Asset managers under fresh attack from anti-ESG states

Investment managers battle misinformation and legal attacks

Anti-ESG states are upping the ante against asset managers to curb the green investment movement this year, ESG Clarity has found.

Nearly half of US states have already banned ESG as a factor in state investments, with some even restricting investment firms with ESG policies. But asset managers are pushing back.

Anti-ESG takedown tactics

Congress has heard testimony from staunchly anti-ESG voices, after Alabama attorney general Steve Marshall and Utah attorney general Sean Reyes asked the law-making body to limit the impact of ESG. Some 21 state attorney generals have criticized asset managers’ involvement with ESG matters in an open letter, in a show of force. 

In May, Florida governor Ron DeSantis (pictured) signed a bill that bars state officials from putting public money to promote ESG efforts and bans ESG bond sales. Florida’s move last year to pull around $2bn from BlackRock took the world’s largest money manager by surprise. Over in Oklahoma, the state treasurer put 14 well-known managers on a restricted list. 

Attorney generals are also flexing their muscles. In Montana, Alabama and Louisiana they have issued civil investigative demands to asset managers, and are elbowing their way into their affairs. Some 17 Republican attorneys general filed a motion with the Federal Energy Regulatory Commission (FERC) in May, seeking to intervene in a large asset manager’s reauthorization to acquire stakes in utilities. 

This wasn’t the first time either. Previously, 13 Republican state attorneys general had filed a motion to intervene in another large asset manager’s FERC reauthorization. On the East Coast, three New York City pension funds are being sued for breach of fiduciary duty for selling their holdings in oil and gas companies. 

Asset managers fight back

Asset managers are keeping a cool head. Bryan McGannon, managing director at the US Sustainable Investment Forum, an industry group for organizations involved in sustainable investing, says they are finding workarounds and pushing back.  

Even in the states that ban ESG considerations, many of the laws contain provisions that allow for ESG factors that are “pecuniary” – in other words, material. McGannon said: “This leaves room for ESG criteria that investors use to consider risks and opportunities in their investments.”

Florida’s anti-ESG legislation, for example, defines pecuniary as what an investor “prudently determines is expected to have a material effect on the risk or returns of an investment,” given appropriate time horizons and not considering “social, political or ideological” interests. 

He said: “Importantly, we’re not seeing asset managers change how they use ESG factors in the broader marketplace. They may have toned down their marketing approaches, but there is still strong demand for these products.”

Investors are also pushing back on state anti-ESG efforts alongside banking associations and advocates. So far, they have stopped more than 80 bills from progressing and 17 states from passing anything.

Asset managers remain steadfast, with 88% in the US stating that they believe that ESG has become of a priority despite political pushback from right wing politicians. The US Treasury has endorsed a three-year pledge from an investor-led consortium to accelerate pension fund and institutional investments in sustainable infrastructure and the energy transition. The Investor Leadership Network’s new initiative aims to speed up financing the energy transition,

Nevertheless, the anti-ESG pushback will push up borrowing costs among state and local governments as a result of reducing competition among firms they can do business with, warns McGannon. Pension plan beneficiaries will also face decreased returns, he says.