Congress Releases New Report on "Sustainability Shakedown"

Over the summer, we?covered?the House Judiciary Committee's investigation into ESG asset managers and their potentially collusive conduct to drive fossil fuel production down and prices up. Now, an interim?report?has been released.?

Catch Me Up:

• In 2021, climate activists from a then-unknown startup called Engine No. 1 foisted three directors on?Exxon's?board in retribution for the company's refusal to reduce output. But Engine No. 1 owned only .02% of Exxon's shares. So who was really pulling the strings??
• To find out, the House Judiciary Committee subpoenaed BlackRock, State Street, public asset managers, climate activist groups, and proxy advisors. They deposed several key players. And they reviewed over 2.5 million pages of internal documents, showing how the organizations and their members coordinated to try to curtail U.S. fossil fuel production.?

What They Learned:?One of the biggest revelations is that it appears that many participants knew they were likely violating antitrust laws, but continued to collude anyway.?

• BlackRock?stated that it could push Exxon to pursue climate goals "in parallel," but that "the notion of not in the same room is key."?
• State Street?initially declined to join Climate Action 100+ "on the advice of both in-house and external legal counsel," who advised that working with the group "is likely to constitute 'collusion' between investors."
• Climate Action 100+?lawyers "do not believe [the group's work] aligns with the fiduciary duty" asset managers owe to their clients.

"Hell To Pay":?The investigation also uncovered the true motive behind the attack on ExxonMobil. While the campaign's proponents, including?BlackRock,?publicly couched their support in terms of "long-term shareholder value," contemporaneous emails suggest a different rationale. "Exxon's board members should have hell to pay," wrote the Chair of Climate Action 100+'s Steering Committee, for rebuffing the organization's demands to cut production. The stakes were high. Climate Action 100+ needed to "show that engagement can have teeth." Exxon's refusal to play ball would not be tolerated; instead, it would be a warning to others "that this could happen to you."

Key Takeaways:?The report is an impressive read. The 78-page account details how various players came together to orchestrate what might be the greatest climate takeover of the 21st century. There's no question that it lays the groundwork for potential antitrust prosecution—as the report alludes to in its concluding section. But the report is also striking in revealing how these actors misled the public, and at times their own clients, about what they were doing. Asset owners pursued "quiet engagements" to push their agenda while avoiding scrutiny; others used proxies so that they themselves could "stay behind the scenes." It took nearly four years and a federal investigation to uncover what really happened. Yet they've all denied wrongdoing, and, as the Committee notes, the climate cartel is still active to this very day. An antitrust enforcement action could ultimately provide some financial compensation to investors harmed by the cartel's collusion, but it will do little to restore their trust.

?

Click here to sign up for The Fiduciary Focus and receive weekly updates like this directly to your email inbox.