BlackRock and other U.S.-based investment management conglomerates have chosen to withdraw from a controversial initiative, Climate Action 100+ (CA100+), that pressured companies to “reduce greenhouse gas emissions” to “net-zero emissions by 2050 [or] sooner,” in pursuit of “limiting global average temperature increase” to 1.5 degrees above “pre-industrial levels.” The withdrawals follow financial and legal pressure from U.S. state officials, as well a new phase of cooperation for CA100+ that would move “from words to action.”

As of last June, more than 700 firms had joined CA100+, controlling a breathtaking $68 trillion, or nearly 2.5 times the U.S.A.’s annual GDP.

However, last week, Reuters reported that some of the world’s largest investment managers had withdrawn from CA100+. BlackRock, the world’s largest investment firm with $9 trillion assets under management (AUM), withdrew its U.S. arm, worth $6.6 trillion. State Street (4th largest with $4.1 trillion AUM), J.P. Morgan (6th largest with $3.1 trillion AUM), and PIMCO (14th largest with $1.9 trillion AUM) all withdrew entirely. However, Fidelity Investments, Goldman Sachs, Invesco, and Franklin Templeton (U.S. firms among the world’s 20 largest asset managers) are still signatories.

With the withdrawal of these four firms, CA100+ lost influence over the $15.7 trillion in assets they managed, cutting its influence by 23%.

At least in part, the withdrawals were triggered last summer, when the Steering Committee for CA100+ announced a “Phase Two” for their campaign of corporate climate activism, expected to last until 2030. “In phase two, the overarching goal is to go from words to action,” explained CA100+ Steering Committee Chairman Francois Humbert. The new phase would mean “more accountability, more transparency, more seniority.” The new guidelines would require investment managers to disclose how they vote on climate-related motions at shareholder meetings, as well as how often they lobby corporations and policymakers with their climate agenda.

When CA100+ upped the ante, several major U.S. investment firms promptly folded. BlackRock and State Street cited independence concerns, J.P. Morgan said it had developed “its own climate risk engagement framework,” while PIMCO claimed it “operates its own portfolio-relevant engagement activities with issuers on sustainability.”

In other words, these investment managers do not object to leveraging their fiduciary trust to pursue climate activism. All four of them are still doing climate activism on their own. They did object to the loss of independence of having an international organization micromanage their climate activism — how very American.

However, independence concerns over CA100+’s move to “Phase Two” does not fully explain the abrupt withdrawal of these investment management firms. After all, they still basically share CA100+’s goal of leveraging the investments they manage to advance their climate activism agenda. And these firms did decide to join CA100+ in the first place, knowing that it might inevitably lead to phases that required more action and accountability. Here, grasping the full picture requires viewing the scenery from more than one vantage point.

On March 30, 2023, 21 state attorneys general wrote a letter to the largest U.S.-based asset managers, expressing concern over their political activism and warning that such behavior could violate federal securities laws. The letter, led by Montana AG Austin Knudsen (R), specifically highlighted the CA100+ agenda as “potential unlawful coordination” to “push policies through the financial system that cannot be achieved at the ballot box.” It put investment managers on notice that “ongoing investigations” would “continue to evaluate” whether the firms were engaged in “potential unlawful coordination and other violations … as part of Climate Action 100+, Net Zero Asset Managers Initiative [NZAM], or the like.”

Woke asset managers have sustained considerable pressure from state governments in recent years, as the vast scale of their political activism became known. State officials have issued opinions declaring political activism with public funds illegal, published blacklists of politicized corporations the state won’t do business with, opposed woke companies’ purchases of public utility shares, and demonstrated the public support for doing so by winning subsequent elections.

Asset management firms are wilting before the ire of these state officials. Last summer, after 11 state governments pulled more than $5 billion in assets from his firm’s management, BlackRock CEO Larry Fink declared he was abandoning the acronym “ESG” (for left-wing “environmental, social, and governance causes) — but not the spirit. In December 2022, Vanguard (the world’s second largest asset manager, with approximately $7 trillion AUM) announced plans to withdraw from the NZAM after pressure from state governments.

The mini-exodus from CA100+ seems to be undertaken with the same goal in mind. The firms withdrawing from the climate pact haven’t abandoned their commitment to climate activism, but they would prefer not to become the next Bud Light in doing so. Re-asserting their “independence” from CA100+ frees them to evaluate the political or legal costs of any particular deed of climate activism and avoid provoking uncomfortable investigations or costly lawsuits. Even without changing their behavior, distancing themselves from the climate organization can help them avoid charges of “unlawful coordination” without distancing themselves from the climate agenda.

The backdrop to this performative calculus is that much left-wing corporate activism is neither essential nor profitable. In a 2022 survey of top executives, 59% of CEOs said they would “plan to pause or reconsider their organization’s ESG efforts” in response to a recession. That’s the sort of numbers you would expect from an optional extra — like a soft-serve machine in the breakroom. It might keep the workforce happy, and it might help mute outside criticism, but it doesn’t help a business achieve its core mission — to produce, move, or sell a product, or to provide certain services.

In the case of asset management firms, they provide the service of managing assets, in hopes of providing a better return for investors than they could obtain on their own. Climate activism is not relevant to the goal of asset management. In fact, climate activism can hamper an asset manager’s goal (obtaining the best return for his client) by forcing a company to adopt costly “green” policies that reduce its profitability and thus the profitability of assets invested in that company.

“Broadly, [federal securities] laws require you to act as a fiduciary, in the best interests of your clients and exercising due care and loyalty,” the attorneys general wrote the asset management firms. “Simply put, you are not the same as political or social activists and you should not be allowing the vast savings entrusted to you to be commandeered by activists to advance non-financial goals.” Asset management firms aren’t yet convinced of this argument and continue to pursue climate activism, but changes in their behavior indicate the pressure is having an effect.

AUTHOR

Joshua Arnold

Joshua Arnold is a senior writer at The Washington Stand.

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