Fifty-three top financial institutions have been warned by 21 state attorneys general regarding their pursuit of ESG investing initiatives.
The attorneys general claim that by promoting ESG (environmental, social, and governance) investments, financial institutions risk not acting in accordance with their fiduciary duty to clients.
“This ESG nonsense is filtering into a lot of our states and the way they’re doing it is really, really concerning and probably flagrantly illegal,” Montana Attorney General Austin Knudsen told Fox News in an interview. “Pushing it through these asset managers and through these proxy votes is extremely concerning.”
The letter claimed that large asset managers influenced the behavior of companies to align with ESG investing standards.
“You are … not only bound to follow the general laws discussed above but also have extensive responsibilities under both federal and state laws governing securities,” Knudsen and the other attorneys general asserted in the letter. “Broadly, those laws require you to act as a fiduciary, in the best interests of your clients and exercising due care and loyalty.”
The attorneys general focused on climate policies that threaten the fossil fuel industry.
The Net Zero Asset Managers Initiative (NZAM) and Climate Action 100+, two organizations that require members to commit to climate-friendly investing, have also received criticism.
NZAM requires members to “accelerate the transition towards global net zero emissions and for asset managers to play [their] part to help deliver the goals of the Paris Agreement.”
Climate Action 100+ seeks members’ commitments to “reduce greenhouse gas emissions across the value chain” by committing to net zero emissions efforts.
“None of this is financially defensible,” the letter alleges.
Vanguard, an asset manager with $7 trillion in assets under management, recently pulled out of NZAM. Vanguard said that leaving would “not affect our commitment to helping our investors navigate the risks that climate change can pose to their long-term returns,” according to Reuters.
Attorneys general from Montana, Louisiana, and Utah led the effort against ESG investing.
Montana has the largest recoverable coal reserves in the country, around 30% of the national total, according to the U.S. Energy Information Administration. Knudsen says these policies will reduce his state’s energy options and create higher energy prices, according to Fox News.
“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. So, I mean, to me, that’s a no-brainer.”
A number of others, however, are far more supportive of these initiatives.
Bud Sturmak, the head of impact investing and a partner at Perigon Wealth Management, told Forbes that the investment industry, climate advocates, and Democrats all support ESG investing policies but for different reasons.
“The investment industry supports it because integrating ESG factors into the investment process can lead to prudent risk management and potentially better retirement outcomes for millions of Americans,” Sturmak said. “Investors are increasingly demanding ESG as they are asserting their right as consumers to put their investment dollars into companies they believe in.”
“Climate advocates likely see this as an opportunity to leverage finance as a tool to accelerate the transition to a low-carbon economy and prevent a climate catastrophe. Democrats are likely supportive for all of these reasons,” he added.
The letter was sent to several asset managers, including BlackRock, Franklin Templeton, Goldman Sachs, HSBC, Invesco, JP Morgan, and State Street, among others, according to Fox News.
Oklahoma has also recently taken steps to limit the state’s dependence on ESG policies. Last year, the state legislature and governor banned state investment funds from working with companies that utilize ESG investing policies, according to The Oklahoman.
Oklahoma state treasurer Todd Russ said in a statement, per The Oklahoman: “I took office on January 9 and began compiling a list of companies, banks, and other entities that act against Oklahoma’s interests because of their ESG stance.”
“It is my responsibility to ensure Oklahomans’ tax dollars will not be used to enrich organizations that act counter to our taxpayers’ interests and our values,” Russ later added.