Twenty-four state attorneys general warned asset managers that their push for environmental, social, and governance (ESG) policies may violate their fiduciary duties.
The letter, led by Montana Attorney General Austin Knudsen (R), raises concerns that the 25 asset managers are “more concerned with earning social credit than doing what’s best for their clients,” Knudsen said in a statement.
“If they are deferring their analysis and decision making to environmental activist groups, then they are failing to meet their fiduciary duty to their shareholders. Most of the market even finds the proposals they are supporting to be unacceptable, which is cause for serious concern,” he added. “I am determined to get answers and ensure the asset managers are meeting their obligations to make their clients as much money as possible and following the law.”
The ESG proposals were recommended by the Institutional Shareholder Services (ISS).
“There are significant reasons to believe that ISS was not conducting financial analyses of these proposals but rather following a presumption of recommending in favor of them. ISS’s process for developing its benchmark policy is modeled on federal notice-and-comment rulemaking and is driven by third-party comments. But there is no requirement in this process for conducting financial analyses,” the attorneys general wrote in the letter.
“The high correlation between ISS recommending a ‘for’ vote on an environmental shareholder proposal and an Asset Manager or its affiliate voting ‘for’ a proposal—combined with the disparity between their high level of support and the overall market’s low level of support— suggests that the Asset Managers are simply following ISS’s recommendations to vote for such proposals (or some other third party that is making recommendations consistent with those of ISS),” the letter adds.
The attorneys general then posed several questions to the asset managers, including, “How are the votes supporting the shareholder proposals identified in this letter consistent with your fiduciary duties?” and “Do you agree that you must exercise voting rights in a manner that is consistent with your fiduciary duty to your customers to act solely in their financial interest? If not, please describe how you view your fiduciary duty to your clients with respect to voting on shareholder proposals.”
Attorneys general from Alabama, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Hampshire, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming also joined Montana in the letter.
Last year, Larry Fink, the CEO of BlackRock, expressed his discomfort with the political war over ESG in investment.
“I’m not going to use the word ESG because it’s been misused by the far left and the far right,” he said, explaining that he will instead use terms such as “decarbonization,” “governance,” and “social issues.” The terms have the same focus as ESG.
