The House of Representatives has subpoenaed shareholder advisors Glass Lewis and Institutional Shareholder Services as it expands a probe into whether they have violated antitrust laws by coordinating ESG efforts with each other, On The Money has learned.
On Wednesday, House Judiciary Committee Chair Jim Jordan (R-Ohio) requested what will likely amount to thousands of documents from both Glass Lewis and ISS, so-called proxy advisory firms that big investment firms use as consultants for shareholder votes, sources said.
In a letter to both companies, Jordan requested “all documents and communications” that aim to “advance decarbonization and net zero emissions goals” from December 2016 to present.
The subpoena also touches on shareholder advisors’ relationships with asset managers — including Larry Fink’s BlackRock, State Street, Arjuna Capital and Trillium Asset Management — and any communications that relate to setting an ESG agenda.
“Corporations are collectively adopting and imposing progressive environmental, social, and governance (ESG)-related goals,” Jordan said in a letter explaining his concerns.
Jordan explained that despite a House request for documents in August, ISS has provided less than 150 documents while Glass Lewis provided less than 450. Neither Glass Lewis nor ISS “could not commit to a date” by which they would complete the request, the letter notes.
Glass Lewis and ISS – the two dominant firms that provide large asset and institutional managers with voting recommendations on proxies, board members, and shareholder resolutions – have already been under fire from Republicans for advising shareholders to vote for policies that push an ESG agenda and potentially deprive shareholders of the opportunity to invest in lucrative businesses like fossil fuels.
The subpoena is part of a larger investigation launched last December that probes whether asset managers as well as shareholder have “entered into collusive agreement to ‘decarbonize’ its assets under management… in ways that may violate US antitrust laws,” Jordan has previously written.
Jordan said at the time that investment firms seem “to work like a cartel to ‘ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.’”
Jordan has previously alleged that these the asset managers “limit output and increase prices, and deprive businesses of investments and consumers of choices.”
Glass Lewis and ISS have already faced scrutiny from state attorneys-general. Earlier this year, they sent a letter that alleged, “evidence regarding climate change advocacy and goals suggests potential violations of your contractual obligations and legal duties.”
In addition to potentially putting shareholders at a disadvantage, Republicans are concerned that these firms’ consulting businesses create a conflict of interest.
“Each of you offers a substantial number of services related to ESG investing,” the attorneys general wrote. “The value of these services would be undermined if you were to admit in your advisory services that ESG factors are not material to a firm’s financial performance.”
ISS and Glass Lewis, which control 97% of the market, both have consulting arms which companies can pay large sums to in order to get “advice” on how to maximize “appeal to investors,” according to the ISS website.
While the firms are little-known by the broader public, they can swing votes by as much as 10% and 30% according to a 2018 article in Harvard Law’s Forum on Corporate Governance. In recent years both firms encouraged votes on issues that many Republicans consider “woke.” For instance, they supported a call for an “independent racial equity audit” that won by 55%.
Even Elon Musk chimed in on the subject. In a post earlier this year, he said “Far too much power is concentrated in the hands of ‘shareholder services’ companies like ISS and Glass Lewis, because so much of the market is passive/index funds, which outsource shareholder voting decisions to them.”
Sources close to Judiciary say the Committee is considering both civil penalties and fines as well as legislation that would aim to rein in corporations that prioritize progressive aims above fiduciary duties.
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