Alabama Attorney General Steve Marshall joined a coalition of 24 attorneys general on Thursday to demand answers from the nation’s top asset managers to determine whether they are neglecting their fiduciary duty to their clients.
The letter sent to 25 of the nation’s top asset managers raises concerns that the asset managers may be violating their fiduciary duties to their clients by supporting environmental shareholder proposals recommended by Institutional Shareholder Services (ISS), which were flagged by the environmental activist group Ceres. Because it does not appear that ISS has conducted any independent financial analysis of the proposals, the attorneys general question whether the asset managers may have outsourced their voting to ISS or another third party.
“This letter is an important reminder that companies that hold themselves out as dispassionate asset managers for millions of Americans are not supposed to be acting as political or social activists. Asset managers must not allow the vast savings entrusted to them to be hijacked by activists to advance non-financial goals,” Marshall said.
According to the letter, evidence suggests that the asset managers are outsourcing their vote by following ISS’s or another third party’s recommendations to vote for the environmental shareholder proposals flagged by Ceres because the asset managers’ support for these proposals was over twice as high as the overall market. The 25 asset managers voted in line with ISS recommendations at least 75% of the time, while the overall market supported the proposals by only 37% on average, and only 17% of these proposals received majority support.
The asset managers’ company management even opposed several identified proposals that were harmful to shareholders. These include six proposals to set greenhouse gas (GHG) targets for lenders and underwriters based on their customers’ emissions, thirteen proposals to set GHG targets for traditional energy producers and closely aligned companies, and ten proposals to limit company free speech to conform with the Paris Agreement and net zero by 2050. The asset managers supported each of these proposals.
According to the attorneys general, there is a lack of financial analyses conducted by ISS before recommending “for” on environmental proposals. In their process for developing benchmarks and other policies, there is no mention of a requirement for an economic or financial analysis that the policy is in the financial interest of the shareholders.
“There are significant reasons to believe that ISS was not conducting financial analyses of these proposals but rather following a presumption of recommending in favor of them. ISS’s process for developing its benchmark policy is modeled on federal notice-and-comment rulemaking and is driven by third-party comments. But there is no requirement in this process for conducting financial analyses,” the attorneys general wrote.
Investment Letter by Caleb Taylor on Scribd
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