July 01, 2021

Toomey and Johnson Raise Concerns Over Asset Managers Prioritizing ESG Objectives Over Federal Employees’ Retirement Savings

Washington, D.C. – U.S. Senator Pat Toomey (R-Pa.), Ranking Member of the Senate Banking Committee, and U.S. Senator Ron Johnson (R-Wis.), Ranking Member of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, are raising concerns about whether asset managers are prioritizing liberal policy objectives over federal employees’ retirement savings.

In a letter
to the Federal Retirement Thrift Investment Board (FRTIB), the Senators questioned whether BlackRock and State Street Global Advisors (SSGA)—the two asset management companies who manage the Thrift Savings Plan (TSP)—are using their control of proxy votes to pressure other companies to adhere to their own environmental and social policy views.

“We are concerned that BlackRock and SSGA may be prioritizing their CEOs’ personal policy views over retirees’ financial security,”
the Senators wrote. “Federal law explicitly requires all fiduciaries of the [TSP], including BlackRock and SSGA, to discharge their responsibilities ‘solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries.’”

The TSP is a retirement investment plan available to federal employees and members of the uniformed services. As of December 31, 2020, TSP had 6.2 million participants and more than $735 billion in total assets—$442 billion of which is managed by BlackRock and SSGA.
While federal law prohibits the Federal government from exercising voting rights associated with funds in the TSP, the FRTIB has taken the position that this does not apply to third-party asset managers. It appears the only restriction on BlackRock and SSGA’s voting authorities is whether a vote is taken in accordance with each companies’ respective proxy voting guidelines.  

“[B]oth entities are increasingly incorporating left-leaning environmental, social, and corporate governance (‘ESG’) priorities into these guidelines,”
they continued. “For example, BlackRock announced that in 2021 ‘key changes’ in its voting guidelines ‘address board quality; the transition to a low-carbon economy; key stakeholder interests; diversity, equity and inclusion; alignment of political activities with stated policy positions; and shareholder proposals.’ Not to be outdone, SSGA’s CEO stated ‘our main stewardship priorities for 2021 will be the systemic risks associated with climate change and a lack of racial and ethnic diversity.’”

The Senators requested a briefing on the matter and a number of documents by July 26, 2021.

Full text of the letter can be found here