want to----
    Chairman Comer. Without objection, so ordered.
    Mr. Biggs. Thank you.
    Mr. Biggs. I want to go to this right here from that 
Stanford Law Review article, and then I am going to ask you to 
expand on this in our closing amount of time. ``Acting with 
mixed motives triggers an irrebuttable presumption of 
wrongdoing, full stop. Because the sole interest rule is 
prohibitory rather than regulatory to prove a breach of 
beneficiary need to prove a breach, a beneficiary need only 
prove the fact of a trustee's mixed motives. Under the sole 
interest rule, the trustee violates the duty of loyalty even in 
the absence of self-dealing. If the trustee has any motive or 
rationale for undertaking an action other than the sole 
interest or exclusive benefit of the beneficiary.'' How does 
ESG standards encroach upon the fiduciary duty described by the 
sole interest rule?
    Mr. Reyes. Before you came, Congressman, we read numerous 
quotes from these horizontal organizations that clearly state 
their ultimate purpose, and there is an end result for net zero 
compliance. That is the motivation for them beyond anything 
else, and that is why that is more akin to corporate socialism 
than anything that we espouse. Socialism takes away liberty. It 
takes away free will, and socialism does not ask what is in the 
best interest of the individual. It asks what is in the best 
interest of the state. We are absolutely championing the 
opposite, which is how do you maximize shareholder value for 
the individual.
    Mr. Biggs. Thank you, and I see that my time has expired, 
but I wish you, Mr. Reyes, if you would give your State 
Treasurer, Morley Oaks, my regards.
    Mr. Reyes. I will pass on to our great Treasurer----
    Mr. Biggs. Thank you.
    Mr. Reyes [continuing]. Your hello.
    Mr. Biggs. I yield back. Thanks.
    Chairman Comer. The gentleman yields back, and that 
concludes our questioning portion. I will now yield to the 
Ranking Member to deliver a closing statement.
    Mr. Raskin. Mr. Chairman, thank you very much, and I want 
to thank all of our witnesses for what was a truly enlightening 
and educational discussion which I would recommend to every 
U.S. citizen to come check out, and certainly business school 
students, economic students, law students, students of every 
type, because this has been a fascinating and important 
discussion. I do not know that it advanced the campaign against 
ESG. I think it reaffirmed the basic principles of the free 
market and to allow asset managers, like the distinguished 
treasurer of the state of Illinois, to do their jobs.
    [Chart]
    Mr. Raskin. Now, Mr. Chairman, I started by showing a graph 
demonstrating that money invested over the last decade in a 
large-cap ESG influenced fund did substantially better than 
investment in the Standard & Poor 500 Energy Index, and that 
came not from us, not from the Democratic staff of the House 
Oversight Committee. It came from Bloomberg News. And I would 
like to submit the article for the record just so we can 
clarify that, if that is OK.
    Chairman Comer. Without objection, so ordered.
    Mr. Raskin. Thank you, Mr. Chairman.
    Mr. Raskin. Now, that graph, which is quite dramatic 
showing that over a decade, your money would have been better 
put in an ESG-defined fund than just the general S&P 500 Energy 
Index, which I was not aware of, but that graph seems to 
support Mr. Frerichs' basic point today that ESG considerations 
are totally consistent with an asset manager's fiduciary duties 
to maximize shareholder value and, arguably, compelled by it. 
That is certainly the interpretation, I think, that Mr. 
Frerichs has offered today, that it would be in disregard of 
your fiduciary duties simply to try to close your eyes to 
environmental, social, and political concerns.
    For example, we talked about Norfolk Southern. If it had 
come to the attention of investors before the derailment, which 
obviously caused a tanking of value of the stock, that Norfolk 
Southern was making a lot of money but it was cutting corners 
on safety and it was laying off workers to save money, but 
making it more dangerous on the rails, that is something that 
should be taken into account. I have not heard a single 
argument from the other side that it should not be taken into 
account.
    You can say the exact same thing with Purdue. Mr. Frerichs 
testified--I was using it as a hypothetical--he said they 
actually came to Illinois. He faced the question whether or not 
to invest in Purdue, and Purdue was coming back with staggering 
profits, but he looked behind the curtain, and he did not like 
what he saw in terms of Purdue getting people hooked on 
Oxycontin, Oxycodone, and he said that is not a good long-term 
investment for the teachers and firefighters and cops of 
Illinois, and so he avoided it. He was doing his fiduciary 
duty. That is what it means to do your fiduciary duty. It would 
be at least arguably a violation of it to disregard all of 
those kinds of concerns.
    I mean, the Massey Coal Company in West Virginia was making 
tons of money up until the Upper Big Branch Mine disaster, 
which killed 29 miners. If you had looked more deeply into it, 
they had hundreds of violations with OSHA and with the mine 
safety organization. That is something that asset managers 
should not take into account? That just seems way off to me.
    But look, in the final analysis, it is all about free 
choice. If Illinois wants to look at, you know, the mine 
regulatory safety record of a particular company--I know you do 
not have mining there--but if you want to look at Purdue's 
actual record, what they are doing with Oxycontin and Oxycodone 
and Utah does not want to look at it, well, that is your 
choice. You do it, and, you know, different states can define 
the fiduciary duty differently. In Texas, They seem to be 
defining ``fiduciary duty'' as doing whatever the oil and gas 
industry wants or the gun industry.
