[Ed. note: Zach is back, kind of. He’s been behind the scenes here at PracticalESG.com for the past couple months while helping launch our new blog TheAICounsel.net. He’ll be back to blogging on ESG and sustainability matters, but not as frequently as in the past.]
For the past several years, it’s been common to see empty threats issued by red state Attorneys General and the US House Committee on the Judiciary alleging that asset managers violated a variety of laws and regulations as a result of ESG programs. Up to now, these letters and requests for information were little more than grandstanding. However, the political environment has changed substantially and a new request for information issued by Texas AG Ken Paxton and 10 other AGs may carry serious legal risk. The letter was sent to BlackRock, Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America, and Citigroup alleging:
- Violation of civil rights laws due to the consideration of race and sex in employment decisions, board composition, and supplier diversity initiatives.
- Violation of fiduciary duty, duty of loyalty, and duty of prudence due to the consideration of ESG factors in investment decisions.
This action may be somewhat surprising given that Paxton eased up on most of these same companies after they dropped out of Net Zero collaborations. While previous similar threats were easy to brush off, there is now a real chance these issues will be litigated because of evolving precedent that makes these issues ripe for the AG to pursue, including:
- Students for Fair Admissions v. Harvard ended affirmative action programs in college admissions and the advocacy group that brought that case has several others against corporate entities who consider race as a factor in employment.
- The US District Court ruling against American Airlines that found the company breached its duty of loyalty by entrusting employee 401(k) plans to BlackRock who considered ESG factors in its general investing process.
- The likely end of the Department of Labor’s ESG Investing Rule.
These developments remove safeguards and set legal precedents the Texas AG can leverage. This new letter is in addition to the previous lawsuit brought in December on antitrust claims by the Texas AG and ten others against BlackRock, Vanguard, and State Street. Of course, the fact that these issues are more likely to be litigated does not equate to an automatic win for Texas. The judicial process is long and nothing is set in stone.
The good news for ESG professionals and lawyers defending against these suits is that we have the Anti-ESG playbook – it has been telegraphed for the past three years. If you’re looking to build a defensible ESG program, review the myriad letters sent by red state AGs to companies, banks, and financial alliances. Last year, I wrote about a series of anti-ESG house bills that were a long shot and what I said applies not only to those specific bills but to Anti-ESG on the whole:
“While these bills are unlikely to have any practical impact in the current political environment, they offer insight into the strategies the anti-ESG movement plans to pursue if the political tides change.”
Well, political tides did change and we have to take threats like Paxton’s more seriously. The silver lining is that we have the Anti-ESG blueprints at our disposal and can craft smarter, more resilient programs that stand up to scrutiny.
Our members can learn more about Anti-ESG here.
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