A 21-state coalition of Republican attorneys general have written to two third-party proxy advisory companies, Institutional Shareholder Services (ISS) and Glass Lewis, challenging their environmental, social, and governance (ESG) practices.
The coalition, led by Utah Attorney General Sean D. Reyes, raised concerns about whether the two firms’ ESG considerations affect proxy voting recommendations that conflict with the financial interests of their clients.
ESG refers to a set of standards used by a company in the investment decision-making process to measure sustainable and ethical impacts.
“By letting net-zero inform their proxy advice, ISS and Glass Lewis are abandoning their fiduciary duties to their clients, including Utah, and adopting the radical environmental agenda that experts predict are not possible,” Reyes said.
Reyes added that both firms have vowed to make voting recommendations on company directors based in part on certain net-zero carbon emissions goals and recommend voting against certain board directors “that they view as having insufficient racial, ethnic, or sex-based diversity under arbitrary quotas they established.”
ISS, Glass Lewis Dominate Proxy Advisory Market
ISS and Glass Lewis control about 97 percent of the proxy advisory market, according to a 2019 U.S. Securities and Exchange Commission analysis (pdf).In their letter, the attorneys general state that the two companies’ actions could threaten the “economic value of our states’ and citizens’ investments and pensions—interests that may not be subordinated to your social and environmental beliefs, or those of your other clients.”
They further allege that “all this evidence regarding climate change advocacy and goals suggests potential violations of your contractual obligations and legal duties.”
Attorneys generals from Alabama, Alaska, Arkansas, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, Ohio, South Carolina, Texas, Virginia, and West Virginia joined the Utah-led letter.
They asked both firms to answer questions, including explaining their materiality analysis for requiring the disclosure of emissions reduction targets, how they determined “appropriate” emissions targets, and how they believe adherence to net-zero initiatives will impact American agriculture and food security by no later than Jan. 31.
The coalition also asked for assurances that the companies will affirm their commitments to uphold their legal obligations when performing proxy advisory services.
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“The state attorneys general letter reveals a fundamental misunderstanding of market forces at work,” the spokesperson said.The Epoch Times has contacted Glass Lewis for comment.
The Reyes-led letter comes as Republican lawmakers have raised concerns over companies that have moved to embrace and incorporate ESG goals into their business, fearing that doing so could risk investment returns and hamper economic growth.
One such company is New York-based BlackRock, the world’s largest asset manager, which manages $10 trillion in assets, which lawmakers have accused of placing its political agenda above the interests and profits of clients.
As a result, a string of Republican states, including Louisiana, South Carolina, and Utah, have pulled millions in investments from the asset manager.
However, Fink noted that the group has taken in $230 billion from U.S. clients throughout 2022.
“Because so much of the market is passive/index funds, which outsource shareholder voting decisions to them. ISS and Glass Lewis effectively control the stock market,” Musk said.
