Fund groups including Federated Hermes, Fidelity Investments and Invesco have been criticised by the US investment industry after it came to light they are associated with so-called anti-ESG group the State Financial Officers Foundation (SFOF).
Federated Hermes released a statement on Thursday clarifying its stance on its own ESG principles in relation to the organisations that it sponsors.
The trio above and banks including JP Morgan and Wells Fargo are among institutions that are “sponsors” or “friends of sponsors” of SFOF, which is a non-profit.
Criticism aimed at the sponsors said they are supporting climate denial and one industry figure has called for “consistency” between fund groups’ ESG commitments and their actions.
SFOF said its mission is to “drive fiscally sound public policy, by partnering with key stakeholders and educating Americans on the role of responsible financial management in a free market economy”.
The organisation has been accused of taking an anti-ESG stance, especially on climate disclosures, where it has criticised the US regulator, the Securities and Exchange Commission, on its proposed rules.
Media reports claimed the SFOF has denounced efforts by the Biden administration to make climate commitments and increase allocations to climate-friendly finance.
Last year, the organisation wrote to John Kerry, US special presidential envoy for climate, to express concern that he and Biden were “privately pressuring US banks and financial institutions to refuse to lend or invest in coal, oil and natural gas strategies, as part of a misguided strategy to eliminate fossil fuels in our country.”
The letter added that SFOF opposes attempts to “bend the free market to the political will of government officials” and considers fossil fuel companies vital to the US economy.
A recent investigation by Documented and The New York Times said SFOF has successfully campaigned for the divestment of millions of dollars of state funds from investment managers the SFOF claims are too “woke”. It has also been pushing Republican state treasurers to promote oil and gas interests, the report stated.
The resources section of SFOF’s website contains links to climate science-denying political groups including the American Legislative Exchange Council and the Heritage Foundation.
UN PRI expects consistency
Invesco, Fidelity Investments and Federated Hermes are all signatories of the UN Principles for Responsible Investment (PRI), meaning they have made a public commitment to investing responsibly and building a more sustainable financial system.
Nathan Fabian, chief responsible investment officer at the PRI, told Portfolio Adviser sister title ESG Clarity the organisation wants signatories to make sure its associates’ values align with their own.
“The PRI expects all signatories to regularly review their commitments to external membership bodies and associations and to ensure any activity in this vein is consistent with signatories’ own commitments to responsible investment,” Fabian said.
A UN white paper on the Global Compact and Sustainable Development Goals (SDGs) makes the argument that groups can’t offset promotion of harmful activities.
“Neglecting the responsibilities attached to such social and environmental principles cannot be offset by any effort to promote these same principles – as an advocacy or public relations effort – or through philanthropic or related ‘do-good’ programs that while perhaps advancing some aspect of sustainable development do not respect basic due diligence and do-no-harm principles,” that paper read. “In other words, a company could be, knowingly or unknowingly, ‘giving with one hand and taking with the other.’”
‘Supporting climate denial’
“Instead of recognising the need for climate financial regulation to protect financial stability, achieve a green transition and stabilise inflation, SFOF sponsors are supporting climate denial and delay, revealing that they view ESG as little more than a PR exercise,” David Barmes, senior economist at campaign group Positive Money, said in an email.
“Fossil fuel giants understand that sensible financial policy focused on managing climate risks and supporting a green transition would impede their access to capital, so they and their financiers are bankrolling anyone with the power and inclination to stall action.”
‘Greed trumps principle’
Chris Welsford, managing director at sustainability-focused Ayres Punchard Investment Management, said in an email he is not surprised some asset managers have associated themselves with SFOF.
“Our research overwhelmingly tells us that most fund managers are motivated by short-term financial gain and that includes many who have positioned themselves as sustainable or impactful,” Welsford said.
“There is widespread – and in my view, inappropriate – use of use of the mantra ‘don’t let perfection become the enemy of good’ to justify investment in companies that we feel are evidentially inappropriate for principles-based impact investment.
“They use the principles when it suits them. When it doesn’t, they don’t. Take Schroders’ inability to live up to their own promises of support for the Living Wage and their vote at Sainsbury’s AGM.”
He also pointed out the responsibilities of fund managers like Federated Hermes that present themselves as a key part of the climate transition and align themselves with the SDGs, the PRI and the 10 Principles of the UN Global Compact.
“They should be using their considerable financial clout and presence to oppose climate denial, factional greed and the views of organisations like SFOF, rather than materially supporting them,” Welsford said.
“Engagement with such organisations hasn’t changed them. In fact, it’s emboldened them. There is no good argument to defend any financial institution that supports SFOF, but we should not be surprised, because they want to be all things to all people and ultimately greed trumps principle in today’s financial system.”
Access to state leaders
Federated Hermes is among the asset managers listed as a “gold sponsor” of SFOF on its website. SFOF sponsors gain direct private access to elected officials.
“At our national meetings, corporate partners sit and participate side-by-side with our state leaders,” the SFOF states on its site.
In its statement, Federated Hermes addressed how its sponsorship of SFOF aligns with its publicly stated ESG objectives.
“We work with a range of clients who hold different views on ESG. We engage with all, listening to their views and putting forward our capabilities to meet needs consistent with their convictions. Meeting fiduciary standards is enhanced by not removing ourselves from this process and the forums where issues are discussed,” the firm stated.
“Responsible investing is not about promoting a specific political agenda.”
The company added that it participates in hundreds of events around the world with different organisations for which it does not set the agenda, noting that “our participation does not serve as an endorsement of any organisation’s particular perspective on any issue.
“Listening to different points of view is critical to the engagement process. Diversity of thought and respect for the views of others, no matter how they differ from our own, is critical to long-term consensus building and the betterment of our world.”
It also reaffirmed it supports enhanced climate disclosure, but is mindful of “the need for a just [energy] transition that does not ignore the need for job security”.
In a statement, Invesco confirmed that it was “one of the sponsors of SFOF – a conference of current and potential clients.”
Fidelity Investments and JP Morgan declined to comment. ESG Clarity US has also approached the SFOF for comment.
This article first appeared on our sister title ESG Clarity.
