Amid claims of “a historic breach of fiduciary duty,” by some of Wall Street’s top firms, state treasurers issued a letter last week to 20 of America’s largest asset managers, demanding an accounting of how they have voted the state employees’ corporate shares that they control.
“Firms whose job is to deliver investment returns are instead weaponizing retirement funds, public pensions, and other investments in pursuit of nakedly ideological goals,” they stated. “It is perhaps the most severe breach of the fiduciary standard in American history.”
Many of these institutional investors have joined international clubs like the World Economic Forum, Climate Action 100, the Glasgow Financial Alliance for Net Zero (GFANZ), and the United Nations-sponsored Net Zero Asset Managers initiative (NZAM), which include pledges to support progressive causes across their investment portfolios. These progressive causes come under the umbrella ideology of the Environmental, Social, and Governance (ESG) movement, which includes issues like climate change, critical race theory, and abortion rights.
“We want these managers to know we are watching, and it’s something that legislators, governors, treasurers, even AGs have raised issues about,” Oaks told The Epoch Times.
“Proxy voting is really where ESG gets pushed into the corporations,” Oaks said. “So if an investment manager is supporting proxy proposals that are non-pecuniary, not financially material, that are generally political issues, then by definition they are voting those shares against the interests of the people in all of our states.”
Did Their Votes Benefit Investors?
The letter asks the asset managers and proxy agents to explain, among other things, whether they have voted to force companies to undergo racial or environmental audits, what their process is for deciding how to vote investors’ shares, what global clubs they have joined and what commitments they have made to them, whether or not they earn fee income from ESG consulting services, if they have voted in favor of ESG initiatives, and if so what evidence they have that ESG initiatives benefit shareholders and pensioners.Asked what he hoped to achieve with the request, Louisiana Treasurer John Schroder told The Epoch Times, “I would like to see asset managers only vote in the pecuniary interests of their clients, unless their clients have specifically asked them to vote in favor of ESG initiatives.”
Recent reports from the Wharton Business School and Standard & Poor’s, which provides ESG ratings, have calculated that states that attempt to boycott Wall Street banks that support ESG could end up paying up to $700 million in higher interest rates on municipal debt. With the collapse of investment banks Bear Stearns and Lehman Brothers in the mortgage crisis, and Credit Suisse in the current banking crisis, capital markets have become increasingly concentrated in an ever smaller number of surviving institutions such as JPMorgan Chase, Citibank, Goldman Sachs, Wells Fargo, Morgan Stanley, and Bank of America.
To the extent that the majority of these institutions sign on to the ESG agenda, states are left with few alternatives if they want to borrow money. But state officials say, when it comes to asset managers, they have more alternatives.
“Of course there are options,” Schroder said. “It’s a highly competitive market. We can hire an asset manager that agrees to only vote in the pecuniary interests of the state.”
Financial officers from the following states signed on to the letter: Alaska, Arizona, Florida, Idaho, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Carolina, North Dakota, Oklahoma, South Carolina, Utah, West Virginia, and Wyoming.
In addition to ISS and Glass Lewis, the state treasurers sent letters to the following asset managers: BlackRock, Vanguard, Fidelity, UBS, State Street, Morgan Stanley, JPMorgan Chase, Credit Agricole, Allianz, Capital Group, Goldman Sachs, Bank of New York, Amundi, PIMCO, Legal & General, Edward Jones, Prudential, Deutsche Bank, Bank of America, and Invesco.
ISS and Glass Lewis were contacted for comment regarding this article, but did respond.