Republican state attorneys-general in the US have taken aim at corporate proxy advisers, challenging Institutional Shareholder Services and Glass Lewis over their recommendations tied to climate and social goals.
The two companies, which dominate the business of guiding investors on board votes and shareholder resolutions, are the latest financial groups to receive pressure from Republican state officials on the attack over sustainable investing principles.
“Evidence regarding climate change advocacy and goals suggests potential violations of your contractual obligations and legal duties,” the 21 attorneys-general warned ISS and Glass Lewis in a letter on Tuesday. The officials said both advisers have pledged to make voting recommendations on company directors based in part on certain net zero carbon emissions goals.
The attorneys-general, from states including Alabama, Texas and Utah, also raised questions about the advisers’ recommendations with respect to boardroom diversity.
“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 belief, or those of your other clients,” the letter said.
The warning is part of a broad campaign. Republican-led states have previously withdrawn funds from financial groups that have embraced environmental, social and governance investing principles.
BlackRock, with $8.6tn in assets under management, has been under particular scrutiny because chief executive Larry Fink has promoted sustainable investing at the world’s largest asset manager.
Fink said in an interview on Tuesday that BlackRock shed about $4bn in assets in 2022 due to Republicans pulling investments from the firm as part of an ESG boycott, though it added $230bn in investments in the US last year.
“For the first time in my professional career, attacks are now personal,” Fink told Bloomberg TV. “It is not business anymore. [The Republicans] are doing this in a personal way.”
ISS and Glass Lewis control about 97 per cent of the market share for voting advice, the US Securities and Exchange Commission said in 2019.
Because investors need to vote at thousands of company annual meetings a year, they pay advisers for voting recommendations even if they do not ultimately agree with them. As a result, ISS and Glass Lewis have significant sway over the corporate landscape, the SEC has said.
The duo have had a tense relationship with companies for decades, in part because they occasionally side with activist investors or will recommend that shareholders vote against executive bonuses. JPMorgan Chase chief executive Jamie Dimon lashed out against proxy advisers in 2015 when he faced a revolt over his pay.
ISS is majority owned by Deutsche Börse. Glass Lewis is co-owned by Canadian private equity firm Peloton Capital Management and Canadian businessman Stephen Smith. The companies did not immediately respond to requests for comment.
The advisers have also been targeted in at least two US statehouses. Last week, legislators in Indiana and Montana introduced bills to ban the states’ pension funds from following shareholder advisers’ voting recommendations that consider ESG criteria.
Terry Moore, a representative who sponsored the Montana ESG legislation, said the bill was the first of its kind in the state and would ensure that its pension board considers alternatives to ISS and Glass Lewis when competitors become available.
Under then-president Donald Trump, the SEC approved restrictions on ISS and Glass Lewis. But under President Joe Biden the rules were rescinded.