Political and regulatory pressure seems to have taken its toll.
Four American financial giants (JPMorgan, BlackRock, State Street and Pimco) with trillions of dollars in assets have abandoned or reduced their involvement with Climate Action 100+, the largest initiative of investment groups and large companies to reduce emissions and fight against global warming.
“Views on sustainability or ESG practices, particularly those related to climate issues, have become political issues, which can amplify reputational risks,” State Street notes in its annual report, filed this week with the Commission. Securities and Exchange Commission (the SEC).
“They are giving in to the climate deniers,” says a Democratic official.
Sustainable investment criteria or ESG, acronym for environment, social and governance, are at the center of an ideological and political battle in the United States.
Republicans have increased pressure against such criteria on several fronts.
The latest proposal, in the New Hampshire state legislature, was to make them a crime in some cases.
The initiative has been rejected, but there are States that veto the management firms that apply them and there is also pressure from Congress.
House Judiciary Committee Chairman Jim Jordan and two other Republicans sent letters to the leaders of State Street, BlackRock and Vanguard, asking them to explain their environmental, social and governance (ESG) practices.
In the letters, the congressmen suggested that the entities were violating US antitrust law by coordinating and entering into collusive agreements to “decarbonize” managed assets and reduce emissions to net zero.
Membership in groups such as Climate Action 100+ was in the spotlight.
On the one hand, about 700 investors belong to that organization, but these four giants represented 14 billion dollars, around 20% of the total.
On the other side, there are companies.
Among the investors are Spanish fund managers from Santander, CaixaBank and Ibercaja, among others.
As for the companies, the Spanish companies present are Iberdrola, Naturgy and Repsol.
The withdrawal of the financial giants does not imply that the companies deny the fight against climate change, but it does mean that they distance themselves from the guidelines set by the group in their actions.
Last year, Climate Action 100+ set new, stricter guidelines for investors to be more active in demanding emissions reductions.
The entities indicate that with their withdrawal they intend to maintain their autonomy and decision-making independence from the companies.
Political division
After the first announcements, Congressman Jordan celebrated: “The decisions by JPMorgan and State Street are great victories for freedom and the American economy, and we hope that more financial institutions will follow their example and abandon collusive actions on ESG matters,” he tweeted.
On the other hand, New York's municipal auditor, Democrat Brad Lander, criticized him: “Climate risk is a financial risk.
Today, BlackRock, JPMorgan and State Street choose to ignore both,” he said in a statement.
“By bowing to the demands of right-wing politicians funded by the fossil fuel industry and backtracking on their commitment to Climate Action 100+, these huge financial institutions are breaching their fiduciary duty and putting trillions of US dollars at risk. assets of their clients,” he added.
“They are giving in to the climate deniers,” he concluded.
Lander was especially critical of BlackRock, whose boss Larry Fink declared three years ago that climate risk is a financial risk and took the lead in climate investor activism.
The firm has not completely left the Climate Action 100+ group, but has left its place to its international division.
BlackRock is a leading shareholder in dozens of Spanish companies, including Iberdrola and Repsol, and with the purchase of GIP, it will also be a major shareholder in Naturgy.
BlackRock had already released the first warning that things were changing in its 2022 annual report. “ESG criteria and sustainability have been the subject of increased regulatory attention in all jurisdictions,” it warned.
“Some states or state officials in the United States have passed or proposed laws or taken official positions that restrict or prohibit state public entities from doing certain businesses with entities identified by the State as 'boycotting' or 'discriminatory' against certain sectors or that They take ESG factors into account in their investment and board voting processes.
“Other states and localities may adopt similar legislation or other laws and positions related to ESG criteria,” she added.
Another problem for large investment firms is the different perception and regulation in the United States and Europe.
State Street expressly admits as much in its annual report: “The general expectations of our stakeholders, including regulators and customers, outside the United States, especially in Europe, regarding sustainability or ESG issues may be significantly different from the expectations in United States.
As we conduct our asset management activities on a global scale, conflicting global expectations in the United States and outside the United States complicate our ability to mitigate risks,” he explains.
ESG criteria have changed direction in the risk chapters of listed companies.
Before, the risk was not adopting them.
Now, it is applying them or both at the same time.
“Activists have taken actions aimed at changing or influencing JPMorgan Chase's business practices with respect to ESG issues, including public protests at JPMorgan Chase's headquarters and other properties, and submitting specific ESG-related proposals for voting by JPMorgan Chase shareholders,” the bank says in its annual report.
“The fiduciary, anticompetitive, voting power, governance and other issues raised by ESG investment strategies continue to be the subject of legislative and regulatory debate around the world, especially at the federal and state levels in the United States,” it notes. for its part, State Street, which highlights the regulatory and political scrutiny to which the entity is subject.
“Some US officials have suggested that sustainability or ESG-related investment practices may give rise to violations of law – including antitrust laws – and breaches of fiduciary duty,” she admits.
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