By Terri Jo Neff |
Six U.S.-based global banking firms which participate in Environmental, Social, and Governance (ESG) practices that seek to restrict investment in companies engaged in fossil fuel-related activities are under investigation by 19 states, it was announced this week.
Arizona Attorney General Mark Brnovich and 18 other state attorneys general served civil investigative demands against Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo related to each company’s involvement with the United Nations’ Net-Zero Banking Alliance (NZBA). The demands act as legally enforceable subpoenas.
NZBA-member banks have promised to set emissions reduction targets in their lending and investment portfolios to reach net zero by 2050. It is one example of ESG practices which have come under scrutiny for prioritizing policy initiatives ahead of sound investment strategies.
In the case of the NZBA initiative, it could lead to some farmers, oil leasing companies, suppliers, and other businesses connected with fossil-fuel production being unable to get loans or find investors from the six banking firms and their affiliates, according to Brnovich’s office.
“American banks should never put political agendas ahead of the secure retirement of their clients,” Brnovich said in announcing Arizona’s involvement in the investigation. “These financial institutions are entrusted with protecting a different type of green.”
Arizona, Kentucky, Missouri, and Texas are the leadership states on the NZBA investigation. Some of the 10 interrogatories included in the civil investigative demands served on the six banking firms seek information on:
- All divisions, groups, offices, or business segments whose responsibilities relate or used to relate to membership in the Net-Zero Banking Alliance or to ESG Integration Practices, and identify all executives, directors, officers, managers, supervisors, or other leaders of each division, group, office, or business segment;
- Each Global Climate Initiative with which the firm is affiliated and an explanation of the reasons for choosing to join such Global Climate Initiatives;
- Who made the decision to join each Initiative, including any involvement or input from the Board of Directors, investors, or Covered Companies;
- All involvement in each Global Climate Initiative, including dates as well as “any promises, pledges, or other commitments” made by each company;
- A detailed description of the company’s involvement with the Net-Zero Banking Alliance, including identities of all individuals who have represented the company within the NZBA.
In August, Brnovich joined Arizona in a 21-state coalition in commenting on a U.S. Securities and Exchange Commission (SEC) proposed rule that would add requirements for investment funds which consider ESG factors in their investment decisions. The proposed SEC rule was seen by the states as an attempt to transform the agency from a “federal regulator of securities into a regulator of social ills.”
The same month, Arizona was one of 19 states which sent a letter that put investment firm BlackRock on notice that its actions on a variety of governance objectives may violate multiple state laws by using “the hard-earned money of our states’ citizens to circumvent the best possible return on investment.”
BlackRock, which oversees some pension funds in those states, has been engaging in a “quixotic climate agenda” that appeared to be sacrificing pensioners’ retirements instead of focusing solely on financial return.
“Fiduciary duty is not lip service. BlackRock has an obligation to act in the sole financial interest of its clients,” the Aug. 4 letter stated. “Given our responsibilities to the citizens of our states, we must seek clarification on BlackRock’s actions that appear to have been motivated by interests other than maximizing financial return.”
And in November 2021, Brnovich announced a review of Climate Action 100+ and its investment company members which manage trillions of dollars in assets. This was prompted by concerns that the firms will put their ESG goals ahead of well-established fiduciary duties.
This could include inappropriate pressure and anticompetitive conduct against the members’ own clients and customers who do not comply with the ESG practices of Climate Action 100+, according to the attorney general’s office.