Idaho state treasurer Julie Ellsworth is reviewing responses from financial institutions – including Vanguard Institutional Investor Group – to ensure compliance with new anti-ESG legislation, Responsible Investor can reveal.
Act SB1405, which came into effect on 1 July, bans “public entities engaged in investment activities” from considering environmental, social or governance characteristics “in a manner that could override the prudent investor rule”. Public entities serving as fiduciaries to select investment options for investors will be allowed to offer “environmental, social and governance preferred investment alternatives”, but with the proviso that such investments “shall not be required and sufficient alternatives must be also offered”.
Following the act’s implementation, treasurer Ellsworth sent a letter to all third-party investment managers hired on behalf of the Millennium Permanent Endowment Fund.
According to the treasury’s website, the fund was established as an “endowment fund to receive, invest and disburse funds that the State of Idaho is receiving as a result of the master settlement agreement reached with tobacco companies”.
The managers are Brandes Investment Partners, CBRE US Partners, Harding Loevner, Vanguard Institutional Investor Group and Tributary Capital Management, a spokesperson for the treasurer told RI.
At the time of publication, Harding Loevner had declined to comment and the other firms had not responded to RI’s request for comment.
The letters were to make the firms aware of the law and “help us assure we are in compliance with the law’s requirements”, the spokesperson explained.
They added: “The firms were asked to supply the treasurer’s office with confirmation of receipt of the letter, understanding of the intent of the legislation, access to proxy votes on a quarterly basis, and assurance that proxy voting policies by the firm are made in the best interest of the beneficial owners and without ESG considerations. The treasurer’s office will post all proxies as available on a quarterly basis.”
The spokesperson said the office had received confirmation from all of the firms and that the treasurer was reviewing the responses to ensure compliance with the new law.
At the time of publication, the spokesperson had not responded to RI’s request for comment on when the treasurer is set to conclude her review and what will occur if compliance is not found.
Texas denials
The move from Idaho comes as a further group of the world’s largest asset managers have informed Texas that they do not meet the threshold for divestment under new legislation which bans boycotting fossil fuels.
In a further tranche of letters obtained by RI under Texas’s Public Records Act, investment titans including State Street Global Advisors, Goldman Sachs Asset Management, Fidelity Investments and Federated Hermes deny that they boycott fossil fuels.
As in its response to a similar request from West Virginia, Goldman Sachs Asset Management notes its inclusion in a report by the Rainforest Action Network which found it had provided close to $120 billion in financing to fossil fuel companies since 2016.
The letter further draws attention to statements by Goldman Sachs’s CEO that the world will continue to produce and use fossil fuels, and “Goldman Sachs will continue to support clients in transactions that are important to economic activity”.
Federated Hermes also denies it is boycotting fossil fuels, calling the industry “essential to the world economy”, and “a key ingredient for the economic growth and social development of the developing world”.
The firm, which manages the $25.8 billion local government investment pool TexPool, further draws attention to the overweighting of the energy sector in its $8.8 billion strategic value dividend fund.
State Street Global Advisors, which manages close to $13 billion in Texan pension money and $18 billion for public entities, argues that climate risk is relevant to a company’s financial performance. The firm says its membership of the Net Zero Asset Managers Initiative, PRI and Climate Action 100+ is not intended to boycott energy companies.
Texas-headquartered $679 billion manager Dimensional also denies meeting the definition of a boycott, as well as scolding the comptroller for getting its name wrong in the initial request.
Neuberger Berman also flags that the request letter was addressed to a non-existent entity, while noting its $3.38 billion equity and $9.2 billion fixed income investments in Texan energy companies.
Several firms, including Wellington Management and Pacific Life, deny they meet Texas’s legal definition of a financial company as they are not publicly traded, as does Fidelity Investments – which does, however, say it is “pleased to confirm” it does not boycott energy companies.
Trillium Asset Management claims that its ordinary business purpose is among other things to integrate ESG factors into investment and to “advance humankind towards a global sustainable economy, a just society, and a better world”. As such, it argues, it does not meet Texas’s definition.
The Texas comptroller is set to release the list of firms judged to be boycotting fossil fuels later this year, although the vast majority of letters seen by RI claim that firms do not meet the threshold for inclusion on the list.
During an interview with RI earlier this month, Lance Dial, a partner at law firm Morgan Lewis, said that the law had “the kind of loophole that’s big enough to drive a truck through”, and suggested that the law “may intentionally have some interpretative wiggle-room”.
BlackRock deadline
In related news, the deadline for BlackRock to respond to questions from the senator of Arkansas, which challenged the firm’s involvement in Climate Action 100+, passed on Wednesday.
As RI reported this month, senator Tom Cotton suggested in a letter to CEO Larry Fink that the influential investor network may “violate antitrust law” by mobilising shareholders to act in concert in a bid to influence the financial markets and companies.
Cotton also requested answers from Fink on whether BlackRock had engaged with any focus companies as part of CA100+ and whether it had collaborated with any other members as part of the initiative. BlackRock was asked to list details of any relevant companies and investors by 20 July.
BlackRock declined to comment on whether they had responded to the questions.
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