The more the dirty little secrets aboutenvironmental, social and governance (ESG) investment schemesarerevealed, the faster even its most strident proponents run away from it.BlackRock CEO Larry Fink,the poster CEO forESGinvesting,recentlysaidhe’llno longer beusing the term “ESG” andthathe’s”ashamed” to be part of the debate on the issue.
There should be little wonderthatthose involved with the nefarious ESG scheme are running for cover.The influentialGerman-ownedproxy advisory firmISSappears to bethe latesttodistance itself fromESG.
With theassistanceof ISS, investment firm giants such as BlackRock,StateStreetand Vanguard have beenleveragingtheir massive investment portfolios —which includestate pension funds and hardworking Americans’ retirement nest eggs – toforcecompanies to advance radical political goals.
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It’scertainly egregious thatthese firms are using their investors’ assets – without the investors’ knowledge or consent–to pursuean activist ESG agenda with whichmany of those investorsvehemently disagree. Butit’seven more importantthat theseESGinvesting schemes diminish returns forstate pension and retirement funds,and thatcrosses a line,compellingstate treasurers and financial officers to step inand exercise their fiduciary responsibilities.
VideoSeveral state treasurers and financial officers have been examiningthe role of proxy-advisory services in the context of shareholder proposalsthatin recent years have been dominated by ESG items, some of whichappear to beideological efforts to underminecompaniesat theirvery foundations, reducing profits and investors’ returns.
It would be an understatement to say that proxy-advisory firmssuch as ISS and its main competitor Glass Lewishave an outsized influence over how thousands of their corporate clients vote on shareholder proposals.
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Combined, ISS and Glass Lewis control 97% of all proxy advisory business.In the 2020 proxy season alone, 114 institutional investors with over$5 trillionin assets under management voted in line with ISS and Glass Lewis guidance on99.5%or more of proposals. Such profound influence upon the outcomes of millions of votes at public companies directly impactsthe financial well-being of millions of retail investors over time—including the taxpayersand pension beneficiarieswho rely on elected state financial officials to safeguard their public funds.
In a recentjointletter to proxy-advisory services,22statetreasurers and financial officersrepresenting19states expressed concernoverproxy advisors’ secretive vote recommendations andthe effects ofthose “influential recommendations, in whole or in part, on factors other than enhancing or protecting shareholder value.” Enclosed with the letter was a questionnaire designed to help shed light on theprocess.
BlackRock CEO Larry Fink reportedly argued the term ESG was being “misused by the far left and far right.” (REUTERS/Brendan McDermid)
A response from ISS bearsclose scrutiny. “You might also be interested to know that in 2022, a record year in terms of the number of environmental and social shareholder resolutions on the ballots of S&P500 constituents, ISS’ benchmark policy supported just 52 percent of all such shareholder proposals while supporting more than 96 percent of all management resolutions. That is hardly thetrack recordof an advocacy organization‘pushing political agendas.’”
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Despite the claims in the letter that theyremainindependent and neutral in their offerings, ISS is not an independent company.Conspicuously absent from the letter is any mention that ISS ismajority owned byFrankfurt-basedDeutsche BörseAG, afirmthatmakesno claims of being objective. “We at Deutsche Börse are not only committed to supporting the sustainable transformation of our economy with the constant development of our ESG offerings. Reaching net zero climate neutrality by 2025 – 25 years ahead of the official target of the European Union – shows that sustainability is also part of our DNA as a company as we ambitiously lead the way.”
Video“The quality, precision and breadth of ISS’ data and research is unique in the market. Especially the company’s ESGexpertiseand data capabilities are highly complementary to Deutsche Börse’s businesses along the entire value chain,” remarkedDeutsche Börseexecutive board member Stephan Leithnerin a 2021 press release. “The acquisition of ISS is a further demonstration of Deutsche Börse’s commitment to ESG.”
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Obviously, ISS has a glaring conflict of interest related to their German ownership. Specifically, whenpurchaseda coupleyearsago,Deutsche Börsesaid that it wanted to gain access to ISS’s client base — and their business is selling ESG related productswhich,according to Leithner,is a$1 billionper yearmarket.Whatremainsunclear is how itsGermanowner’s prioritization of ESG squares withISS’voting recommendations.
The more that becomes known about ESG, the angrier investors become.
It’snosurprise thatISS apparently wishesto obfuscate and resist transparency on the matter.It’salso no surprise that state financial officers are shining – and will continue to shine – a light on ISS’s ESG voting trends.
