South Carolina Attorney General Alan Wilson has joined a coalition of 24 attorneys general in seeking explanations from the nation’s top asset managers regarding their adherence to fiduciary duties. The coalition aims to determine if these managers are prioritizing environmental and social agendas over their clients' best interests.
“These asset managers are supposed to do what is in the best interest of their clients, but it appears that they are using their position to accomplish the goals of liberal environmental and social groups instead,” said Attorney General Wilson. “These practices could be inconsistent with the fiduciary duties outlined in the Investment Advisors Act and could be financially detrimental to their clients.”
A letter sent on Thursday to 25 leading asset managers raises concerns about potential violations of fiduciary duties through support for environmental shareholder proposals recommended by Institutional Shareholder Services (ISS), flagged by the activist group Ceres. The attorneys general question whether ISS has conducted independent financial analyses of these proposals or if asset managers have outsourced voting decisions to ISS or other third parties.
Evidence suggests that asset managers may be following ISS's recommendations without conducting independent evaluations, as their support for these proposals was significantly higher than market averages. The 25 asset managers aligned with ISS recommendations at least 75 percent of the time, compared to an overall market support rate of 37 percent, with only 17 percent of such proposals receiving majority backing.
Several identified proposals opposed by company management were supported by these asset managers, including six related to setting greenhouse gas (GHG) targets for lenders based on customer emissions, thirteen targeting traditional energy producers, and ten aimed at limiting company free speech in line with the Paris Agreement and net zero by 2050.
Potential conflicts of interest may arise from ISS or its parent company's involvement in activist organizations focused on achieving environmental goals rather than solely financial returns. For instance, Deutsche Börse Group, ISS’s parent company, is part of the Net Zero Financial Service Providers Alliance committed to aligning services with net zero carbon emission targets.
The attorneys general highlight an apparent lack of financial analysis by ISS before recommending approval for environmental proposals. “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,” they wrote.
The coalition has requested detailed responses from the asset managers by October 4, 2024. Attorneys general from Alabama, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nebraska New Hampshire North Dakota Oklahoma South Dakota Tennessee Texas Utah Virginia West Virginia and Wyoming also signed onto this effort led by Montana Attorney General Austin Knudsen.
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