House Judiciary Committee requests ESG documents from California pension system

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In Washington, D.C.

House Judiciary Committee requests ESG documents from California pension system

House Judiciary Committee Chairman Jim Jordan (R-Ohio) requested documents late last year from the California Public Employees’ Retirement System (CalPERS), the largest public pension system in the country, and Ceres, a nonprofit group that advises CalPERS on environmental matters. The committee is seeking information about CalPERS’ ESG efforts and the effect they have had on investments and returns. CalPERS has been complying with the request, turning over thousands of pages of documents over the last several months:

The California Public Employees’ Retirement System has turned over thousands of pages of documents in recent months to Congress as the country’s largest pension fund faces Republican scrutiny for its investment practices intended to combat climate change.

The $464 billion fund has been handing over the trove of information to the House Judiciary Committee led by Ohio Republican Jim Jordan since the committee sent letters in December to Calpers and Ceres, an environmental non-profit that Calpers works with on climate issues, seeking public and private documents dating back to 2016. The requests come as GOP officials nationwide step up attacks on ESG investing.

Calpers is now reviewing additional documents to see if they are relevant to the committee’s request and in hopes of avoiding a subpoena, spokesperson John Myers said. In June, Jordan hit Ceres with a subpoena following voluntary disclosures that he deemed “inadequate.”

The documents provided by Calpers include slide decks and reports detailing the fund’s sustainable investment strategies. The pension fund also handed over private email conversations between Anne Simpson, a former managing investment director at Calpers, and staff at Ceres, according to batch of documents reviewed by Bloomberg.

The pension fund is part of a handful of companies, institutional investors and non-profits that are the subject of increasing attacks from Republicans in Congress over environmental, social, and governance investing. In July, Jordan’s committee demanded documents from BlackRock Inc., Vanguard Group Inc. and State Street Corp. alleging “potentially harmful effects on Americans’ freedom and economic well-being.”

Boston-based Ceres is complying with the Judiciary Committee’s subpoena and has provided thousands of pages of documents, spokesperson Helen Booth-Tobin said. The organization has denied violating antitrust laws, saying companies are taking their shareholders’ financial interests into account by factoring in climate change risks. …

Kristoffer Inton, an analyst at Morningstar, said despite Republican accusations of Calpers orchestrating an ESG cartel the pension fund continues to invest in major carbon emitters. Calpers held $9.4 billion in oil and gas assets as of December 2022.

“If they think Exxon looks cheap they’re going to buy it,” Inton said. “It’s not changing their behavior.”

Steve Soukup, an opponent of ESG and a senior fellow at Consumers Research—a nonprofit that also opposes ESG—said ESG protocols have hurt CalPERS returns and California pensioners. Soukup said the following about CalPERS and ESG in his 2021 book The Dictatorship of Woke Capital:

According to a December 2017 report from the American Council for Capital Formation (ACCF), “One key factor behind this consistently poor performance, according to the ACCF report, is the tendency on the part of CalPERS management to make investment decisions based on political, social and environmental causes rather than factors that boost returns and maximize fund performance.”  The report also noted “that four of the nine worst performing funds in the CalPERS portfolio as of March 31, 2017, focused on supporting Environment, Social and Governance (ESG) ventures. None of the system’s 25 top-performing funds was ESG-focused.”

SEC subpoenas fund manager documents in investigation of ESG marketing claims

The Securities and Exchange Commission (SEC) has subpoenaed documents from several large fund managers as part of an inquiry into their marketing of ESG products, according to a Financial Times report:

The US Securities and Exchange Commission enforcement division has sent document requests, including subpoenas, to several asset managers relating to their environmental, social and governance investment marketing this year, lawyers said, suggesting a potential crackdown looming for the sustainable fund world.

Among the SEC’s areas of inquiry are conventional investment funds that have repurposed themselves as ESG funds, the asset management industry lawyers said. Also in focus are cases where funds offered in the US and Europe may share strategies, holdings or portfolio managers but offer differing amounts of information on either side of the Atlantic.

The inquiries come after the SEC enforcement division in March 2021 formed a task force to hunt for misconduct in climate and ESG investment disclosures. While it settled ESG cases against companies and asset managers including Goldman Sachs and BNY Mellon in 2022, none have been filed so far this year.

That may change as new investigations proceed, lawyers said.

The SEC is not the only securities regulatory agency that is concerned about ESG advertising and moving toward potential enforcement actions:

The SEC is not the only financial regulator looking into ESG disclosure. In late July the Australian Securities and Investments Commission charged US-based Vanguard with making ESG misstatements. The commission alleged Vanguard’s “ethically conscious” global bond fund said it excluded fossil fuel issuers but held debt from Chevron, pipeline businesses owned by the Abu Dhabi National Oil Company, and other oil companies.

“Vanguard self-identified and self-reported [the] breach to our regulator . . . There was never any intention to mislead, but Vanguard recognises it has not lived up to the high standards it holds itself accountable to and apologises for the concern this matter may cause for our clients,” the $8tn asset manager said in a statement.

