Major asset managers drop climate activism

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It’s all over the business news headlines this morning: Major money managers are exiting an international alliance focused on influencing climate change policy and reducing greenhouse gas emissions. The Financial Times describes the move:

Two of the world’s biggest asset managers are quitting an investor group set up to prod companies over global warming and a third is scaling back its participation, in a major setback to the ambitions of Climate Action 100+.

JPMorgan Asset Management and State Street Global Advisors both confirmed they were leaving Climate Action 100+. BlackRock, the world’s largest money manager, is pulling out as a corporate member and transferring its participation to its smaller international arm.

This is very much a setback to Climate Action 100+, and the international activist movement to pressure corporations to reorient their operations in line with environmental, social, and governance (ESG) investing theory. The new departures now mean that none of the five biggest asset managers are working in line with the Climate Action 100+ agenda. (Vanguard and Fidelity Investments never became members.)

Companies who have joined such groups and signed on to their pledges have created quite a bit of political controversy over the past few years, in no small part because they have been seen as creating a collusive cartel with the goal of attacking the oil and gas industry in the United States, and by extension, the millions of American jobs that it supports.

Because of this controversy, we have seen significant pushback from state legislatures, state financial officers, and state attorneys general. In 2021, for example, the Texas state legislature passed a law originally known as Senate Bill 13 barring Texas public investment entities from doing business with companies that “boycott” investments in the oil and gas industry. Other states have passed similar legislation in the past few years. On the national level, leaders in Congress have held multiple hearings and grilled executives over their commitments.

The climate activists themselves often reply that they are merely concerned investors who are worried about the future impacts of climate change and are voluntarily persuading their colleagues in the finance industry to be more concerned with topics like greenhouse gas emissions. That, however, leaves out the most important element of the ESG agenda – using corporate clout to lobby the government for policies that privilege climate activists and, potentially, make any other way of doing business illegal.

Climate Action 100+ explicitly states as one if its top goals that member firms should “Take action to reduce greenhouse gas emissions across the value chain, including engagement with stakeholders such as policymakers and other actors to address the sectoral barriers to transition” (emphasis added). That means that companies are not expected to merely review their own energy use and conservation policies, but are pressured to use their clients’ assets to promote a controversial political agenda that will have destructive effects on US economic growth, employment, and standards of living.

The original goal of Climate Action 100+ was enhanced reporting of climate impacts and corporate emissions. But not just the voluntary kind: their efforts have resulted in the Securities and Exchange Commission promulgating a new rule that would require all of the public companies in the United States (and likely many of their smaller private business partners) to collectively spend billions of dollars a year in additional compliance costs.

The text of the SEC’s rule proposal cites statistics and documents from Climate Action 100+ approvingly over a dozen times. My colleague Stone Washington recently wrote about this proposal in detail in a report titled “Big Problems with SEC Climate Disclosure Mandate,” published at the end of last month. I wrote about it myself under the title “The SEC’s Costly Power Grab” in 2022.

The impact of large firms like BlackRock, State Street, and JP Morgan stepping away from the climate agenda is huge. It reassures clients that their money is going to be used to produce actual investment returns rather than as fuel for environmental activism that they may very well disagree with.

Their departure also demolishes what has, up to now, been the strongest rhetorical weapon of ESG advocates, which is the supposed inevitability of their movement. Many otherwise skeptical financial managers previously accepted the assertion that ESG and climate-focused investment was the wave of the future and that they would become outcasts and laughingstocks if they rejected it. Much like with Vanguard leaving the similarly-themed Net Zero Asset Managers initiative in December of 2022, however, we are increasingly seeing that movers and shakers in the world of finance don’t need to be on the climate train to be successful. If anything, the real question is who will be the last to jump off before it derails.