US lawmaker asks Fed for details on asset manager ESG pledges

March 12, 2024|Written by |Federal Reserve

US Republican lawmakers are seeking information from the Federal Reserve on whether asset managers are breaking their agreement with the central bank by being part of climate groups that aim to limit emissions.

House oversight committee chair James Comer sent a letter to the Fed’s general counsel to determine whether asset managers are subject to bank holding rules as a result of their involvement in groups like the Net Zero Asset Managers Initiative (NZAM), Climate Action 100+ and Principles for Responsible Investment (PRI).

Asset managers in such groups often pledge to curb their emissions and reach net zero by 2030 in accordance with the Paris Agreement. Comer said that these pledges may suggest that the groups control their overall decisions, which would subject them to the Bank Holding Act, the Home Owners Loan Act and the Change in Bank Control Act.

“The requirements these alliances place on their members appear to manifest as control of a regulated company,” which is similar to definitions the Fed made in determination letters in 2019 and 2020, Comer said. The Fed said in those letters that an asset manager can purchase up to 25% of a class of voting securities without having a controlling stake of the company.

“Pledges to act in concert with other signatories, actively pursue outcomes and use all assets under management to achieve the stated goals of the various agreements, appear to directly violate the terms laid out in [those] letters,” Comer said.

Comer listed 12 questions about whether using ESG in investment decisions violates federal laws and requested that the Fed respond by 11 March. The letter also asks if the Fed has a process to monitor the actions of climate pledges and whether implementing engagement that starts with a voting policy would violate federal law.

Comer’s letter is the latest development in a two-year inquiry by mostly Republicans who say asset managers and pension firms are pushing ESG and other climate-related investments on investors. Members of NZAM and PRI have been subject to House subpoenas over whether such industry climate alliances violate anti-trust laws.

The anti-ESG push has led to a large uptick in state legislation against ESG-focused funds. The increased scrutiny has led to several large financial institutions leaving the climate groups, with JPMorgan and State Street announcing in February they were leaving Climate Action 100+. The group said while it was disappointed to see them go, “hundreds of investor signatories remain committed to ensuring 170 of the largest greenhouse gas emitters reduce emissions, improve governance, and strengthen climate-related financial disclosures”.

Earlier this week, JPMorgan also left the Equator Principles framework for assessing ESG risks, along with Citi, Bank of America and Wells Fargo.

This page was last updated March 12, 2024

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