Attorneys General Challenge Social Responsibility Policies for Investing

Some state attorneys general are continuing a conservative backlash against investment strategies that emphasize social responsibility with a challenge to two corporate advisory companies.

A letter written last week to the two companies says forcing social responsibility onto investors could be irresponsible, perhaps shortchanging them when they have other priorities.

The letter from 21 attorneys general was sent to proxy advisory companies Institutional Shareholder Services and Glass, Lewis & Co. Both advise corporations on electing directors to their boards.

Typically, they suggest corporations elect directors who will adopt an Environmental, Social, and Governance policy that stresses environmentalism and an ethnically diverse workforce. One of ISS and Glass Lewis’ goals is to advance a Biden administration policy of net-zero emissions in the United States by 2050.

ESG critics call the goal unrealistic and a burden on consumers who are trying to get the greatest value for their money.

The attorneys general questioned whether advising corporations to adopt ESG investments might violate state consumer protection laws. The consumer protection laws protect purchasers of goods and services against deceptive or fraudulent business practices.

“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,” the letter to ISS and Glass Lewis says.

The letter seeks more information from the proxy advisory companies in an apparent prelude to suing them if they cannot explain how they protect consumers’ interests.

“ISS and Glass Lewis must comply with federal law that applies to proxy advisors,” the letter says. “Under federal law, proxy advisor recommendations must be free from false or misleading material information.”

The attorneys general want answers from both companies by the end of this month on how they determine “appropriate” emission standards for achieving net-zero.

ISS said in a statement that it serves its clients’ interests but that the “state attorneys general letter reveals a fundamental misunderstanding of market forces at work.”

If recent backlashes against ESG serve as an example, the implied threats from the attorneys general represent a potentially big risk for the business of ISS and Glass Lewis.

Last week, the chief executive officer of BlackRock, Inc., the world’s biggest asset manager, said his company has lost about $4 billion of the assets it manages because of political reprisals from its ESG investing in the United States.

State officials in Florida, Louisiana and Missouri said they would withdraw their BlackRock investments. The company reported that it still took in $230 billion last year from U.S. clients.

Lindsay Singleton, managing director of Washington, D.C.-based Rokk Solutions, said the skepticism of ESG investing often led by Republicans shows they do not understand it. Her public affairs and strategic communications firm works with many clients who emphasize social responsibility. 

“ESG is an information framework used by investors to better analyze a company’s long-term risk on environmental, social and governance issues,” Singleton told The Well News.

“Companies may choose to reduce their ESG liabilities by addressing them through programs such as emissions reduction efforts or [Diversity, Equity and Inclusion] hiring practices, but there is no extra-legal requirement to do so,” she said. “Companies that do choose to reduce their long-term liabilities often have better long-term shareholder results, which makes it likely a company would introduce efforts to address ESG issues.”

She predicted the political reprisal against ESG investment is likely to create more harm than good.

“In the context of state legislation and lawsuits targeting ESG, penalizing companies, consultancies and investors for addressing ESG makes little sense, as these efforts could ultimately harm shareholders,” Singleton said.

Nevertheless, some politicians are forging ahead with their campaigns against ESG.

Last week, Florida’s Republican Gov. Ron DeSantis formalized rules that ban the state’s asset managers from considering ESG when investing public money.

American corporations “continue to inject an ideological agenda through our economy rather than through the ballot box,” DeSantis said in a press release. “Today’s actions reinforce that ESG considerations will not be tolerated here in Florida and I look forward to extending those protections during this legislative session.”

Tom can be reached on Twitter at [email protected].