More than a dozen Republican state financial officers are demanding answers from two firms with major influence in Wall Street in the latest battle over ESG and “woke” investing.
The officials sent letters on Tuesday to the proxy advisory firms Glass Lewis and Institutional Shareholder Services, little-known advisers that are a major force in working behind the scenes to guide shareholder votes in corporate affairs, accusing them of favoring left-leaning initiatives and freezing out conservatives.
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A total of 18 Republican state treasurers and auditors signed onto the letters, including some, like West Virginia Treasurer Riley Moore, who have made a name for themselves fighting environmental, social, and governance investing. ESG is an investment philosophy that doesn’t solely look at maximizing profit but also other elements — for instance, an investment’s effect on the climate.
While Glass Lewis and ISS might not be household names, they hold massive sway in the corporate world. In fact, combined, they make up an estimated 97% of the proxy advisory market. The letters come as a follow-up to missives sent by the state financial officers to Glass Lewis and ISS earlier this year. They detail what they perceive as a lack of quality responses to the first round of letters and demand further clarification on how the firms approach shareholder proposals.
“State financial officers began this dialogue with ISS and Glass Lewis earlier this year, as they pushed back against ESG investing, but the fight continues,” Derek Kreifels, CEO of the State Financial Officers Foundation, told the Washington Examiner. “We continue to see financial institutions and proxy voting services privilege ESG considerations in shareholder proposals while ignoring others focused on upholding a company’s fiduciary duty.”
In the letters, state treasurers and auditors express concern with how ISS and Glass Lewis treated shareholder proposals put forward by conservative organizations.
The state treasurers took umbrage to the firms' apparent support for shareholder proposals that are ESG-related but contend they don’t support shareholder proposals that came from conservative groups. In Glass Lewis’s case, they argue the action is a violation of the company’s own guidelines.
“Given the discussion earlier about conservative proponents … for the most recent year for which data is available (2022), you supported approximately 53% of Social Shareholder proposals and 60% of Environmental Shareholder Proposals, but 0% of shareholder proposals from conservative groups,” the letter to Glass Lewis reads. “This does not appear to be even-handed treatment.”
In the letter, the officials mention Glass Lewis’s code of ethics, which forbids research analysts “from making recommendations based on their personal, social, or political preferences.”
In the letter to ISS, the financial officers said the firm’s previous response lacked information to back up the claim that ISS wasn’t politically biased against proposals from conservative groups.
“You did not present adequate data to fully address the issue of political bias,” the letter to ISS reads. “For example, you did not supply the equivalent data for your support for proposals from conservative groups, even though we asked several specific questions about that.”
The group said that, accordingly, it did research on ISS and found no evidence that the firm supported any proposals from conservative groups this year. The letter noted this is “hardly reassuring” to investors who may be concerned that the firm is “pushing political agendas.”
Finally, the two letters to Glass Lewis and ISS also call upon them to support fiduciary resolutions that prohibit the practice of debanking based on political matters.
Debanking is when banks cut ties with organizations or people that might pose a financial or reputational risk. There have been concerns that conservative or religious groups might get targeted.
“We hope that ISS would in the future show equal zeal in supporting risk disclosure no matter which side the proposals come from. We believe disclosure regarding policies concerning, and risks arising from, debanking would be a good start,” the letter to ISS reads.
The letters are part of a larger effort from GOP state officials to push back against ESG.
BlackRock, the world’s largest money manager, has also come under fire for its embrace of ESG principles. Several Republican-led states have divested or announced planned divestments of hundreds of millions of dollars from the firm.
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In BlackRock’s case, the GOP pushback might have made some headway. An annual report revealed that BlackRock supported just 7% of nearly 400 shareholder proposals on environmental and social matters.
Also of note, BlackRock CEO Larry Fink’s annual letter this year didn’t include one mention of ESG and deemphasized talk about the climate, saying that companies aren’t “the environmental police,” a tone shift from recent years as GOP pushback grows.