In this week’s edition of Economy and Society:
- Missouri attorney general investigates proxy advisory services
- California releases guidance for companies on emissions reporting
- Massachusetts, New Hampshire take action on ESG-related bills
- HSBC leaves global climate-change banking alliance
- Researchers argue stakeholder focus can hurt companies
- Scientific Beta study argues ESG data does not improve risk analysis
In the states
Missouri attorney general investigates proxy advisory services
What’s the story?
Missouri Attorney General Andrew Bailey (R) announced last week his office is investigating Institutional Shareholder Services (ISS) and Glass Lewis, the two largest U.S. proxy advisory firms, alleging they prioritized political agendas over fiduciary duties in their voting recommendations.
Why does it matter?
ISS and Glass Lewis have drawn recent scrutiny in ESG debates. Critics argue their combined market share exceeding 90% gives them disproportionate influence over institutional investors’ proxy votes, shaping outcomes on ESG-related shareholder proposals. Missouri’s investigation follows similar action by Florida.
What’s the background?
See here for more on the Florida investigation of the proxy advisory services.
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According to Fox News:
Bailey argued in civil investigative demands sent to Glass Lewis and Institutional Shareholder Services (ISS) that they are violating state consumer protection law by assuring their customers that their proxy voting recommendations are based solely on data and research – and are entirely neutral. But, simultaneously, Bailey argues that publicly available documents from the firms show that their proxy voting recommendations are designed to advance DEI and environmental causes regardless of whether they undermine investor returns.
Glass Lewis and ISS are two foreign-owned powerhouses that control roughly 97% of the U.S. proxy advisory market, according to an April report from the House Financial Services Committee. The firms specialize in providing voting recommendations to institutional investors – such as pension funds, retirement systems and mutual funds – on how to vote during corporate shareholder meetings. These votes frequently include decisions related to board member elections, executive compensation, company policies and other proposals. …
“Missourians deserve answers as to why the unseen power brokers, controlling much of corporate America, are pushing a leftist worldview at the expense of millions of honest investors,” Bailey said. “These are foreign-owned actors manipulating the U.S. economy, and we will not let them thrive any longer. We are going after the source. These proxy advisors have held corporate America hostage with their radical ideologies. We are putting them on notice: Missouri will not tolerate ideological coercion disguised as investment guidance.”
California releases guidance for companies on emissions reporting
What’s the story?
The California Air Resources Board (CARB) last week released new guidance to help companies comply with state environmental laws, including the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act. The laws will require companies to report emissions and climate-related financial risks starting next year.
Why does it matter?
California’s laws will require large companies doing business in the state—including most large U.S. companies—to report climate data, including Scope 3 emissions. This state-level action comes as the SEC has ended its defense of the Biden-era federal emissions disclosure rule in court. The shift may position California to shape climate reporting standards in the absence of federal enforcement.
What’s the background
Click here for more on the SEC’s emissions reporting rule.
Read more
According to ESG Today:
Applying to companies that do business in California, the new regulations effectively introduce climate reporting obligations for most large businesses in the U.S. The Climate Corporate Data Accountability Act requires companies with revenues greater than $1 billion that do business in California to report annually on their emissions across Scopes 1, 2 and 3. The Climate-Related Financial Risk Act applies to U.S. companies that do business in California and with revenues greater than $500 million to prepare a report disclosing their climate-related financial risk, as well as measures to reduce and adapt to that risk.
The new FAQ sets out the dates for required reporting to begin, recently confirmed in a public workshop conducted by CARB. According to the FAQ, while a firm date for reporting on Scope 1 and 2 is yet to be finalized, the disclosures will begin in 2026, covering the previous fiscal year, while Scope 3 emissions reporting will begin in 2027. The FAQ did reiterate CARB’s decision announced in December 2024, however, allowing the first Scope 1 and 2 report in 2026 to be based on information that the reporting company already possesses or is already collecting, in order to give companies more time to implement new data collection processes. …
For companies within the scope of the Climate-related Financial Risk Reporting, publication of the first climate-related risk reports are to be published by January 1, 2026 according to CARB, with reporting every other year following the initial report. The FAQ guides companies in assessing what information needs to be included in the reports, with material risk based on “harm to immediate and long-term financial outcomes due to physical and transition risks,” which may include “risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.”
Massachusetts, New Hampshire take action on ESG-related bills
Two states (Massachusetts and New Hampshire) took action on two ESG-related bills last week (since July 8). The New Hampshire bill was enacted, prohibiting public entities from entering or renewing contracts with private businesses that require programs or training promoting diversity, equity, and inclusion.
