![]() Other letters have questioned whether there are antitrust concerns arising from financial entities’ commitments to develop investment practices addressing climate change and the de-carbonization goals of the Paris Agreement. A central theme of the state letters is whether ESG practices-including proxy voting in line with ESG considerations-represent a conflict of interest and a breach of fiduciary duties. ![]() These state officials have questioned the use of ESG factors on several fronts. The letters broadly cite federal and state legal regimes, and in some cases contractual duties, that the state officials claim potentially are being breached by financial organizations, insurers, managers, and boards when they advance climate change mitigation or other ESG goals. Letters from State Attorneys General and State Treasurers to Financial IndustryĪttorneys general and state treasurers from over 20 “red states” have sent various letters criticizing ESG factors and their use in investment or proxy decisions to leading participants in the financial industry, including ratings agencies, asset managers, and proxy advisors, among other firms and groups. To provide a sharper picture of the current environment, we summarize the key assertions in these actions below. A recurring theme in these matters is that ESG practices allegedly run counter to the duties of fiduciaries to maximize the profit-taking goals of investors. Meanwhile, private litigants have filed complaints in state and federal courts challenging the ESG-related decisions made by companies and investment funds. Since 2022, the financial industry has received numerous formal inquiries from state officials into their ESG practices. In this environment of competing demands from different regulators and investors, corporate boards and investment managers will face increasingly difficult choices regarding their consideration of ESG factors, and should consider preparing to respond if their organization draws scrutiny over its ESG practices. Meanwhile, some investors, “blue state” officials, foreign governments, and regulators continue to advocate for including ESG factors in business and investment decisions.Īs the proper scope of incorporating ESG into business and investment decisions continues to be debated, and the current political environment remains unsettled, the risk of litigation and state inquiries is likely to continue, if not expand. ![]() ![]() In the past year, however, private litigants, “red state” attorneys general, and other government officials in the United States have increasingly scrutinized the ESG-related decisions of corporate boards, investment managers, pension fiduciaries, and funds-including through litigation filings in state and federal courts. Until recently, the ESG discussion has primarily taken place outside the courtroom. The consideration of ESG factors as part of investment or corporate decision-making processes is at an important crossroads in the United States. ![]()
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