ESG lobbying surges with Democratic control of Washington

More lobbyists reported raising environmental, social and governance issues with U.S. officials and lawmakers this year, with Democrats now controlling Washington, than ever before.

“ESG” has been steadily appearing in more federal quarterly lobbying reports in recent years, according to a review of filings by CQ Roll Call. After the first mention of ESG came in mid-2018, references to the topic climbed during the final years of the Trump administration, which largely opposed the consideration of ESG and sustainability issues in regulation and legislation. Those issues are now at their highest point as regulators and members of Congress prepare policy on climate change.

Lobbyists mentioned the acronym ESG in first-quarter 2021 lobbying reports for 37 unique clients. The reports, which were due April 20, cover activity from Jan. 1 through March 31, including the beginning of the Biden administration and Democrats’ control of both chambers of Congress.

The figure is up from 21 distinct reports that mentioned ESG for the final quarter of 2020, 24 from last year’s third quarter, 18 from the second quarter and 14 from the first quarter. The final quarter of 2019 saw 15 reports mentioning ESG, which was the first time the term appeared widely in lobbying reports. It was mentioned once before in a report from the U.S. Chamber of Commerce covering 2018’s second quarter.

CQ Roll Call’s review identified quarterly reports that mention the acronym “ESG,” in reference to financial considerations as a specific lobbying issue, using the Senate’s search system, which covers reports since 1999.

The reports go into varying levels of detail — some mention sustainability generally or name particular ESG issues directly, such as climate change, board diversity or workforce management. Still, the rise in mentions corresponds with the surge of ESG as a mainstream focus for companies and investors globally and its emergence as a prominent policy issue at the federal level.

Groups that disclosed such lobbying included large trade associations, asset managers, financial services firms, insurers, pension-focused groups and at least two left-leaning organizations advocating ESG disclosure rules, the United Nations-supported Principles for Responsible Investment and Public Citizen.

Among all filings mentioning ESG, about 29 percent specifically reported lobbying on the ESG Disclosure Simplification Act, a bill from Rep. Juan C. Vargas that would require public company disclosure of ESG information. The California Democrat initially proposed the measure in September 2019. More than a dozen listed a Labor Department rule related to ESG, which was finalized under the Trump administration and changed requirements for employer-sponsored retirement plans when selecting investments.

Of the 37 reports that mentioned lobbying on ESG during the first three months of 2021, most mentioned ESG issues, disclosure, investing or ratings generally. Five groups reported lobbying on Vargas’ legislation, and three on the Labor Department rule that Democrats may soon roll back. One group detailed involvement in an ESG workgroup meeting at the Securities and Exchange Commission.

The world’s largest asset management firm, BlackRock Inc., mentioned ESG specifically in a lobbying report for the first time in 2021, reporting that it addressed the “ESG Rule/DOL.” The manager of $9 trillion also disclosed lobbying on “climate risk” for the first time.

The firm often submits comment letters for proposed financial rules, including writing to the Labor Department in 2020 on the ESG-related rule, when disclosures didn’t directly mention ESG.

The U.S. Chamber of Commerce, the largest lobbying group for American companies, reported addressing European regulation with U.S. lawmakers and officials. In the first filing directly mentioning ESG, the Chamber disclosed lobbying on sustainable finance and incorporating ESG factors into financial services. In disclosures since the 2018 report, the group reported lobbying on the European Union’s sustainable finance action plan and European Supervisory Authorities consultation paper, along with other ESG matters.

Rise of ESG funds

The rise in reports of lobbying the House, Senate and executive branch on ESG comes as the issue has emerged as a focus area for investors and corporations. The number of sustainable funds climbed almost fourfold over the last decade, according to a report by investment data firm Morningstar. The study found that sustainable funds attracted a record-high $51.1 billion in net flows in 2020 as the COVID-19 pandemic, climate change and attention to racial justice fueled uptake.

Lawmakers are generally divided on ESG. Democrats have put forward a series of proposals to require companies be transparent on ESG issues, such as greenhouse gas emissions, workforce diversity levels, staff turnover and spending on political campaigns. Republicans have opposed ESG reporting requirements as politically motivated and unnecessary.

The issue broke into lobbying reports under a Republican administration as President Donald Trump put forward regulatory rules to restrict consideration of ESG. Midway through Trump’s term, Democrats gained control of the House and prioritized ESG-related legislation. Several freshman lawmakers from the party introduced new ESG-related bills.

With Democrats in control, ESG is featuring prominently in congressional hearings and meetings of financial regulators. The Biden administration is addressing climate change at agencies that regulate the financial system. The SEC is expected to mandate that publicly traded companies report ESG information to shareholders.

Vargas’ bill, which would direct the SEC to require this reporting, was approved by the House Financial Services Committee last week on a 28-22 vote. Lawmakers on the panel disagreed over who the legislation would empower to determine what information is relevant.

“They say that beauty is in the eye of the beholder, but materiality is in the eye of the investor — not the company,” Vargas said during the markup.

Rep. Bill Huizenga responded by saying the bill reflects the information that Democrats want made public.

“Materiality is in the eye of the investor, not the corporation?” the Michigan Republican said. “Amen, hallelujah. Not the regulator, materiality isn’t in the eye of the regulator so much. It has relevance, but what we’re trying to do here — what you’re trying to do here today — is put it in the eye of the woke politician.”