States with legislative activity on ESG last week are highlighted in the map below. Click here to see the details of each bill in the legislation tracker.
On Wall Street and in the private sector
HSBC leaves global climate-change banking alliance
What’s the story?
HSBC, the largest European bank, announced last week it is leaving the Net-Zero Banking Alliance (NZBA).
Why does it matter
Many of the largest American and Canadian banks exited the NZBA by early 2025. The alliance dropped its climate target requirements following those departures. HSBC is the first major UK bank to leave, indicating further withdrawals may be gaining traction in Europe.
What’s the background?
See here for more on NZBA’s shifting goals and membership departures.
Read more
According to Bloomberg:
HSBC said in a statement on Friday that the Net-Zero Banking Alliance played an important role in helping banks develop frameworks for setting emissions-reduction targets. “With this foundation in place, and as we work towards updating and implementing our Net Zero Transition Plan later in 2025, we, like many of our global peers, have decided to withdraw from the NZBA,” the London-based bank said.
The company’s exit represents “yet another troubling signal around the bank’s commitment to addressing the climate crisis,” said Jeanne Martin, co-director of corporate engagement at ShareAction, the London-based nonprofit that brought together a group of HSBC investors earlier this year to ask the bank to reaffirm its support for cutting CO2 emissions.
Having swelled at one point to representing more than 40% of global banking assets, NZBA has contracted significantly since December as the largest banks in the US, Japan and Canada, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., left the group. Others that have exited include Mitsubishi UFJ Financial Group Inc., Royal Bank of Canada and Macquarie Group Ltd.
From the ivory tower
Researchers argue stakeholder focus can hurt companies
What’s the story?
A new study by researchers at Texas Christian University, Ohio State University, and Lancaster University argued that shifting from shareholder to stakeholder governance can weaken corporate oversight and reduce firm value, without delivering benefits for stakeholders.
Why does it matter?
The study argued a 2017 Nevada law supporting stakeholder governance led firms to increase acquisitions with poorer outcomes and reduced the efficiency of capital investment and research and development spending. The researchers also found ESG performance declined among Nevada-incorporated companies.
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According to Jason Willick at The Washington Post:
The study — by René M. Stulz of Ohio State University’s Fisher School of Business and economists Benjamin Bennett and Zexi Wang — takes advantage of a natural experiment. Most publicly traded companies in the United States are incorporated in Delaware, which requires corporate executives to make decisions to benefit the company’s shareholder owners. In 2017, Nevada, another popular state for incorporation, changed its law to weaken that requirement. The law there permits executives to consider “without limitation” the interests “of society” when they make decisions, and shields them from shareholder lawsuits.
The researchers did a battery of statistical tests on public companies in both jurisdictions from 2015 to 2019 — the two years before and after Nevada’s legal change. They found evidence that Nevada’s law led to “a significant reduction in firm value” and higher borrowing costs for companies incorporated there. Just as important, it prompted a decline in corporate governance: External auditors and the Securities and Exchange Commission became more likely to flag Nevada companies’ books. The companies’ boards of directors were more likely to include relatives of management, signaling a loss of independence.
And far from unleashing egalitarianism and social nirvana, the relaxation of shareholder oversight in Nevada appears to have prompted CEO pay to increase and become less tied to business performance. Environmental, social and governance (ESG) scores — which try to measure responsible business practices — fell by 15 percent.
Scientific Beta study argues ESG data does not improve risk analysis
What’s the story?
Another study from Scientific Beta finds that incorporating ESG data does not improve risk-return outcomes, arguing sustainability metrics do not enhance portfolio performance beyond what traditional financial analysis achieves.
Why does it matter?
ESG supporters argue that considering environmental and social risks improves analysis and returns, rather than reflecting political or ideological goals. The new study from Scientific Beta challenges this view, finding no performance advantage from using ESG data.
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According to James Mackintosh at The Wall Street Journal:
The fallback position for defenders of environmental, social and governance investing in the face of political and legislative challenges in the U.S. is typically that ESG should be considered in their stock picking as financially material information, that it can help make a portfolio more stable and that anyway it is better to have more information than less. …
“There’s just not evidence of an incremental return contribution from these ESG metrics,” {Scientific Beta’s Felix] Goltz said. “If you have traditional financial objectives, you don’t really need these ESG metrics.” …
What about the idea that more information is always better? Well, it turns out a lot of information doubles up with standard financial metrics—perhaps because more profitable companies have the capacity to spend time and money improving their ESG ratings, rather than because better corporate ESG improves profitability. If extra information adds nothing new, it is simply a costly distraction.