The Senate Banking Committee (the "Committee") considered the roles that special interest groups and retail investors play on environmental, social and corporate governance ("ESG").
At a Committee hearing, Committee Chair Mike Crapo (R-ID) emphasized that retail investors must have a voice in investment and corporate governance decisions, which represent their shares. He noted that index funds hold just over 17 percent of all U.S. shares and are the largest shareholders in 40 percent of all U.S. companies.
Former U.S. Senator Phil Gramm argued that past reforms by Congress, the SEC and the courts have "unintentionally empowered special interest groups to subvert corporate governance, forcing corporations to deal with political and social problems they were never designed . . . to deal with."
Calvert Research and Management CEO John Streur explained common misunderstandings about ESG investment strategies including the fact that ESG considerations in the investment process necessitate that the investor "sacrifice returns." Mr. Streur noted that including ESG considerations in the investment process has a basis in empirical evidence. Separately, he stated that proxy advisory firms serve a critical role in providing research services to the investment industry.
Manhattan Institute Senior Fellow James Copland said that the current body of federal securities laws enables special interests. He said that in recent years, regulatory changes and consequent changes in market ownership have increased the shareholder voting power of institutional investors.
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