Democrats say retirement dollars at risk from GOP’s anti-ESG approach
[NEW YORK] Democratic state officials from New York to California sent letters to asset managers overseeing trillions of dollars in retirement funds, urging them to consider the long-term effects of factors such as climate change when making investment decisions.
The request from more than a dozen state treasurers and comptrollers calls for investment firms to reject pressure from the Trump administration and GOP lawmakers, and instead commit to thorough evaluations of risks tied to global warming, supply chains and corporate governance.
The Republicans are misrepresenting “the true meaning of fiduciary duty” by requiring asset managers to take “a passive approach to oversight while ignoring the nature of long-term value creation in modern capital markets”, according to one of the Democrats’ letters sent to investment firms. “In contrast, we believe that fiduciary duty calls for active oversight, responsible governance and the full exercise of ownership rights on behalf of the workers and retirees we serve.”
The coordinated Democratic campaign comes more than three years after Republican politicians initiated their attacks against environmental, social and governance (ESG) investing, calling it a threat to capitalism.
The GOP has launched investigations, introduced more than a dozen anti-ESG Bills across the US (many of which have failed) and gone as far as restricting some firms from doing business in their states.
And now Democratic state officials are fighting back in one of their most concerted public efforts yet. They say the vision of asset management that has emerged from the GOP puts American retirement money at risk.
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Their letters were sent to at least 18 fund managers, including BlackRock, State Street and T Rowe Price Group.
BlackRock said in a statement that its “singular focus is maximising returns for our clients, consistent with their choices”. A spokesperson for T Rowe Price declined to comment, and State Street has not responded to requests for comment.
“The stakes are incredibly high for retirees and Americans across the country who are trusting asset managers, financial officers and pension trustees to do the right thing with their retirement dollars,” said Maryland State Comptroller Brooke Lierman in an interview.
Protecting the financial interests of workers, retirees and taxpayers means exercising active oversight to hold companies and asset managers accountable for all types of investment risks, said Malia Cohen, the controller for California, the country’s biggest state.
“Ignoring risks, whether related to governance, climate or supply chains, isn’t neutrality, it’s negligence,” she added in an e-mailed statement.
“Asset owners and their asset managers must retain and effectively use their authority to vote proxies, and engage companies to deliver durable, risk-adjusted financial returns over the long term,” state officials wrote in a letter sent a few days back to BlackRock.
The Democratic letters were issued almost exactly a month after a group of Republicans warned financial firms to end so-called woke investing programmes that focus on supporting social and political agendas because they fall “outside the scope of materiality and positive financial return”.
The GOP’s letter signed by 26 state officials says that “while some firms have recently taken encouraging steps, such as withdrawing from global climate coalitions and scaling back ESG rhetoric and proxy votes, and some states have permitted incremental reintegration, more work must be done”.
Brad Lander, New York City’s comptroller, said that the idea that asset managers should “neglect long-term risks for short-term gains” is short-sighted. “That isn’t fiduciary responsibility,” he added in an interview.
In April, Lander’s office sent a notice to firms managing money on behalf of three city pension funds.
The letter instructed the asset managers to submit written plans to the city by June, outlining how they will work with the companies in which they invest on ways to decarbonise their operations.
All of the firms have sent in their plans and Lander’s office is reviewing them. Asset managers that fall short of meeting the city’s standards risk losing the pension funds as clients.
The separate letter from the 17 Democratic state officials, including Lander, asks asset managers to respond by Sep 1 and to meet with their offices to reaffirm their commitment to responsible investing. “We expect our asset managers to engage with us fully whenever the need arises,” Lierman said.
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