Two leading Republican lawmakers on the Senate’s banking and government oversight committees are warning that a commitment to environmental, social and governance investing by two giant asset managers could be diminishing the retirement savings of federal employees.
Sens. Patrick Toomey, R-Pa. and ranking member of the Senate Banking Committee, and Ron Johnson, R-Wisc. and ranking member of the Senate Homeland Security and Government Affairs subcommittee on investigations, asserted that BlackRock Inc. and State Street Global Advisors are focused on advancing ESG investing to the detriment of financial returns with their proxy votes related to the portion they manage of the Thrift Savings Plan, a pension covering 6.2 million federal employees.
BlackRock and State Street manage $442 billion of the $735 billion of the TSP’s assets under management.
“Specifically, recent statements by the CEOs of BlackRock and State Street Global Advisors (SSGA) indicate they are using their control of proxy votes for federal employees’ Thrift Savings Plan investments to pressure other companies to adhere to their own environmental and social policy views,” Toomey and Johnson wrote in a June 30 letter to David A. Jones, acting chairman of the Federal Retirement Thrift Investment Board. “We are concerned that BlackRock and SSGA may be prioritizing their CEOs’ personal policy views over retirees’ financial security.”
The federal retirement board allows third-party asset managers to exercise proxy voting rights associated with funds in the plan. Toomey and Johnson are concerned that the guidelines that BlackRock and State Street follow in casting their votes are more oriented toward ESG investing than an “investor’s fiduciary advantage.”
“[B]oth entities are increasingly incorporating left-leaning environmental, social, and corporate governance priorities into these guidelines,” Toomey and Johnson wrote.
Kim Weaver, a spokesperson for the Federal Retirement Thrift Investment Board, said the organization is reviewing the senators’ letter.
“Our fund managers serve as fiduciaries to TSP participants,” Weaver said. “Any proxy vote they’re casting on our participants’ behalf has to advance the financial interests of our participants.”
BlackRock said its proxy votes benefit the TSP bottom line.
“BlackRock Investment Stewardship performs independent research and analysis on behalf of our clients,” a BlackRock spokesperson said in response to the senators’ letter. “The group casts informed votes aligned with clients’ long-term economic interests. We see this responsibility as part of our fiduciary duty.”
State Street also said its focus on ESG benefits TSP investors.
"We believe that asset stewardship is our fiduciary responsibility and one of the ways we add value for investors," Olivia Offner, a spokesperson for State Street Global Advisors, said in a statement. "As long-term investors, we always take a broad view of ESG factors as they relate to sustainable returns."
Proponents of ESG argue that sustainable investing produces strong financial returns. The surge in the popularity of ESG investing is one of the reasons the SEC is planning to promulgate rules on climate risk and other ESG disclosures.
The senators’ skepticism about ESG investing for retirement savings echoes that of a Trump administration Department of Labor rules that would have made it much harder for plan fiduciaries to use ESG factors in selecting investments for retirement plans would have curbed shareholder actions related to sustainable investing.
In an executive order earlier this year, the Biden administration directed the DOL to propose rules to suspend, revise or rescind the Trump administration’s regulations.
Editor's note: This story was updated to include a statement from State Street Global Advisors and to reference a Trump administration regulation on retirement-plan proxy voting.
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