Decoding asset managers’ flight from Climate Action 100+

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Well, this sucks.

US investors JP Morgan Asset Management (JPMAM), State Street Global Advisors (SSGA), and PIMCO have all left Climate Action 100+ (CA100), the 700+ strong investor initiative dedicated to engaging companies on their climate efforts.  BlackRock, the world’s largest asset manager, is also stepping back from the group, shifting participation to its international arm.

Sure, the firms abandoning the CA100 – an alliance they signed up to with such pride a few short years ago – have their reasons.  Plenty of media outlets have already dug into these (the New York Times coverage is particularly enlightening, for those interested). The tl;dr is that US firms think sticking with the group exposes them to legal and political risks, particularly now it’s shifting focus to portfolio companies’ climate transition plans.

However, few outlets have compared and contrasted the firms’ stated motivations for leaving these alliances with the ones given for joining them in the first place. 

This exercise shows how the asset managers have tied themselves in knots in a futile effort to escape the wrath of MAGA Republicans, who have made ESG a front in their senseless culture wars.

In fact, I’d go so far as to say fiduciary duty has been sacrificed on the altar of political expediency – and it won’t even win the CA100 leavers the peace they so crave. Why would the far right give up on their favorite punching bags? Indeed, the Oklahoma Treasurer, Republican Todd Russ, this week pushed BlackRock, SSGA, and JP Morgan to leave other climate groups they are a part of. Anti-ESG activists smell blood, and they won’t let up the hunt now.

But let’s get into the contradictions inherent in the asset managers’ own justifications for joining – and then leaving – CA100.

JPMAM signed up to CA100 in 2020. In the accompanying press release, Jennifer Wu, Global Head of Sustainable Investing, said membership “adds another channel to engage with companies on enhancing disclosure of risk exposures, as well as strategy and governance on greenhouse gas emissions reduction and adoption of sustainable business practices.” 

In fact, JPMAM’s getting into bed with CA100 was pitched in the release as part of the firm’s broader effort to “reinforce its focus on advancing sustainable solutions for clients.”  This makes sense in the context of JPMAM’s responsible stewardship approach, which reads:

“We are committed to our stewardship responsibilities: active engagement with the companies in which we invest, exercising our voice as a long-term investor in proxy voting.  As an active asset manager, we encourage companies to develop and adopt practices to manage their risks and create long-term value for our clients.”

CA100 membership dovetails nicely with this approach. After all, the group’s whole purpose is to improve portfolio companies’ climate change governance, spur emissions reductions, and strengthen climate-related financial disclosures, in order to – you guessed it – “create long-term shareholder value.”

One would think, based on its own words, that JPMAM’s responsible stewardship approach benefits from ongoing CA100 membership. As Wu said, it “adds another channel” for engagement. 

None of this reasoning is refuted by JPMAM’s leaving statement, which claims the exit is due to “significant investment it has made in its investment stewardship team and engagement capabilities, as well as the development of its own climate risk engagement framework over the past couple of years.” 

This doesn’t pass the smell test. The planned buildup of investment stewardship capabilities was announced in the very same press release trumpeting JPMAM’s CA100 membership, and nowhere was it claimed that the former could displace the latter.  Logically, it can’t.  CA100 is about investors collectively engaging companies on climate issues to accelerate actions that promote long-term growth (while respecting each member’s independence as a fiduciary). JPMAM’s in-house team, to my knowledge, is not equipped to take such a collaborative approach. 

For JPMAM’s exit from CA100 to make sense, it must have concluded that the alliance is not adding anything to its engagement efforts. This seems a stretch, if the many engagement wins cited by the CA100 are to be believed. But if it left for other, political reasons, then the firm has voluntarily hobbled its own responsible stewardship approach to save itself from unwanted Republican attention. In other words, it’s put its own interests ahead of those of the clients it’s supposed to be serving. 

PIMCO’s doublespeak is even starker.  According to a statement to Responsible Investor, the firm decided to leave after concluding CA100+ membership “is no longer aligned with [its] approach to sustainability.” 

Ok, sure, but its Sustainable Investment Policy Statement from July 2023 gives no clue as to why this may be the case. Indeed, PIMCO says here that sustainable investment is “not only about partnering with issuers which already demonstrate a deeply unified approach to sustainability, but also about engaging with those issuers that are evolving their sustainability practices.” 

The whole point of CA100 is about engaging with these evolvers! It purposely targets high-emitting companies! C’mon, PIMCO, you must have a better excuse than that!

I’d argue that BlackRock’s reasoning for stepping back from the alliance is worst of all from the fiduciary responsibility standpoint. Upon joining CA100 in 2020, BlackRock said that “evidence of the impact of climate risk is building rapidly.”  This made joining the alliance a no-brainer, as it would help accelerate its own efforts to engage companies on this issue.

However, now the firm claims that the new, transition plan-focused phase of the CA100 has changed things. Does it no longer think climate risk is building rapidly?  Does it not believe that addressing climate risk effectively involves companies producing and implementing transition plans? If so, that would put BlackRock at odds with a growing number of investors, regulators, and industry groups, not to mention it’s own CEO – Larry Fink. In 2022, Fink in his annual letter to CEOs wrote: “Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.”

Worse, the statement says BlackRock International will only undertake issuer engagements and take proxy vote positions “consistent with decarbonization investment objectives” (ie, related to transition plans) when clients tell it to do so.  Put another way, the firm won’t address climate transition risks among investees unless instructed. How does this square with fiduciary duty?  After all, if BlackRock believes that climate risk is a threat to companies, isn’t it in the interests of its clients for it to engage with portfolio companies on this issue, regardless of instruction?

Even weirder, later in the same statement it says it will continue “to engage with companies and encourage disclosure on how they manage climate risk, where material to their business model and ability to deliver durable long-term financial returns.”  Does this mean BlackRock International will engage on disclosure of transition plans but won’t engage on implementation of transition plans? 

Beats me.

To summarize, none of the above mentioned firms’ stated arguments for ditching the CA100 are convincing.  I know, you know, the world knows they’ve left to try and avoid Republican anti-ESG attacks.  In the process they’ve muddled their definitions of fiduciary duty and undermined their own claptrap on responsible stewardship.

Bad form, chaps.