    Look what they just did in Texas under this whole anti-ESG, 
anti-woke campaign. They pulled the leash on municipal 
governments in the state and dramatically interfered in the 
free market to protect the oil and gas industry and the 
firearms manufacturers by telling local governments that they 
could not make contracts with certain private banks, which the 
legislature deemed to be too woke on those issues if they, you 
know, took policies or made statements that were considered too 
woke by the legislature. OK. Well, what was the upshot of this 
anti-woke legislation in Texas?
    Well, do not take my word for it. Check out a study by 
Wharton professor, Daniel Garrett, and a Fed economist, Ivan 
Ivanov, which found that this anti-woke sledgehammer in Texas 
is costing the cities and towns of Texas, meaning the taxpayers 
of Texas, an additional $305 million to $532 two million in 
additional interest payments every single year. Now look, if 
Texas wants to spend an extra half billion dollars on interest 
payments to make a totally political, totally partisan anti-
woke statement, then have at it. That is up to them. At some 
point, the people of Texas will wake up to it, but that is 
their choice. But do not interfere with the right of Illinois 
and all the other states to look at all of the factors that 
actually influence the valuation of companies.
    Nobody should think, by the way, that this movement is 
striking a blow against global elites, which we have heard a 
lot about today. If you are interested in that, you should join 
our investigation into Donald Trump and Jared Kushner who 
brought home $2 billion--not million--$2 billion from Saudi 
Arabia and the United Arab Emirates for a company he created 
the day after the Trump Administration ended. So, do not talk 
to me about global elites. That is the Trump family business 
trafficking in global elites and their businesses. And he 
collected millions of dollars in unconstitutional foreign 
emoluments from Saudi Arabia, United Arab Emirates, Indonesia, 
Egypt, a whole bunch of countries that patronized his hotels 
and his golf courses. So, I do not want to be lectured to by 
anybody about global elites because I was here for the years of 
the Trump Administration.
    Now, my friend the Chairman asked the question, well, what 
would happen in China or what would happen in another 
authoritarian regime with ESG? Do they have ESG? Absolutely 
not. That is the difference between a free market democratic 
society and an authoritarian or totalitarian society. All that 
matters is what the state rulers tell you to do. Well here, the 
state rulers want to say everybody's got to invest in Big Oil 
and Big Gas, even if they do not think it is the right thing to 
do from a fiduciary perspective. They want to try to compel 
people's choices. Why don't we let the free market operate 
instead?
    In the final analysis, these decisions are being made not, 
contrary to the gentleman's statements before, not according to 
morality but according to economics. That is what we heard from 
the excellent Treasurer of the state of Illinois today, those 
are the kinds of decisions that are being made across the 
country. Now, Americans have the opportunity to say we do not 
want to patronize businesses that are supporting China, General 
Xi, or Putin in Russia, or any authoritarian regime, but when 
they are managing pension funds, they are not making a moral 
decision. They are making a financial decision, and they are 
withdrawing from that, they are saying it is not a good bet, 
that is not a good bet for the people.
    I know the Attorney General of Alabama said, well, you 
should disregard all moral criteria. I think he was asked about 
communist China. He was asked about Nazi Germany. He said, you 
know, just maximize profit. I understand that view, OK? That is 
not the view most citizens have, but a lot of the asset 
managers say it is not a good bet to invest in Marcos in the 
Philippines, or General Xi in China, Orban in Hungary, or what 
have you, but that is up to them, and we should not be 
interfering in one direction or another.
    And that is the problem with this whole anti-ESG thing. 
Even though it is dressed up as a critique of political 
investing, it is all about promoting political investing and 
promoting a political agenda. But luckily, I think the asset 
managers see it for what it is, and the businesses see it for 
what it is, and the people see it for what it is. I do not 
think it is going anywhere, so it is going to be on to the next 
battle in the culture war. I yield back to you, Mr. Chairman.
    Chairman Comer. The gentleman yields back, and I want to 
thank our witnesses for being here today, and it was a long 
day. To those watching, it may seem that there were two 
different hearings occurring today, one which explored concerns 
with asset managers violating their fiduciary duty to their 
clients by chasing left-wing agendas regarding the environment 
and social issues, and the other which sought to cover for the 
actions of asset managers abusing their authority by making 
broad appeals to the need for data or access to information.
    My colleagues on the other side of the aisle seem to be 
conflating the term ``responsible investing'' to mean socially 
responsible investing, as opposed to the fiscal responsibility, 
that is asset managers' legally mandated fiduciary duty to 
their clients. I think we and asset managers need a reminder: 
the money asset managers invest is not their own. A fund 
manager's definition of ``socially responsible'' may not only 
directly oppose their clients' views, investing to satisfy 
money managers' own ESG agenda could tank savings and 
retirements across the Nation.
    We will continue to investigate liberal agendas pushed 
throughout the economy and society, be it by the private sector 
or, more worrisome, by the government. And let us hope these 
left-wing activists who are pushing this ESG agenda do not 
continue regulating our banks, and setting our energy policy, 
and doing many other jobs that have a detrimental impact on our 
economy and on society. If the Biden Administration is 
weaponizing a whole-of-government approach to coordinate and 
force a whole-of-industry compliance with a woke agenda, it is 
this Committee's responsibility to conduct oversight to the 
American people, and we intend to provide it.
    With that, again, I thank the witnesses for being here 
today. I know it was a very long day, and I declare this 
meeting adjourned.
    [Whereupon, at 1:52 p.m., the Committee was adjourned.]

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