‘Companies should be concerned with their fiduciary duties, not joining ESG cartels,’ Utah Attorney General Sean Reyes said.
The environmental, social, and corporate governance (ESG) movement has just suffered a major setback, with the withdrawal on Feb. 15 of three of Wall Street’s largest firms from one of the most prominent climate activism clubs.
BlackRock, the world’s largest asset manager, JPMorgan Chase, America’s largest bank, and State Street, the world’s third-largest asset manager, announced their withdrawal from
Climate Action 100+, an investment club that pledges “to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.”
Advocates for worldwide action against global warming have hailed Climate Action 100+ as a key player in efforts to align the world’s most powerful financial institutions behind net-zero goals espoused by global organizations like the United Nations and the World Economic Forum. At its peak, the climate club boasted 700 investor members that held $68 trillion in assets; however, with this week’s departures, Climate Action 100+ reduced its membership assets by approximately $16 trillion.
Founded in 2017, Climate Action 100+ compelled its members to target 170 “focus companies” in CO2-emitting industries such as oil production and airlines, threatening shareholder votes against companies that refused to commit to net-zero goals. The organization touted its success in getting
75 percent of targeted companies to go along with its agenda.
In June 2023, however, the organization went further, demanding that members publish their shareholder voting records to prove that they were in fact actively pushing climate goals and not just paying lip service to them. This went too far for some members, who were facing warnings and investigations from GOP state attorneys general and members of Congress that they may be engaging in illegal collusion.
This week, State Street Global Advisors issued a
statement that it “has concluded the enhanced Climate Action 100+ phase 2 requirements for signatories are not consistent with our independent approach to proxy voting and portfolio company engagement.”
Proponents of the climate agenda were highly critical of the firms’ exit from the climate club.
New York City Comptroller Brad Lander
said the three companies were “caving to climate deniers,” and threatened to “consider our options for the management of our public market investments,” possibly shifting pension money to more dedicated climate-activist fund managers.
Critics of the climate club, however, applauded the exit.
“JPMorgan Chase made the right decision to withdraw from the largest investor coalition focused on convincing the corporate world to act on climate change - Climate100+,” West Virginia Attorney General Patrick Morrisey
stated on X.
The fact that so many of the world’s top banking, insurance, and asset management companies were aligned in the ESG effort proved to be an effective choke point for capital, not only reducing financing for industries like coal mining and oil exploration but also controlling corporate shareholder votes.
Last week, for example, Barclays, one of the UK’s largest banks,
announced that it would no longer provide direct funding for new oil and gas projects. It also stated that it would curtail lending to energy companies that were expanding fossil fuel production.
Financial Control
A
2019 study in the Harvard Business Review found that institutional investors, including large asset managers, insurance companies, banks, and state pension funds, owned 80 percent of the shares in the S&P 500 index of America’s largest companies.
In addition, the report states, “one of either BlackRock, Vanguard, or State Street is the largest shareholder in
88% of S&P 500 companies [and] they are the three largest owners of most DOW 30 companies.” BlackRock, Vanguard, and State Street are the world’s largest fund managers, collectively managing approximately $20 trillion in assets.
As part of what it calls “horizontal shareholding,” the report further states that a short list of fund managers controls competing companies across numerous industries.
“Vanguard, BlackRock, Capital Research, Fidelity, and State Street are the five largest owners of Kroger, five of the six largest owners of Costco, and four of the seven largest owners of Target,” the report states. “The three largest shareholders of Apple are also
three of the top four (non-individual) owners of Microsoft.”
This tremendous power, concentrated in the hands of a few firms, has raised questions about oligopolistic behavior, particularly when the firms jointly pursue political goals or pledge united action as members of associations like Climate Action 100+, the Net Zero Asset Managers initiative (NZAM), or the Net Zero Banking Alliance.
Where there had once been solidarity among large financial institutions in their antipathy toward fossil fuels, however, some have begun to break ranks. This week’s exit by JPMorgan Chase, State Street, and BlackRock from Climate Action 100+ follows the exit by
Vanguard, the world’s second-largest fund manager, from the NZAM in December 2022.
