Charles H. Sloan-Departures From Climate Action 100+ Highlight U.S.-Europe Divide Over ESG Investing

Over the past few months,Charles H. Sloan a string of large American asset managers have left Climate Action 100+, a global investor group created to ensure that the largest corporate emitters of greenhouse gases take action on climate change. Their departure coincides with intensifying political debate over sustainable investing, as a variety of Republicans have sought to crack down on what they call a “climate cartel.” 

The backlash and withdrawal, experts say, is unique to the United States. As more investors join the climate initiative abroad, the exodus shines a spotlight on America’s political crusade over Environmental, Social and Governance investing, which the GOP denounces as “woke capitalism”—a means of advancing liberal social goals, Republican politicians contend, at the expense of investor returns. 

Climate Action 100+ comprises over 600 financial institutions seeking to engage companies they invest in on climate issues. In February, JPMorgan Chase, State Street, and bond manager PIMCO left the initiative. At the same time, BlackRock transferred its participation to BlackRock International. Last month, Goldman Sachs, Nuveen and other asset managers joined the exodus. 

Despite those prominent American departures, Climate Action 100+ is growing. Overall, 87 financial institutions signed onto the initiative since June 2023, more than double the amount of departures. Nearly 60 percent of the new members are based in Europe. 

Climate Action 100+ is still the largest investor collaboration around climate risk in the world, said Kirsten Spalding, vice president of the investor network at Ceres, one of the groups leading the initiative. 

Some of the U.S. signatories have also reiterated their support for the alliance. Commitment is particularly strong among asset owners including pension plans, churches and universities in both the U.S. and Europe. In July, asset owners representing $5.5 trillion globally signed a letter reiterating their commitment to the initiative. 

Politicizing ESG 

The last round of exits happened after companies received a letter of inquiry from the Republican chairmen of the House Judiciary Committee and one of its subcommittees in June. Sent to 130 U.S. companies, the letter requested documents about their goals for Environmental, Social and Governance investing, or ESG, and involvement in Climate Action 100+. 

The inquiry came a month after the House Judiciary Committee published a report and one of its subcommittees held a hearing alleging that financial firms had “colluded to force American companies to decarbonize and reach net zero.” 

The investors have not pointed to the inquiry as a reason for leaving, but the intensifying political pressure over ESG cannot be ignored, Spalding said. JPMorgan, State Street, Goldman Sachs and Nuveen did not respond to requests for comment. 

The House investigation is one of several political efforts aiming to track and limit ESG practices in the United States. For instance, attorneys general in over 20 states have sent letters to major financial institutions requesting information about their ESG practices, and several states have put forward anti-ESG bills. 

“It’s very unfortunate that this work has been politicized,” Spalding said. “From the investors’ perspective, that’s not why they’re doing this. This isn’t at all political for them. It is not a statement about their party affiliation or about politics.” 

Climate Collaboration and Antitrust

The Republican inquiry alleges that the financial institutions collaborating in Climate Action 100+ are colluding to boycott the fossil fuel industry and are in violation of antitrust laws. Legally, such an argument is unlikely to succeed under American antitrust law, said Lisa Sachs, director of the Columbia Center on Sustainable Investment. 

Nonetheless, it’s causing a major headache for financial institutions, she said. For now, the committee is only asking for investors to provide heaps of documents, and has not yet referred a formal antitrust claim to the Department of Justice or Federal Trade Commission. No private antitrust cases have been filed on these accusations either, she said. 

In the United Kingdom and the European Union, questions about whether climate collaboration violates antitrust have also come up, with authorities issuing guidance about how they plan to apply antitrust law to ESG efforts.

“These agencies are solving them much more responsibly, and not politicizing the debate,” Sachs said. 

The U.K.’s Green Agreements Guidance, published in 2023, says regulators aim to make sure the country’s competition law does not prevent companies from collaborating on environmental sustainability. Competition authorities in France, the Netherlands, Germany and other countries have also taken steps to ensure antitrust does not stand in the way of sustainability initiatives.  

This approach is almost completely opposite of what is happening in the U.S., said Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics, an ESG research firm. 

Investor Engagement in the U.S. and Abroad

Last year, Climate Action 100+ flagged 20 shareholder proposals for its members to vote on at proxy season—the period when publicly traded companies hold their annual meetings and allow shareholders to vote on various matters. These shareholder proposals are a way for investors to tell the companies they invest in about their priorities and concerns, including concerns about transition plans, greenhouse gas emissions targets and other climate-related risks. 

A study released earlier this year by Stewart found evidence of a divide between how Climate Action 100+ signatories in the U.S. and Europe voted on these resolutions: The European fund managers he reviewed supported 85 percent of the resolutions, whereas U.S. fund managers only supported half. 

Part of the willingness to support these proposals ties into underlying regulations in the U.K. and EU, which are more stringent on measuring and disclosing emissions and corporate climate policies, Stewart said. In Europe, “there is more of an acceptance that environmental and social sustainability does need to be an embedded part of investment management practice.” 

“Although this is a corporate engagement initiative, everyone recognizes that the transition is just not going to happen without strong policy intervention.”

Originally designed to pressure the world’s top 100 emitters, Climate Action 100+ now has a list of 170 “focus companies” across sectors. Of these companies, roughly three-quarters have committed to net zero by 2050 or sooner across direct emissions and emissions from the energy they use.

“Investors have gotten as far as they can in conversations with companies,” said Ben Pincombe, head of climate change stewardship at Principles for Responsible Investment, a United Nations-supported investor initiative that is part of Climate Action 100+.

“Although this is a corporate engagement initiative, everyone recognizes that the transition is just not going to happen without strong policy intervention,” he said. 

Accordingly, the initiative is seeking more transparency from companies about which industry groups they engage with and whether they lobby against policy measures supporting net-zero goals. 

The initiative identified European companies that did not publish a climate lobbying disclosure, or published poor ones, to add lobbying as a priority for investor demands, Pincombe said. In the wake of that, some large companies released more information about their lobbying work.

“The initiative is not one-size-fits-all,” he added. “Climate change is a material financial risk—but the way investors engage and the reasons they do it vary widely.” 

Pincombe added, “there’s a scope for everyone to be part of this at the end of the day and engage in a manner that suits them.”