Scoop: Looking to squash ESG influence, Republicans focus on new industry targets
The Republican Party’s opposition to politicized environmental, social, and governance (ESG) investing is focused on new targets, multiple sources tell the Washington Reporter: Glass Lewis (GL) and Institutional Shareholder Services (ISS), shareholder advisory giants. Both have been subpoenaed by the House Judiciary Committee for potentially violating antitrust laws and will soon come under more attention in coming months.
Both ISS and GL are less known on the Right than other investment firms, but multiple Senate Republican aides said that the two are becoming Republicans’ top targets because of their influence, market control, and aggressive ESG activism.
The two firms control 97 percent of the proxy advisory market and regularly support recommendations from left-wing groups. A group of state treasurers and auditors, in a letter first reported by the Washington Examiner, said that the two “supported approximately 53% of Social Shareholder proposals and 60% of Environmental Shareholder Proposals, but 0% of shareholder proposals from conservative groups.”
While other asset managers have scaled back their support for ESG measures in face of anti-ESG campaigns, ISS and Glass Lewis have doubled down. American Enterprise Institute’s Ben Zycher testified to Congress last year that a “recent report found that the Big Three asset managers (BlackRock, State Street, and Vanguard) voted against ESG resolutions more frequently than [did] ISS and GL. These five institutions voted in favor of such resolutions as follows: ISS, 75 percent of the resolutions; GL, 41 percent; State Street, 29 percent; BlackRock, 24 percent; and Vanguard, 9 percent.”
ESG proposals benefit ISS’s bottom line specifically. The Competitive Enterprise Institute’s Stone Washington noted that “much of ISS and Glass Lewis’s pro-ESG bent is connected to selling their ESG-based solutions and other products.” Washington added that ISS and Glass Lewis “issue ratings that affect the financial future of firms, but then also sell their consulting services on how to optimize their scores, creating a potential conflict of interest.”
Other financial firms have reduced their ESG footprint lately in response to market pressure and political pushback. Jamie Dimon, JP Morgan Chase’s CEO, slammed the proliferation of ESG document requests driven by regulators. The Wall Street Journal reported that firms have pulled billions out of ESG funds, as higher interest rates have put pressure on banks. And BlackRock, which in past years has received aggressive pushback from many on the Right for its work on ESG, has made a number of major business moves in the other direction, for example providing funding for a Texas stock exchange to offer an alternative to the New York Stock Exchange and NASDAQ, two notoriously progressive entities. And BlackRock recently announced their offering of an alternative to ISS and Glass Lewis on Blackrock’s voting platform, Egan-Jones, that will allow additional conservative voting options for pension funds and other investors.
It was that inclusion of an alternative to the proxy voting duopoly of ISS and Glass Lewis that led the conservative group, the Committee to Unleash Prosperity, to note that competition in this space primarily focused on “maximizing shareholder value” was “music” to their ears
Similarly, multiple Senate staff tell the Reporter that the changes are welcome, long overdue, and show that political pressure works. A senior Senate committee counsel who has worked on ESG issues said that “ESG is a rot that has infected deep into a number of industries, but it’s clear that public pressure and transparency are having a positive effect. Hopefully [BlackRock] continues in the right direction. It’s good for Americans who have invested into BlackRock and it’s good for the country.” With Republicans favored to win control of the Senate in November, one Senate staffer told the Reporter that “smart companies are the ones offering an olive branch to conservatives to win back their trust.”