Deutsche Bank allocates $30 million to settle potential SEC fines

Deutsche Bank’s asset management subsidiary, DWS, has set aside nearly $30 million to help settle fines related to the SEC’s investigation of their environmental investment product claims.  The SEC said last month that its investigation would be completed by the end of September:

Deutsche Bank AG’s investment arm has set aside €27 million ($30 million) to help settle allegations of greenwashing following two years of investigations that have tarnished its reputation.

DWS Group disclosed the provisions, which were labeled “other” as of June 30, according to the firm’s second-quarter results on Wednesday. The overwhelming share of those provisions serves to cover the expected settlements from several probes in the US and Germany, according to a person familiar with the matter.

The firm is in advanced resolution discussions with the US Securities and Exchange Commission, though the final outcome is yet to be concluded, DWS said in a report. Other investigations are ongoing and the results are yet to be determined, it added. None of such proceedings is currently expected to have a significant impact on its financials, it said.

DWS has been under scrutiny by various agencies including the SEC since ex-chief sustainability officer Desiree Fixler went public two years ago with claims that the asset manager had inflated its ESG credentials. The allegations and ensuing probes have sent the firm’s share price down about 27% since Aug. 25, 2021, as investors sought to assess the financial impact.

The asset manager has rejected Fixler’s claims from the outset and Chief Executive Officer Stefan Hoops has said he stands behind the disclosures targeted in the probes. He has also said that some of the firm’s past marketing claims may have been “exuberant.” …

While a fine of below €30 million is likely to be manageable for DWS, it’s set to be the highest ever the SEC has meted over allegations of greenwashing. Bank of New York Mellon Corp.’s asset manager was the first in the industry to be sanctioned over the matter when the SEC forced it to pay $1.5 million in May 2022, followed by a fine of $4 million for Goldman Sachs Group Inc.’s investment arm in November.

On Wall Street and in the private sector

American Accountability Foundation reports on new pushback against ESG opposition

The American Accountability Foundation—a nonprofit that opposes ESG—penned a report suggesting that some ESG supporters are aiming to push back against the ESG opposition movement through corporate resolutions that would revoke business support for conservative nonprofits, think tanks, and other organizations:

The report outlines how groups work to pressure companies, from Coca-Cola to Wells Fargo, to “put trade associations, conservative groups, and lobbyists out of business.”

“ESG’s goal is to force companies to name trade associations, think tanks, other non-profits, political committees, and candidates they support, so the woke mob can later shame companies for supporting them. The end goal (and likely result) of these naming and shaming efforts is to decrease membership in, and contributions to, any organization or individual that the left deems ‘incongruent’ with liberal orthodoxy,” the report said.

The report catalogs how three groups, the Corporate Reform Coalition, the Proxy Preview triad, and the Center for Political Accountability, work to suppress conservative voices in corporate America by using shareholder resolutions. The memo outlines connections between the groups and left-wing activists, including one of the groups in the Proxy Preview having received donations from liberal billionaire George Soros.

The various shareholder resolutions from the group name drop groups like the Federalist Society, the Independent Women’s Forum, the U.S. Chamber of Commerce, and several Republican groups like the NRSC. The resolutions outline how aligning with the groups allegedly goes against ESG initiatives sought after by the company.

AAF Director of Research Jerome Trankle, who authored the report, said the memo outlines the ways governance standards pose a threat to companies by subjecting “political spending of public companies to the scrutiny of the woke mob.”

“While most people know that ESG threatens the energy industry and America’s energy independence, comparatively little attention has been paid to the threat ESG poses to trade associations and the advocacy community. The ESG movement, which is an arm of the organized Left, has co-opted the shareholder resolution process to subject the political spending of public companies to the scrutiny of the woke mob,” Trankle said in a statement to the Washington Examiner.

In the spotlight

Hamilton College students push back after Goldman Sachs CEO criticizes fossil fuel divestment

Goldman Sachs CEO David Solomon recently visited his alma mater, Hamilton College, and addressed the student body’s efforts to fight climate change. Three students penned a letter responding to his criticism of fossil fuel divestment:

Three students from David Solomon’s alma mater, Hamilton College, have taken aim at the Goldman Sachs CEO after he allegedly referred to the movement to divest in fossil fuel as “stupid.”

In a letter written by three seniors at the school, Solomon – a 1984 graduate from the private liberal arts college – was accused of “belittling” the students while speaking to them about the school’s climate change efforts.

Solomon’s comments, according to the letter, came during a “Senior Networking with Trustees” event that he took part in at the college in March, when the students challenged him about divestment from fossil fuels.

Solomon, the letter stated at the time, was speaking to “a group of six or so people” who “were all non-male, and at least half were people of color.” …

When it came to fossil fuel divestment, the students claimed Solomon told them that it was a “stupid movement” and suggested that they should live in other regions in the world to see how things “really work.”