(Montgomery, Ala.) – Alabama Attorney General Steve Marshall joined a coalition of 24 attorneys general in demanding answers from the nation’s top asset managers to determine if 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.
Attorney General Marshall stated, “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.”
Evidence suggests that the asset managers are outsourcing their vote by simply 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 percent of the time, while the overall market supported the proposals only 37 percent on average and only 17 percent of these proposals received majority support.
Additionally, company management even opposed several identified proposals that are harmful to shareholders on their face. This includes 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 (which would effectively limit sales of their products), and ten proposals to limit company free speech to conform with the Paris Agreement and net zero by 2050. Yet, the asset managers supported each of these proposals.
There may also be potential conflicts of interest created by ISS or a parent company’s membership in several activist organizations whose purpose is achieving environmental goals such as net zero greenhouse gas emissions rather than solely focusing on financial return. For example, ISS’s parent, Deutsche Börse Group, is a member of the Net Zero Financial Service Providers Alliance whose members signed a commitment to “[s]et an interim target for relevant services and products offered to be aligned with the net zero transition which is consistent with a fair share of the 50% global reduction in carbon emissions needed by 2030.”
Lastly, there is an apparent 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 ensures policy alignment with shareholders' financial interests.
“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,” wrote the attorneys general.
The attorneys general are asking the asset managers to answer specific questions within 30 days.
Attorneys general from Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Hampshire, North Dakota, Oklahoma South Carolina South Dakota Tennessee Texas Utah Virginia West Virginia Wyoming also joined led Montana Attorney General.