A group of 21 Attorneys General from Republican states have sent a letter to proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis, taking issue over the firms’ support for climate and DEI-related issues at companies, and warning them that their recommendations to shareholders in these areas are in violation of their duties to consider their clients’ financial interests.
The letter marks the latest move in an ongoing anti-ESG push by Republican politicians in the U.S., which has primarily targeted large investors, but has also seen officials warning law firms about the advice they provide to clients regarding ESG initiatives.
In a statement announcing the Attorneys General’s challenge to the proxy firms, Kansas AG Kris Kobach, one of the letter’s signatories, claimed the firms’ “ESG driven agenda” threatened the pensions of the state’s workers, and added:
“Those pension funds must be invested to maximize their return, not to advance any particular political agenda.”
In the letter to the proxy firms, the Attorneys General state that the firms’ recent ESG-related commitments may interfere with their ability to honor their legal obligations to clients, and ask for assurance that the firms “will cease such violations and commit to following the law.”
The letter focuses specifically on ISS’ and Glass Lewis’ recommendations regarding climate and diversity, equity and inclusion (DEI) issues. On the climate front, the Attorneys General say that each of the firms have “pledged to recommend votes on company directors and proposals based on whether a company is implementing “net zero emissions” goals and related climate commitments,” arguing that this amounts to elevating non-financial considerations based on “social goals,” above financial considerations, and that pursuing non-zero goals is antithetical to maximizing value, based on the IEA’s contention that the probability of successfully achieving global net zero goals is rapidly narrowing.
The Attorneys General also ask the firms to describe their coordination with climate-focused investor engagement group Climate Action 100+, and their discussions with investors that belong to the Net Zero Asset Managers’ initiative.
The letter also questions the firms policies around DEI, including recommending against directors on boards that have insufficient racial, ethnic, or sex-based diversity, and claiming, for example, that ISS’ policies have led to support for “proposals that would force insurance companies to gather race data in apparent violation of state law.”
The Attorneys General state:
“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 a statement provided to ESG Today by ISS, a spokesman of the firm said that the letter “reveals a fundamental misunderstanding of market forces at work,” and adding that the firm’s “sole agenda is to provide its clients with tools and policy options to enable them to make informed investment decisions and vote their shares in accordance with their distinct views and fiduciary responsibilities.”
The letter asks the firms to respond by January 31.
Click here to access the letter from the 21 Attorneys General.