Indiana Secretary of State issues cease-and-desist order against BlackRock
Indiana Secretary of State Diego Morales (R) issued a cease-and-desist order last week against BlackRock, arguing the asset manager misled investors and used non-ESG funds to promote ESG goals:
Indiana Secretary of State Diego Morales (R) is accusing BlackRock of misleading investors about its efforts to push ESG goals onto portfolio companies and the long-term financial performance of its ESG products.
The firm has committed to leveraging its assets to push for certain ESG policies such as net-zero carbon emissions, despite claiming its non-ESG funds do not follow ESG investment guidelines, Morales’s office alleges.
Indiana becomes the second Republican-led state after Mississippi to issue a cease-and-desist order against BlackRock for alleged investment fraud related to its ESG offerings. Mississippi secretary of state Michael Watson (R) similarly accused BlackRock of misleading investors about its environmental investing goals and efforts to push ESG onto portfolio companies.
Louisiana Treasurer pushes back against Bank of America
Louisiana Treasurer John C. Fleming (R) recently recommended against approving Bank of America as a fiscal agent in the state. Fleming alleged the bank denied financial services to religious organizations and other customers and potential customers based on politics. Bank of America responded, denying the allegations. According to Biz New Orleans:
“As Treasurer, I have recommended that Bank of America not be approved as an authorized fiscal agent in the State of Louisiana per LRS 49:317 and 320. This decision was not entered into lightly but was made because there is evidence that Bank of America is deliberately denying banking services to customers and potential customers (de-banking) of religious organizations, gun manufacturers, fossil fuel producers and [others based] simply on their political perspectives and activities, not because of any bank policy or law violations, ” he said via an emailed statement.
Dr. Fleming’s sentiment highlights that Bank of America has been accused of selectively denying banking services to customers and potential clients based on their affiliations with religious organizations, gun manufacturers, fossil fuel producers and other entities deemed controversial due to their political or social stances. These actions, according to Fleming, are not justified by any specific bank policies or legal violations but are instead driven by ideological biases. …
Representatives from Bank of America disagree with Fleming’s assessment of their lending practices. “The representations about us are factually incorrect,” Bank of America spokesman, Bill Halldin told Biz New Orleans. “Religious views are not a factor in any account closing decision. In fact, Bank of America provides services to about 120,000 non-profits associated with religious organizations around the country. These incorrect allegations were raised to us by a number of state officials earlier this year and we provided a detailed response on May 15 to those officials, including Treasurer Fleming,” he said.
On Wall Street and in the private sector
BlackRock—the world’s largest asset manager—released a report Aug. 21 showing it supported fewer environmental and social shareholder proposals compared to the previous year, marking the third straight year of declines. The firm’s support for governance proposals nearly doubled:
The world’s biggest asset manager backed 4% of 493 such proposals in the 12 months through June, New York-based BlackRock said in a report Wednesday. That’s down from 7% a year earlier and more than 20% in the same period through mid-2022.
The firm, which said in January that its stewardship team was focused on the financial health of corporations, increased its support for resolutions on corporate governance — the “G” in ESG investing. BlackRock supported 21% of such proposals in the period, up from 11% a year earlier, according to the report. …
BlackRock, which managed $10.6 trillion of assets at midyear, is a top-five shareholder in the vast majority of S&P 500 companies and has drawn intense scrutiny from US investors and politicians for how it votes and engages with corporations on hot-button ESG issues. Overall, the firm supported companies’ management on about 88% of total proposals globally.
Shareholder proposal trends shifted in 2024
Trends for ESG-related shareholder proposals shifted in the 2024 proxy season. Among other observations, analysts reported a divergence in support between proposals for Scope 1 and 2 emissions disclosure (direct emissions from business activities and energy purchases) and proposals for Scope 3 reporting (emissions from a business’s supply chain):
Climate change, corporate political influence, and artificial intelligence (AI) were among the top environmental, social & governance (ESG) issues showing up in shareholder proposals during the 2024 proxy season, according to the Proxy Preview report. …
In fact, climate change worries dominated the top shareholder votes at several major restaurant chains during proxy season, which traditionally occurs in Spring. The Accountability Board, a newly formed shareholder advocacy group focusing on the food industry, submitted resolutions addressing climate concerns at three companies and received at least 50% support.
At the same time, proxy trend expert June Hu, Special Counsel at Sullivan & Cromwell, coordinates the firm’s ESG practice and is part of the team that was drafting the firm’s 12th annual proxy season review, which looks at shareholder proposal across the S&P Composite 1500. In her work, Hu cites other significant developments, including that in Environmental issues, there was a differentiation in proposals with those focusing on only Scope 1 and 2 emissions receiving more support than those that included Scope 3, which focuses on supply chain emissions.
In the spotlight
American ESG funds are increasingly choosing engagement strategies (ownership of a company aimed at changing corporate policies) over divestment from unaligned companies. European ESG funds are continuing to divest from fossil fuel companies and others. According to Morningstar:
Recently, Parnassus Investments, which runs $30 billion Parnassus Core Equity PRBLX and other large sustainable funds, decided to drop exclusions, including nuclear power investments, alcohol, weapons, and other investments, affecting dozens of companies.
Other sustainable investors have made similar moves. But screening out investments is alive and well among European investors, those seeking fossil-fuel-free portfolios, and others. Consider the so-called “sin stocks” around pornography, gaming, and tobacco. These remain land mines for many investors.
Parnassus had “dozens of conversations” around tossing the screens and discovered that most people no longer viewed them as the foundation for sustainable investing, says Marian Macindoe, managing director of Parnassus’ sustainable investment strategy. So it dropped the exclusionary language from its prospectus and put the stocks it would have omitted onto a “caution” list. An analyst who feels very bullish on a stock can lobby Macindoe and Parnassus’ chief investment officer Todd Ahlsten to remove it from the list. (Companies can also get off the list if their product line has changed or if their risk management around that product is vastly superior to their peers.)
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