“By agreeing to use their financial portfolios as a weapon against the American consumer and our economy they rightly drew the ire of everyone outside of the Wall Street and Davos elite,” Will Hild, executive director of Consumers’ Research, said. “By leaving the Climate Action 100+ climate cartel, they are signaling that the actions of millions of consumers and dozens of elected officials are having an effect.”
GOP State Officials Applaud the Move
Conservative state attorneys general, financial managers, governors, and legislators have been accused, or credited, with leading the backlash against the ESG movement. They reacted with a combination of satisfaction and caution to this week’s news.Iowa Attorney General Brenna Bird
stated on X, “IA proudly stands against woke ESG policies that cripple our economy & bankrupt Americans. Radical political agendas shouldn’t drive investment decisions.
“We applaud JPMorgan for leaving Climate Action 100+ & putting customers’ financial prosperity first,” she said.
Utah Attorney General Sean Reyes concurred.
“Great news for the economy, companies should be concerned with their fiduciary duties, not joining ESG cartels,” he
said.
Tennessee Attorney General Jonathan Skrmetti, who led a
lawsuit last year against BlackRock charging that it was misleading investors regarding its net-zero commitments,
stated on X that “companies serve investors better when they transparently commit to ROI, not to ideological goals.”
West Virginia State Treasurer Riley Moore led multi-state efforts to boycott banks and asset managers that are deemed to have discriminated against fossil fuel companies.
“This is a step in the right direction and significant victory in our states’ fight against the international corporate collusion targeting the coal, oil and natural gas industries,” Mr. Moore said. “West Virginia and our coalition of states have been fighting for years against these efforts to boycott and curtail capital to our critical energy industries and diminish important economic activity and revenue for our states.”
Republican-led states West Virginia, Texas, Florida, Utah, Tennessee, Kentucky, Missouri, Oklahoma, Louisiana, and others took action against ESG financial firms, including barring banks from doing business with the state if they were deemed to be discriminating against industries like fossil fuels or firearms. Many states also divested state pension funds from asset managers who were ESG advocates.
Is ESG on the Wane?
Some analysts predicted that such states would pay a hefty price for going against Wall Street firms. A
2023 report by Econsult Solutions Inc. argued that states that had barred banks they considered discriminatory from underwriting their municipal bonds, including Texas, Florida,
Kentucky, Louisiana, Missouri, Oklahoma, and West Virginia, would have to pay more than $700 million in higher interest expense on their debt.
But efforts against ESG appear to be having an effect. In addition to banks and asset managers leaving Climate Action 100+ and NZAM, half of the members of the Net Zero Insurance Alliance, including Axa, Allianz, Munich Re, Zurich, and Hannover Re, have departed from the club in the past year over concerns about antitrust actions.
In addition, BlackRock CEO Larry Fink, once an outspoken advocate of “sustainable investing,”
stated in June 2023 that he would no longer use the term ESG because it had become too politicized.
Those who have opposed the ESG movement say they will stay vigilant.
Derek Kreifels, who heads the State Financial Officers Foundation, applauded the financial firms’ decision to exit Climate Action 100+, but said he remained concerned regarding whether this exit marked an authentic change of direction, or merely optics.
“State financial officers have worked hard over the past few years to persuade banks and investment managers to return their focus to financial return and traditional conceptions of fiduciary duty, so the decisions by JP Morgan Asset Management and State Street not to renew their membership in the Climate Action 100+ coalition is welcome news,” he said. “These firms have taken an important step in leaving Climate Action 100+, but still have a lot of work to do to regain people’s trust as a fiduciary focused on financial return.”
Mr. Kreifels said the companies’ continued membership in other climate clubs like the Net Zero Banking Alliance and Net Zero Asset Manager’s Initiative “calls into question whether today’s announcement reflects a real shift.”
In addition, he said, “we are also concerned about the degree to which these firms and others like them have created internal structures focused on net zero goals, which might carry forward the ESG agenda regardless of their participation in climate-activism alliances.”
