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EXCLUSIVE: Nearly two dozen state financial officers are calling on federal financial regulators to issue clear guidance and establish new rules concerning ESG-centered investing.
ESG stands for “environmental, social and governance,” and can conflict with investments made strictly from a fiduciary standpoint. The officers aim to protect Americans’ passive retirement plans through these measures.
State treasurers and auditors from Alaska to South Carolina wrote to the acting heads of the Securities and Exchange Commission (SEC) and Department of Labor (DOL) after a Texas court ruling against American Airlines in a suit brought by a pilot concerned about the investments within his retirement plan.
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“We, therefore, request SEC and DoL take decisive action to uphold fiduciary duty laws and protect retirement plans from activist corrosion,” the state officials wrote.
“Specifically, we call on your agencies to issue comprehensive guidance … initiate rulemaking … [and] increase oversight and enforcement” of fiduciary rules.
A Wall Street sign in front of an American flag (Reuters/Mike Segar / Reuters Photos)
On Jan. 15, Bush-appointed federal Judge Reed O’Connor ruled in favor of the pilot, who alleged his employer did not properly monitor the proxy voting of investment managers they were doing business with, including BlackRock.
The airline’s own ESG goals also conflicted with those of some of the investment firms, according to allegations chronicled by ESG Dive.
The state officials asked the SEC and DOL to reaffirm a Supreme Court ruling that fiduciaries must discharge their duties solely in the financial interests of retirement plan participants and that proxy voting may not be motivated by non-fiduciary concerns such as achieving environmental or progressive social goals like reducing emissions.
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“There is an indisputable trend, among large asset managers, to prioritize political and social agendas over the financial security of hardworking Americans. Retirement security should not be jeopardized in order to facilitate corporate virtue signaling and activist-driven initiatives,” they wrote.
Such “mixed motives” — if a retirement plan manager considers ESG above or in addition to the highest possible rate of return for the beneficiary — cannot be tolerated legally or ethically, the officials wrote.
Investing in such a way “triggers an irrebuttable presumption of wrongdoing” on the part of the investment manager firm.
In the American Airlines case, the court found that ESG investments often underperform traditional investments by about 10%.
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It also found BlackRock “publicly vowed to support more shareholder proposals on climate change, even at major energy companies that make money from the production of fossil fuels.”
However, the airline’s retirement plan investments with the mega-firm were reportedly limited to index funds that have no political or social bent but may, by definition, coincidentally contain shares of individual companies that embrace ESG principles in their business model.
An AA spokesperson confirmed to ESG Dive that BlackRock’s role was limited to passive index funds and that the ruling focused on AA’s oversight of the firm’s proxy voting in alignment with industry best practices.
OJ Oleka, leader of the State Financial Officers Foundation (SFOF), members of which signed the letter, said it has been troubling to see asset managers and administrators “pushing political and social agendas at the expense of what’s best for everyday Americans.”
“The recent court ruling against American Airlines is a clear example of the risks of prioritizing ESG and DEI over financial returns,” Oleka told Fox News Digital.
“Fiduciaries have a duty to focus on the financial well-being of those they serve, and when they don’t, it’s a disservice to their beneficiaries and potentially illegal.”
He expressed hope the federal government will step in to reinforce that firms should be prioritizing financial benefit over “distractions” that undermine financial security.
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In response to being mentioned as an example in the letter, a BlackRock representative told Fox News Digital the investment giant always makes decisions with investor gains in mind.
“We always act independently and with a singular focus on what is in the best financial interests of our clients,” the spokesperson said.
“Our only agenda is maximizing returns for our clients, consistent with their choices.”
A source familiar with the issues raised by SFOF claimed they have mostly been resolved.
The state of Tennessee recently settled an ESG case against BlackRock, and the firm has also departed a Wall Street alliance geared toward “net zero” emissions.
Jeff Eller, executive director of the Alliance for Prosperity and a Secure Retirement, told Fox News Digital the American Airlines ruling that preceded the letter was the “legal equivalent of junk science.”
“It is full of inaccuracies and contradictory claims. It is only a matter of time before it is most likely reversed on appeal. which will protect the retirement plans for millions of Americans,” Eller said.
