SEC Proxy Vote Reporting Shames Fossil Fuels, Texas Tells Court

The SEC lacked the authority to require more ESG proxy vote disclosures, improperly impeding oil, gas, and coal investments, Republican attorneys general from Texas and other states told the Fifth Circuit.

The Securities and Exchange Commission’s 2022 rule is intended to discourage investing in fossil fuel companies and other businesses shunned by environmental, social and governance activists, Angela Colmenero of Texas and three fellow attorneys general said in a court filing Tuesday. The regulation directed BlackRock Inc., Vanguard Group Inc. and other fund managers to give more details about their ESG proposal votes to help investors better examine any commitments to climate, diversity, and other issues, SEC officials have said.

The court filing is the first full brief from state officials in their litigation over the rule since they brought their case in the US Court of Appeals for the Fifth Circuit in February. The attorneys general include Jeff Landry of Louisiana, Sean Reyes of Utah and Patrick Morrisey of West Virginia, in addition to Colmenero, the provisional attorney general in Texas.

“Congress did not make the SEC the conscience of the nation,” the attorneys general said. “Nor did it empower the SEC to steer the public toward investments the Government of the day deems socially or politically beneficial.”

An SEC representative didn’t immediately respond to a request for comment.

The commission adopted the regulation after a 3-2 vote last November with the three agency Democrats in favor. The agency’s two Republican commissioners, Hester Peirce and Mark Uyeda, questioned whether the rule will benefit investors before voting against it.

The attorneys general referenced Peirce’s concerns throughout their filing.

“While fund shareholders may not be interested in this information, activists of every stripe can use the fact that funds have to publish their votes to increase their leverage through intimidation and negative publicity,” Peirce said in a 2021 statement, cited by the attorneys general.

Funds have had to disclose information about their proxy votes since 2003. But SEC Chair Gary Gensler, a Democrat, has said the reporting varies and can be of limited use to investors.

The new rule provides “greater detail, consistency, and usability to the proxy voting information,” Gensler said last year.

The case is State of Texas v. SEC, 5th Cir., No. 23-60079, opening brief filed 9/5/23.