State attorneys general continue to oppose ESG (2023)
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Twenty-one Republican state attorneys general—led by Utah Attorney General Sean Reyes (R)—on January 17 released a letter to proxy advisory firms warning that ESG investment considerations could violate state laws and contracts. Asset managers pay proxy advisory firms to make recommendations about how to vote on questions that appear in corporate proxy statements. Two companies—Institutional Shareholder Services (ISS) and Glass-Lewis—dominate the proxy advisory business. ESG critics regard both companies as left-leaning:
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Twenty-one state attorneys general released a letter to proxy advisory firms today taking issue with their use of ESG criteria in advice to state investment vehicles. The letter was written by Utah attorney general Sean Reyes. It provides evidence of possible violations of fiduciary duty and says, “We seek written assurance that you will cease such violations and commit to following the law.” Proxy advisory firms exist to tell investors how to vote their shares. They are especially important to large institutional investors, such as state pension funds, that own too many stocks to be able to keep track of every question presented to shareholders. Those large institutional investors also control enough shares to swing votes for publicly traded companies…. The attorneys general allege in the letter that by advocating criteria related to climate change and diversity, equity, and inclusion when advising state investment vehicles, ISS and Glass Lewis could be in violation of their contracts with state governments and the law. On climate issues, the attorneys general say, “Rather than being based on a rational analysis of the effects that expected changes to government policy would have on any given company, your actions appear more like those of an activist forcing companies to comply with rules that governments will not otherwise institute.” This expresses a common criticism of ESG, namely that it is a way to circumvent the democratic process, which has not resulted in the implementation of the sweeping climate policies that environmentalists want. They also allege a possible conflict of interest, considering that ISS and Glass Lewis — in addition to the advice they offer state investment vehicles — also offer services related to ESG investing. “The value of these services would be undermined if you were to admit in your advisory services that ESG factors are not material to a firm’s financial performance,” the attorneys general wrote. Insofar as climate issues are a material risk to investors, and there are some cases in which they are, companies are already required to disclose them, and proxy advisory firms would already take them into account in the absence of ESG criteria. On diversity, equity, and inclusion, the attorneys general allege that ISS and Glass Lewis may be in violation of state anti-discrimination laws. “You have pledged to recommend votes against certain directors on boards that you view as having insufficient racial, ethnic, or sex-based diversity under arbitrary quotas that you have announced,” they wrote. They argued that the firms have not adequately considered the legality of their actions and have not demonstrated why such criteria would be relevant to economic performance, which, under the contracts they have with state governments, is supposed to be their goal.[1] |
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See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
- ↑ Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
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