“BlackRock’s ‘Woke’ Era is Over.” That was a headline in the Wall Street Journal from a few weeks ago. It was a welcome sign that conservatives have made a lot of progress in stopping some large asset managers from injecting their ESG (environmental, social, and governance) beliefs in investments and corporate behavior. The story highlighted how BlackRock has largely abandoned ESG voting in corporate proxy fights and has done away with pushing a DEI agenda. And yet, concerningly, Indiana state leaders still chose to replace BlackRock from state contracts with another asset manager that actually has a more substantial ESG record – showing that more work is required to ferret out the real issues with corporate woke behavior.
For background, in 2023, Indiana passed a law directing the Indiana Pension Retirement System (INPRS) board to refrain from making investments with the purpose of “influencing any social or environmental policy or attempting to influence the governance of any corporation for nonfinancial purposes.” Since the passage, Indiana Treasurer Daniel Elliott placed only BlackRock on the state’s watchlist in June of last year. Then, at the end of 2024, they voted to dismiss them from handling their state’s portfolio. But instead of replacing it with a different firm with lesser ties to ESG, it appears they chose one with stronger ones.
State Street Global Advisors was chosen by Indiana’s public retirement oversight committee despite being heavily criticized for their ESG investment practices. Ironically, State Street is currently being sued by Indiana and a handful of other states alleging the Big Three (State Street, BlackRock, Vanguard) have illegally conspired to manipulate energy markets and target their actions related to climate sustainability.
State Street has also been part of, and withdrew, from some net zero climate groups like Climate Action 100+ and Net Zero Asset Managers’ initiative. However, they remain engaged with the Ceres Company Network, originally created by the late Joan Bavaria, commonly regarded as the “founding mother” of ESG. And despite the increasing scrutiny of Ceres, State Street has shown little indication of departing from them.
Beyond these commitments, their investment and voting history still points to supporting ESG. According to the firm’s 2023 Sustainability Report, State Street had $650 billion in ESG assets under management, and $365.8 million allocated to green and social projects under the Sustainability Bond Framework. According to a recently released “Voting Matters 2024” Share Action report, State Street is ranked significantly higher in support of ESG than other listed asset managers. State Street supported 13% and 7% of environmental and social votes, respectively. In comparison, in that same time period, BlackRock supported just 4% for both; Vanguard supported none.
However, regardless of who the state hires or fires, ESG blacklists regulating what fund manager controls state portfolios aren’t solving the perceived issue. This is because they’re only going after one perpetrator: asset managers. Though asset managers are big targets, the proxy advisory firms that often consult with companies and investors are much bigger supporters of ESG mandates. And unlike asset managers, they’re not following market trends and distancing themselves from ESG; they’re doubling down.
According to a recent Competitive Enterprise Institute (CEI) report, proxy advisory companies supported climate disclosures the most. Two biggest proxy firms, both foreign owned and controlled, Glass Lewis and Institutional Shareholder Services (ISS), account for 94% of the market and both firms consistently issue recommendations in favor of ESG shareholder proposals. ISS, in particular, has been the leader in cajoling public companies to voluntarily disclose their so-called sustainability reports. This is especially problematic when these proxy advisory companies are both rating companies based on their ESG criteria and then also selling consulting services on how to optimize their ESG scores – a clear conflict of interest. And clearly illustrates who the true ESG culprits are.
To finally put an end to ESG, we need to shift focus to proxy advisory firms. They are sustaining it through their voting recommendations, and they keep getting away with it because elected officials are wrongly focused solely on asset managers.
Before Indiana leaders risk Hoosier’s financial futures by switching asset managers from one perceived woke company to another more woke company, they should reconsider their targets and find a better way to address the issue in the state. All evidence suggests proxy advisors are the real culprits we should be focusing on to tackle ESG.
It’s time for our Republican leaders to recognize this and turn their focus on those truly spreading anti-competitive, anti-American ESG values – not just playing a shell game of picking different sides of the same coin when it comes to asset managers.
