Montana Attorney General Austin Knudsen has led a coalition of 24 attorneys general in seeking answers from the nation's top asset managers regarding their support for environmental shareholder proposals. The letter, sent Thursday to 25 asset managers, raises concerns about potential violations of fiduciary duties by these managers. The proposals in question were recommended by Institutional Shareholder Services (ISS) and flagged by the environmental activist group Ceres.
Attorney General Knudsen stated, "The asset managers appear to be more concerned with earning social credit than doing what’s best for their clients. If they are deferring their analysis and decision making to environmental activist groups, then they are failing to meet their fiduciary duty to their shareholders. Most of the market even finds the proposals they are supporting to be unacceptable, which is cause for serious concern."
Evidence suggests that asset managers may be outsourcing their voting decisions by following ISS recommendations. The data indicates that these managers supported ISS-recommended proposals at least 75 percent of the time, compared to an overall market support rate of 37 percent on average. Only 17 percent of these proposals received majority support.
Several specific proposals opposed by company management but supported by asset managers include setting greenhouse gas (GHG) targets for lenders and underwriters based on customer emissions, limiting sales for traditional energy producers through GHG targets, and restricting company free speech in alignment with the Paris Agreement and net zero goals by 2050.
Potential conflicts of interest may arise from ISS or its parent company's membership in activist organizations aiming for environmental goals rather than financial returns. For instance, Deutsche Börse Group, ISS's parent company, is part of the Net Zero Financial Service Providers Alliance.
Concerns have also been raised about ISS's lack of financial analyses before recommending votes on 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," wrote the attorneys general.
Attorney General Knudsen has requested responses from the asset managers by October 4. Attorneys general from Alabama, 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 and Wyoming also joined the letter.