In the United States, the pursuit of ideological goals at the expense of others’ wealth is being increasingly scrutinised. A series of significant lawsuits highlight a core principle of the US economy: political agendas are personal, while investor returns are paramount.
For “woke” Democrats and anti-ESG Republicans alike; anyone who wants to use pensions to make a political statement is in the wrong place in the United States. A telling example of this is unfolding in Oklahoma, where an aggressive anti-ESG campaign is being put on the legal chopping block because it is eating into returns.
Like Texas and Kentucky, conservative Oklahoma banned pension funds in 2022 from working with asset managers that consider ESG principles when making investment decisions, a strategy popular until recently.
BlackRock and State Street ended up blacklisted for integrating ESG principles too assertively, allegedly discriminating against oil and gas companies.
The ban is currently being legally challenged by Don Keenan, a retired state official, because Oklahoma’s second-largest state pension fund discovered that it would cost $10 million to transfer money from funds managed by BlackRock and State Street.
Keenan, who says he has “no objection to oil and gas activities”, refuses to accept “deflating his pension because of political statements with pension dollars”, according to a statement. The Oklahoma state constitution requires state pensions to be organised for the “exclusive benefit” of their beneficiaries, better known to investors as the fiduciary duty.
The Office of the State Treasurer, responsible for the state’s finances, previously found that ending banking relationships with similarly sanctioned JPMorgan Chase and Bank of America would be so costly and impractical that both banks are currently using exceptions to the law.
New York
In democratic New York, a group of pension savers, consisting of an underground driver, a public school teacher, a school secretary and an occupational therapist, has launched a lawsuit against former Mayor Bill de Blasio’s decision to liquidate billions of dollars of pension money from fossil fuels.
As in Oklahoma, it is alleged that the state is putting its political agenda to limit certain investments above investor interest, harming pensions in what the plaintiffs call a “misguided and ineffective gesture” to address climate change.
The funds’ lawyers note that the challengers are not legally in a position to sue because they are entitled to a fixed monthly payment regardless of the performance of the underlying investments.
Also, the complaint would be based on “the radical and absurd idea” that courts can force public pension funds to invest in a particular industry if it performs well enough.
Fiduciary differences
Jonathan McGowan, a attorney and ESG columnist at Forbes, understands the confusion about what is going on in the US. However, European readers should remember that ESG in the US is not the same as in the EU because the legal concept of fiduciary duty differs between jurisdictions.
The US, according to McGowan, is a shareholder jurisdiction which means that fiduciary duty is owed only to investors. The EU is a stakeholder jurisdiction, which means that while the primary focus is on investors, companies can also consider other factors, such as the impact on the community through climate change, among others, says Mcgowan, who struggles to formulate a unilateral answer to the question of what effect the growing number of legal claims is going to have on SRI in the US.
McGowan: “The US cannot expect the same level of action on climate change as the EU unless the law changes. Legal theory holds that failure to take climate change into account is a breach of an asset manager’s fiduciary duty because the effects of climate change will be so drastic as to affect a company’s ability to make a profit in the future. However, it is still a theory that has not been successfully tested in court.”
Tennessee
That asset managers are slowly but surely coming between hammer and anvil when it comes to their ESG strategy is all the more evident in a new - and so far unique - lawsuit between Republican Attorney General, Jonathan Skrmetti of Tennessee and BlackRock.
Skrmetti is suing the asset manager for making “untrue or misleading claims” about the extent to which ESG affects investment choices, according to the complaint.
According to Skrmetti, BlackRock, as a member of Net Zero Asset Managers Initiative and Climate Action 100+, made a pledge to put pressure on companies to reduce their carbon emissions, but in the meantime articulated two contradictory views: one focuses exclusively on money, and the other focuses on environmental impact.
BlackRock’s inconsistent statements about its investment strategies have “deprived consumers of the ability to make informed choices,” Skrmetti, Tennessee’s top legal officer, told news channel Fox Business.
The Tennessee complaint is shared by the House of Representatives Judiciary Committee, which recently subpoenaed BlackRock, State Street and Vanguard for potentially violating anti-trust laws by considering ESG criteria in investment decisions, or “greenhushing”.
“BlackRock appears to have colluded to ‘decarbonise’ its assets under management and reduce emissions to net zero. This may be done in ways that violate US antitrust laws,” the committee said.
Further reading:
- ESG on shaky ground: Higher fees no longer justify the risk
- In Flux: ESG storm has yet to abate
- Bluebell wants Fink out, sees greenwashing at BlackRock