Attorney General Steve Marshall has joined 20 other states in questioning the ESG practices of a handful of proxy advisory firms.
Environmental, Social, and Governance (ESG) is an approach investors use to evaluate how a corporation aligns itself to social goals beyond earning a profit for its shareholders. These goals often pertain to environmental sustainability, advocacy for specific social movements and commitment to "diversity, equity and inclusion."
Proxy firms advise institutional investors on how to vote on shareholder resolutions. These resolutions typically contain a number of ESG-related programs and initiatives that many companies feel compelled to approve for future investment and success.
The two firms listed by the attorneys general are International Shareholder Services, Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis), which have a virtual duopoly on proxy advisory firms, making up 97% of the market, according to Forbes.
The attorneys general sent a joint letter to ISS and Glass Lewis, questioning their ability to uphold legal obligations to their clients.
According to Marshall, both ISS and Glass Lewis have pledged to support the priorities established by an international group of financial institutions committed to aligning their lending and investment portfolios with "net zero emissions" by 2050. By letting "net zero" inform their proxy advice, the attorneys general assert ISS and Glass Lewis are potentially abandoning their fiduciary duties to their clients.
The letter states: "Your actions may 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."
In an appearance on Fox Business' "Mornings with Maria," Marshall discussed his most recent efforts to combat the ESG initiatives of the two companies.
"I expect you'll see significant litigating in this world over the coming months as we have an opportunity to push back on this liberal agenda," Marshall said.
According to Marshall, both companies have pledged to recommend votes against certain directors on boards that they view as having insufficient racial, ethnic, or sex-based diversity under "arbitrary quotas."
"It's the way for the left to be able to impose their agenda outside of the ballot box of the political process," Marshall said. "In states like Alabama, by no means would we accept much of what is being proposed by those ESG proponents. And now, they are using the leverage of the financial market, particularly the largest investment advisory firms, including BlackRock,… as a way of being able to advance their agenda. We think it's wrong; we think it's inconsistent with both state and federal law."
Marshall also joined several other attorneys general in September 2022, going after the multi-national investment company BlackRock for its ESG practices.
"It is vital that these financial institutions are providing recommendations based upon the economic value of prospective investments and not any broader political or social agenda," Marshall said in a statement. "A client's hard-earned money should not be used to fund social-engineering projects to the detriment of the client's financial interests."
The attorneys general of Alaska, Arkansas, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, Ohio, South Carolina, Texas, Utah, Virginia and West Virginia also joined the letter.
To connect with the author of this story, or to comment, email firstname.lastname@example.org.
Don't miss out! Subscribe to our newsletter and get our top stories every weekday morning.