GOP Senators Lash Out at BlackRock, State Street for ‘Left-Leaning’ ESG ‘Pressure’

Republican Sens. Pat Toomey of Pennsylvania and Ron Johnson of Wisconsin say BlackRock and State Street’s support of environmental, social, and governance (ESG) investing suggests they are “not putting federal employees’ retirement security first.”

In a letter to Federal Retirement Thrift Investment Board (FRTIB) Chairman David Jones, the senators said they are concerned about “troubling statements” made by BlackRock and State Street—which manage federal employees’ retirement investments—that indicate they “may be prioritizing their CEOs’ personal policy views over retirees’ financial security.”

In particular, the senators are critical of the firms using their control of proxy votes for the federal employees’ Thrift Savings Plan investments “to pressure other companies to adhere to their own environmental and social policy views.” The Thrift Savings Plan is a defined contribution (DC) plan administered by the FRTIB for US civil service employees and retirees as well as members of the uniformed services.

“While these proxy voting guidelines are ostensibly focused on the investor’s fiduciary advantage,” the senators wrote, “both entities are increasingly incorporating left-leaning environmental, social, and corporate governance priorities into these guidelines.”

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The senators criticized BlackRock for earlier this year announcing key changes in its voting guidelines to address concerns such as the transition to a low-carbon economy and diversity, equity, and inclusion (DE&I). They also derided State Street for its ESG priorities, saying “not to be outdone, SSGA’s CEO stated ‘our main stewardship priorities for 2021 will be the systemic risks associated with climate change and a lack of racial and ethnic diversity.’”

Toomey and Johnson are calling on the FRTIB to provide a briefing with details of the two asset managers’ policies for using proxy voting rights derived from plan assets. They also presented a list of demands for Jones to fulfill, including providing the most recent contracts between FRTIB and BlackRock and State Street regarding the management of the Thrift Savings Plan’s assets, including any provision related to proxy voting authorities. They also want information on any proxy vote within the past five years on a shareholder proposal in which the asset managers failed to vote in line with a company’s management, among other requests.

While the letter focused on the BlackRock and State Street’s potential ESG influence over the Thrift Savings Plan, it did not mention last month’s recommendation by the US Government Accountability Office (GAO) for the FRTIB to evaluate the Thrift Savings Plan’s investment offerings to assess its exposure to climate change risk.

The GAO’s recommendation was part of a 50-page report examining retirement plans’ exposure to climate change-related investment risks, what retirement plans in other countries have done to address those risks, and how they communicate this information to the public. It also looked at what steps the FRTIB has taken to address investment risks from climate change.

A spokesperson for State Street Global Advisors told CIO that “we believe that asset stewardship is our fiduciary responsibility and one of the ways we add value for investors,” adding that “as long-term investors, we always take a broad view of ESG factors as they relate to sustainable returns.”

A BlackRock spokesperson said, “BlackRock Investment Stewardship (BIS) performs independent research and analysis on behalf of our clients. We cast informed votes aligned with clients’ long-term economic interests. We see this responsibility as part of our fiduciary duty.”

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BlackRock Makes Sustainability the Focus of its Investment Strategy

Tags: Black Rock, Climate Change, environmental social and governance investing, ESG, Federal Retirement Thrift Investment Board, FRTIB, GAO, Government Accountability Office, Pat Toomey, Ron Johnson, State Street Global Investors, Thrift Savings Plan, TSP

Kommunal Landspensjonskasse (KLP), Norway’s largest pension fund company with $93.2 billion in assets, has divested from 16 companies—including telecom equipment giant Motorola—over their links to Israeli settlements in the West Bank.

“There is an unacceptable risk that the excluded companies are contributing to the abuse of human rights in situations of war and conflict through their links with the Israeli settlements in the occupied West Bank,” KLP said.

The pension fund said the Israeli settlements in the West Bank violate international law, including the Fourth Geneva Convention, which it said considers it a war crime. According to KLP’s guidelines for responsible investment, the pension fund “shall conduct due diligence in its investments and can decide due diligence-based divestments from companies if there is an unacceptable risk of companies being complicit in human rights abuses.”

KLP cited the UN’s Guiding Principles on Business and Human Rights, which say companies have a duty to respect and protect human rights in all the countries in which they operate, irrespective of whether the state itself upholds these rights.

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“The situation in the West Bank has worsened in recent months, and there is an ongoing danger to life and health, as well as human rights abuses,” KLP said. “The Israeli settlements have a negative impact on the Palestinians’ living conditions, since they result in the loss of property and livelihoods, restricted access to services and threats to their physical safety.”

KLP said that because of this, support for the maintenance of the settlements “constitutes an unacceptable and serious risk of continued infringement of the human rights of the Palestinians living in the territory and a weakening of their living conditions.”

The 16 firms are construction and engineering sector companies Alstom SA, Ashtrom Group Ltd., and Electra Ltd.; banks Bank Hapoalim, Bank Leumi Le-Israel, First International Bank of Israel, Israel Discount Bank, and Mizrahi Tefahot Bank; telecommunications companies Altice Europe, Bezeq the Israeli Telecom Corp., Cellcom Israel Ltd., and Partner Communications; integrated oil and gas company Delek Group; oil and gas refining firm Paz Oil Company Ltd.; renewable energy firm Energix Renewable Energies; and Motorola Solutions Inc.

KLP said it has contacted all the companies in order to establish a dialogue, but that the majority of them failed to respond. It said the few companies that replied did so at an overarching level and only referred to general guidelines without discussing the specific questions.

It said only Alstom has been willing to meet with the pension fund. However, according to KLP, Alstom denies it contributes to the violation of international law through its activities in the occupied territory. It also said Alstom referred to a French court ruling in its favor regarding its involvement in a West Bank project, but KLP notes that the case was thrown out on the basis that it was outside of the court’s jurisdiction.

Last month, Norway’s central bank Norges Bank said it would exclude two Israeli companies from the $1.3 trillion Government Pension Fund Global (GPFG) due to the “unacceptable risk” they contribute to systematic human rights violations. Norges Bank said it banned Shapir Engineering and Industry Ltd. and Mivne Real Estate for “systematic violations of individuals’ rights in war and conflict related to the building of homes and buildings in Israeli settlements in the West Bank.”