Republican lawmakers vow to crack down on big investment managers pushing climate and social agendas. But the Wall Street giants find they have few defenders in Washington to fend off the onslaught.
The multibillion-dollar asset managers — primarily BlackRock and its outspoken CEO Larry Fink, Vanguard and State Street — are not getting coverage from major corporate trade groups whose members are divided on the issue. And they have no Republican allies, according to interviews with nearly a dozen industry representatives, lawmakers and climate advocates.
Some industry players feeling the heat are agitating privately for a more united front against the attacks. But Republicans who are leading what they call the “anti-woke” charge in Congress said they feel little resistance from corporate lobby groups like the U.S. Chamber of Commerce. GOP lawmakers say they have mounting evidence that their efforts are gaining traction as Vanguard walks away from an international climate change group in December.
“There is a battle going on within the banks and within the asset managers about this,” said Rep. Andy Barr (R-Ky.), one of the main voices of the Capitol Hill pressure campaign. “I’m observing conflicting messages from within these companies, and what I’m asking is that these banks and asset managers purge these people who want to bring their politics into the activities of these companies.”
The political isolation of the world’s top money managers is a window into how the GOP’s recent pivot to populism on Big Business could cripple industry lobbying efforts. It also forces companies to rethink how they communicate environmental and social goals, even when they are focused on satisfying customers, investors and employees.
A growing list of big business — not just limited to finance — is facing wrath from Republican officials at the state and federal levels for their stances on climate and issues like race, voting rights and guns.
‘Political attacks in bad faith’
In Washington, House Republicans, who will be in the majority next year, are looking at hearings and a series of bills to put pressure on the investment companies.
The asset managers “have a very justifiable reason why they should consider climate and sustainability risks in their investment practices,” said Sierra Club campaign manager Ben Cushing, who is calling for financial firms to stop supporting fossil fuel-based projects. fuels. “They haven’t explained that very well, and they let themselves be bullied by these bad-faith political attacks.”
The GOP’s critique of big-money managers centers on their dominion over corporate America. The firms manage their clients’ investments in legions of publicly traded companies and, as a result, have a large say in how the companies are guided through the shareholder voting process.
That economic clout is central to Republicans because the big asset managers have incorporated environmental, social and governance, or ESG, objectives into their investment practices.
The most prominent leader of the shift is BlackRock’s Fink, a Democrat who has used his position at the $7.9 trillion asset management firm to push companies to reduce their greenhouse gas emissions and publicize their practices on social issues. to make.
He has argued that it is not only good for society, but also good for investors – including the company’s clients, which include pension funds, endowments and governments.
BlackRock said that since 1999, under Fink’s leadership, it has achieved a cumulative total return to shareholders of 7,700 percent “by consistently putting the best interests of the customer first.” The company is not divesting from fossil fuels, even with its focus on sustainability,
“Stakeholder capitalism hasn’t woken up — it’s not political, it’s capitalism,” Fink said at the New York Times DealBook Summit in November.
Republicans reject Fink’s philosophy, arguing that it subordinates investor returns to other causes, hurts the energy industry and threatens the US economy. They also use it as a political weapon to bash the Wall Street elite.
“This is more about people feeling good at cocktail parties and flying to their places in Tahoe and whatever,” Representative Bill Huizenga, the Michigan Republican who leads the House GOP on stock market issues, said in an interview.
Members are not on the same page
The GOP attack is increasingly staged at the state and federal levels. In Washington, the companies in their sights are largely going it alone, according to sources familiar with the lobbying dynamics. They are also under pressure from climate activists to move away from fossil fuels more quickly.
The Investment Company Institute – the leading trading group for the asset management industry – is not running against the Republicans. The association said in a statement that it works with both parties in Congress to promote the long-term financial interests of investors. It’s a similar approach that other groups take.
A representative from an industry association granted anonymity to speak candidly: “It is certainly our job to be an umbrella for people when it rains, but we also need to remember that we represent a large part of the industry. I don’t think you’re wagging the dog’s tail.”
An executive from another large corporate trade group said, “It’s hard because the members aren’t all on the same page.”
State Street hopes its industry associations play a role.
“Our trade groups bring deep expertise to dialogue with policymakers on industry issues, especially when Americans’ savings and retirement security may be at risk, and we are confident they will continue to be an important voice in this debate as it evolves” State Street spokesman Randall Jensen said in a statement.
The U.S. Chamber of Commerce, which represents a wide variety of industries, is not entirely left on the sidelines after ongoing Biden-era conflicts with Republicans who complained that the group was moving to the left.
Barr said the House is working with him on legislation that would require investment advisors and retirement plan sponsors to prioritize financial returns over non-monetary factors when making investment decisions for clients.
But the House is concerned about legislation from Sen. Dan Sullivan (R-Alaska) and Representative Blaine Luetkemeyer (R-Mo.) that would require passive mutual fund managers to vote on proposals from companies’ shareholders in accordance with their instructions. investors.
The bill’s backers argue it’s a way to prevent financial firms from imposing their agenda on businesses — including moving away from fossil fuels. In the House’s view, the bill could ultimately reinforce the same outside influences that try to force environmental and social policies on businesses.
“It has long been Chamber policy that investing should be objective, directly linked to economic returns and that policymakers on both sides should not put a finger on the scale,” said Tom Quaadman, executive vice president of the Chamber’s Center for Capital Markets. competitiveness.
BlackRock spokesperson Dominic McMullan said many people have opinions about how its clients’ assets should be invested, but that it is its fiduciary duty to clients. BlackRock and other asset managers are developing ways for their clients to vote more directly on shareholder issues at companies in which they invest.
“[T]The money we manage belongs to them – not politicians, activists, NGOs or commentators,” he said.
In the current political climate, it’s an argument that companies like BlackRock will usually make alone.
“It’s kind of the nature of the beast,” said Sen. Jon Tester (D-Mont.), a member of the banking committee. “They’re big guys.”
CORRECTION: An earlier version of this report misrepresented BlackRock’s assets under management.