In this week’s edition of Economy and Society:
- 11 states sue BlackRock, Vanguard, and State Street over antitrust laws
- J.P. Morgan rejects energy transition finance framework
- Strive Asset Management begins direct indexing
- American and European business schools’ opposing views on ESG curriculum
- Trump’s second term could result in a change of strategy for ESG
In the states
11 states sue BlackRock, Vanguard, and State Street over antitrust laws
What’s the story?
Eleven Republican-led states on Nov. 27 sued BlackRock, Vanguard, and State Street – the Big Three passive asset managers – arguing the firms violated antitrust laws. The states claimed climate activism by the three firms damaged coal production, raising the cost of energy to consumers.
Why does it matter?
BlackRock, Vanguard, and State Street have historically been at the center of pushback against ESG. The three firms maintain significant market power and hold substantial stakes in most exchange-traded corporations. The firms argued they operate independently and are in competition with one another, however, their participation (or former participation) in global climate agreements and similar positions on ESG have led to claims they use their market power unfairly.
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According to Reuters:
Wednesday’s complaint filed in the federal court in Tyler, Texas, is among the highest-profile lawsuits targeting efforts to promote environmental, social and governance goals, or ESG.
The defendants were accused of exploiting their market power and involvement in climate advocacy groups to pressure coal companies to slash output and reduce carbon emissions from coal by more than 50% by 2030, driving up consumers’ utility bills.
“Competitive markets — not the dictates of far-flung asset managers — should determine the price Americans pay for electricity,” the states said in the complaint.
On Wall Street and in the private sector
J.P. Morgan rejects energy transition finance framework
What’s the story?
J.P. Morgan Chase & Co., the largest bank in the country, stated it would not create a transition finance framework to identify, classify, and capitalize companies that purport to play a role in the transition from fossil fuels to a post-carbon energy environment.
Why does it matter?
Transition finance is an axiom of the banking and investment world intended to replace ESG, as the latter term has become politically controversial. J.P. Morgan’s decision differs from many big banks and Wall Street firms which employ or intend to employ transition finance frameworks.
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According to Bloomberg:
Linda French, JPMorgan’s global head of sustainability policy and regulation, says it’s far from clear that calling something a transition asset will unlock capital. Ultimately, she says, the approach ignores the fact that investors are less concerned with definitions and more interested in proof that capital allocations yield results.
“To state what should be obvious, finance will only move when there’s an economically viable business case,” French said in an interview. “Taxonomies and disclosure frameworks on their own do nothing to finance flows, and even risk becoming a distraction.” …
“Fundamentally, it’s a rehash of the green finance conversation: Once you’ve defined relevant economic activities, then finance will begin to flow to those activities,” she said. As an approach, it downplays the fundamentals of financial logic, she said.
Strive Asset Management begins direct indexing
What’s the story?
Strive Asset Management announced it is expanding its financial services to include direct indexing. The firm also signed contracts to list its new service on Fidelity and Charles Schwab platforms.
Why does it matter?
Strive Asset Management has historically been against incorporating ESG into investment decisions and portfolio construction. In recent months, Strive has been expanding its line of products and aiming to expand the reach of shareholder-centered approaches throughout the financial services industry. The decision to begin direct indexing is part of that process.
What’s the background?
Strive was co-founded by Vivek Ramaswamy—President-elect Donald Trump’s (R) appointee to co-lead a new office called the Department of Government Efficiency. Click here to read more about Ramaswamy.
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According to The Financial Times:
Strive Asset Management is expanding into direct indexing, accelerating its diversification beyond investment products. …
Strive has recently announced the launch of a wealth management division, and early this year it broke into the retirement plan business, rolling out a pooled-employer plan jointly with Ameritas. …
Co-founder and majority owner Vivek Ramaswamy had been a vocal supporter of Trump during the campaign and, along with Tesla chief executive Elon Musk, will lead the new Department of Government Efficiency, to be formed after Trump takes office.
From the ivory tower
American and European business schools’ opposing views on ESG curriculum
What’s the story?
The United States and Europe have differing perspectives on the role of ESG in education. European business schools have been integrating ESG into curricula, while American business schools have been moving slower to avoid being overtly political.
Why does it matter?
The United States and Europe differ in their beliefs about the need for and value of ESG investing and business practices. The differences in business education suggest this gap will continue to widen and carry over into the next generation of corporate leadership.
What’s the background?
Click here to read more from this newsletter about the growing gap between the United States and Europe on ESG policies.
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According to The Financial Times:
Many European businesses have also made sustainability core to their strategies, governance and reporting. This focus is mirrored in business schools across the continent, where sustainability is increasingly woven into the curriculum to meet the growing demand for graduates who can balance business growth with environmental responsibility.
Contrast that with the US, where a backlash against environmental, social and governance (ESG) investing is gaining momentum. This is in turn affecting how sustainability is taught in US business schools, with some treading carefully to avoid being perceived as too “woke”.
European schools therefore appear to have a more favourable political climate in which to prepare the next generation of sustainable business leaders.
In the spotlight
Trump’s second term could result in a change of strategy for ESG
What’s the story?
Henry Engler, a regulatory intelligence editor for Thomson Reuters, argued state and international regulations could affect the impact of the Trump administration’s anti-ESG efforts.
Why does it matter?
President-elect Donald Trump (R) has promised his second term will feature resistance to ESG and policies and regulations supporting the ESG framework. Additionally, he has begun staffing his administration with ESG opponents.
Supporters of ESG are opposed to Trump’s direction and worry about losing progress, but Engler argues regulations from the European Union and states such as California will continue to require certain climate disclosures.
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According to Thomson Reuters:
The impact of the recent US Presidential election on environmental, social & governance (ESG) matters is expected to be wide-ranging, with a broad pullback expected in federal rulemaking, alongside the reversal of several policies. However, legislation by certain US states, such as California, will remain in force, as will international rules requiring compliance from large US-based companies. …
“Overall, the outcome of the US election win is a dangerous moment for climate action because of its chilling effect on federal, global, and corporate action,” says Dr. Andrew Coburn, CEO of Risilience, a UK-based sustainability intelligence firm. “However, the world looks very different from 2016, and there are nuances that will soften the impact.”
For example, there will be less regulatory pressure for US companies to show action toward their climate goals, but for large corporations — both multinational and domestic — regulation from the European Union and the State of California will “mean they still have to engage in stringent climate disclosures,” Coburn adds.