Republican state attorneys general are questioning proxy advisory firms Institutional Shareholder Services and Glass Lewis on ESG recommendations that the officials warned could be open to legal challenges.
In a letter sent to ISS and Glass Lewis on Tuesday, the attorneys general from 21 states said that the proxy advisers "have made several commitments that may interfere with your ability to honor your legal obligations," based on the firms' analyses and voting recommendations on climate and diversity issues.
In providing proxy voting services to their states' investment vehicles, the attorneys general said that ISS and Glass Lewis are contractually required to be free of conflicts of interest and "consider only one goal: the economic value of the investments."
The letter cites evidence of "potential breaches" of those contracts related to the proxy firms' pledges to make voting recommendations on company directors based on corporate net-zero goals and boardroom diversity, among other issues. Those actions "may threaten the economic value of our states' and citizens' investments and pensions," the letter warned.
On the question of boardroom diversity, "your actions appear more like those of an activist forcing companies to comply with rules that governments will not otherwise institute," the attorneys general warned.
The letter asks for written assurance by Jan. 31"that you will cease such violations and commit to following the law."
The attorneys general also asked ISS and Glass Lewis to identify asset managers in the Net Zero Asset Managers Initiative that engaged with them on emissions reduction issues, and to describe the extent of coordination with Climate Action 100+.
In a statement provided by an ISS spokesman, ISS said the letter "reveals a fundamental misunderstanding of market forces at work. As an independent provider of research and voting recommendations, ISS' sole agenda is to provide its clients with tools and policy options to enable them to make informed investment decisions and vote their shares in accordance with their distinct views and fiduciary responsibilities. We take our legal obligations seriously, will respond to questions laid out in the letter, and look forward to continuing to serve our investor clients with the diversity of independent and objective research offerings they demand."
A call to Glass Lewis was not immediately returned.