Republican pushback this week against BlackRock Inc. and State Street Global Investors is just the latest from the GOP against the rise of ESG trading in retirement portfolios and the role big money managers play in exercising shareholder rights on behalf of millions of American investors.
U.S. Sens. Pat Toomey (R-Pa.) and Ron Johnson (R-Wis.) penned a letter to the Federal Retirement Thrift Investment Board Wednesday criticizing the two multinational investment management giants for prioritizing environmental, social, and corporate governance goals over the retirement security of federal government employees invested in the Thrift Savings Plan.
GOP lawmakers balked at the Biden administration plan earlier this year to scuttle two Trump-era U.S. Labor Department rules designed to curb socially conscious investing and proxy voting in private-sector plans. Department officials say they plan to rewrite those rules this fall to make ESG investing even easier. Several Republican attorneys general also have been laying the groundwork for litigation as the Securities and Exchange Commission preps mandatory carbon emission and climate risk disclosures.
Only about 2.9% of plans surveyed by the Plan Sponsor Council of America incorporate ESG funds in their fund lineups and few plan assets make their way into those savings vehicles. That could change under the White House embrace of an estimated $30 trillion green boom on Wall Street.
The Thrift Savings Plan is by far the country’s largest defined-contribution plan with more than 6.2 million participants nationwide and more than $735 billion in assets under management. BlackRock and State Street directly manage more than 60% of that total through several target-date and individual funds on the plan’s investment menu. As shareholders, the two money managers absorb proxy voting rights they derive from plan assets.
A BlackRock spokeswoman said in a statement the company’s votes reflect independent research and analysis on behalf of its clients.
“We cast informed votes aligned with clients’ long-term economic interests,” the statement reads. “We see this responsibility as part of our fiduciary duty.”
State Street was only added to the board’s investment management team last month as part of a risk reduction strategy it put in place several years ago. The company manages $57 million in three index funds, according to meeting minutes.
“We believe that asset stewardship is our fiduciary responsibility and one of the ways we add value for investors,” said Olivia Offner, a State Street spokeswoman. “As long-term investors, we always take a broad view of ESG factors as they relate to sustainable returns.”
For Participants or Themselves?
BlackRock published new guidelines in January that inform how the company will use its proxy voting power. The policies emphasize corporate diversity and inclusion and specific climate risk disclosures it will use to achieve its goal of a net-zero economy by 2050. Although State Street hasn’t officially updated its voting guidelines, the company adjusted its policies this year to address racial and ethnic diversity in the workplace and align its stewardship goals with investor-led climate change initiatives.
In their letter, Toomey and Johnson lambasted the companies for “incorporating left-leaning ESG priorities into their proxy voting guidelines.” The senators called on the TSP board to provide Congress with a briefing on how the companies use the voting rights, how the board oversees proxy voting, and what recourse it would take if a money manager violates its fiduciary duty to the plan.
“We are concerned that BlackRock and SSGA may be prioritizing their CEOs’ personal policy views over retirees’ financial security,” the senators wrote. “Federal law explicitly requires all fiduciaries of the plan, including BlackRock and SSGA, to discharge their responsibilities ‘solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries.’”
BlackRock and State Street are contractual fiduciaries to the plan, said Kim Weaver, a TSP spokeswoman, but in an interview with Bloomberg Law Thursday she said the board has “no reason to believe” that the companies have acted in a way that failed to advance participants’ financial interests. The board will review the letter and respond later this month, she said.
The TSP will begin to incorporate some ESG investing strategies through a mutual fund window it plans to make available to government employee investors in 2022. The plan awarded Accenture Plc a recordkeeping contract that will take effect next summer, but BlackRock and State Street won’t be the only money managers controlling those assets, Weaver said.
This article originally appeared on Bloomberg Law.
