A group of attorneys general (AG) representing 21 states have issued a letter to 53 of the largest asset management firms in the United States, warning that they may be in breach of their legal duties to their clients if they pursue Environmental, Social, and Governance-based (ESG) investment programs.
The letter, organized by Attorneys General Austin Knudsen (R-Mont.), Jeff Landry (R-La.), and Sean Reyes (R-Utah), states that asset management firms may be ignoring their legal obligation to the fiduciary interests of their clients by pursuing ESG-based investment. The warning letter was signed by Republican attorneys general for Alabama, Arkansas, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, New Hampshire, Ohio, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wyoming.
“We are writing this open letter to asset manager industry participants to raise our concerns about the ongoing agreements between asset managers to use Americans’ savings to push political goals during the upcoming proxy season,” the letter states.
The 21 attorneys general alleged ESG scoring would violate fiduciary duties to customers and a firm’s representations to consumers about their services and compliance with antitrust laws.
‘Unrealistic’ Environmental Goals Over Financial Benefits
The AGs’ letter specifically states firms are signing onto the Net Zero Asset Managers Initiative (NZAM) and Climate Action 100+, both of which seek to shift the assets they manage to net zero emissions by 2050. The letter argues that asset management firms are placing the completion of “aspirational, unrealistic” environmental goals like the Paris Climate Agreement above the primary fiduciary duty to provide financial benefit to their clients. The letter noted a recent United Nations report stating, “… the international community is falling far short of the Paris goals, with no credible pathway to 1.5°C in place.”
“None of this is financially defensible,” the AGs said of the environmental goals laid out in various ESG frameworks. “Instead, it is a transparent attempt to push policies through the financial system that cannot be achieved at the ballot box.”
Knudsen told Fox News that certain ESG goals would be financially harmful to residents of his state, which is heavily invested in the fossil fuel industry.
“We’ve got a million people to keep warm. So, we have to have reliable energy,” Knudsen told Fox News. “And Montana is an energy-producing state. We do produce oil, we do produce natural gas, and we do produce some of the highest quality coal in the world.”
ESG’s Race, Gender, and Political Goals
The AGs’ letter also warns that ESG systems are increasingly pushing firms to align with specific political positions, notably support for abortion access and gender and race-based diversity quotas.
The letter also notes examples of ESG proponents advocating for certain firms to stop supporting politicians and political organizations who have proposed legislation limiting abortions or other policies with “anti-LGBTQ+ voting records.” At least one ESG proponent described political donations that it said are “misaligned” with stated company values and linked to examples of corporate contributions to lawmakers who supported legislation barring male transgender individuals from competing in female sports leagues or legislation limiting gender transitioning for children.
“It is troubling that members of a horizontal organization of asset managers that includes many government actors would be trying to limit political speech, particularly when there does not appear to be a shareholder financial basis for the limitation,” the attorneys general wrote.
The letter concludes by warning firms that the AGs are actively investigating potential “unlawful coordination and other violations that may stem from the commitments you and others have made as part of Climate Action 100+, Net Zero Asset Managers Initiative, or the like.”
Battle Over ESG
Congress narrowly passed a bill to overturn a Department of Labor rule-making decision that allowed retirement managers to consider ESG scores when selecting retirement investments. President Joe Biden issued the first veto of his presidency, blocking the legislation and keeping the Labor Department’s ESG ruling in place.
“The Department of Labor’s final rule protects the hard‑earned life savings and pensions of tens of millions of workers and retirees across the country,” Biden said upon issuing his veto.
Biden also said, “there is extensive evidence showing that environmental, social, and governance factors can have a material impact on markets, industries, and businesses.”
White House Press Secretary Karine Jean-Pierre argued the Republican-led effort to overturn the Labor Department’s ESG ruling amounts to forcing investors to embrace conservative ideologies.
House Speaker Kevin McCarthy (R-Calif.) said Biden’s veto makes it clear that he “wants Wall Street to use your retirement savings to fund his far-left political causes.”
The House attempted to override Biden’s veto but failed to achieve the two-thirds majority threshold needed, garnering a vote of 219 in favor and 200 opposed. Rep. Jared Golden (D-Maine) was the lone Democrat who supported the veto override effort.