Attorney General Alan Wilson joins coalition demanding answers from top asset managers

(COLUMBIA, S.C.) – South Carolina Attorney General Alan Wilson 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.

“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,” Attorney General Wilson said. “These practices could be inconsistent with the fiduciary duties outlined in the Investment Advisors Act and could be financially detrimental to their clients.”

The letter sent Thursday 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 environment 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.

Evidence suggests that the asset managers are outsourcing their vote by simply following ISS’s (or another third parties) 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, the asset managers’ 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 who have the purpose to achieve 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 to 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 the policy is in the financial interest of the shareholders.

“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,” the attorneys general wrote.

The attorneys general are asking the asset managers to answer detailed questions 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 joined the letter led by Montana Attorney General Austin Knudsen.

Click here to read the letter.