Senators Toomey and Cotton Write Warning Letters to ESG Industry

These warnings allege potential anti-trust violations and come in the wake of other such warnings and divestments on the state level.

Senator Pat Toomey, R-Pennsylvania, wrote a follow-up letter to twelve ESG ratings and analytics providers on October 31 requesting that they keep documents related to the methodologies for their environmental, social and governance ratings.

Toomey is the ranking member on the Senate Banking, Housing and Urban Affairs Committee, and will retire before the next Congress is sworn in, and will likely be replaced by Senator-elect John Fetterman, D-Pennsylvania, this January.

This letter follows an earlier letter sent September 20 to the same twelve firms asking for clarification on their ratings methodology.

He requested all non-proprietary methods for assigning ESG ratings. More specifically, he asked for how they engage with the companies they rate, if they employ analysts with sector specific expertise, if they have a revision process for errant ratings, if companies can dispute ratings, how they handle companies that do not provide requested information, how they evaluate data quality, if they consider political donations as a factor, and whether or not they use state-owned media as a data source in creating ESG ratings.

The letter also asked if involvement in fire arms, fossil fuels, or tobacco influences an ESG rating, and if so, how. These three industries, especially fossil fuels, are the most cited by Republicans when expressing skepticism or hostility to ESG strategy.

Six of the twelve provided responses. The other six either have not responded or provided responses that the Toomey considered “incomplete”. Institutional Shareholder Services, the parent company of ISS Media was one of the six that did not respond. The other five non-responsive ESG raters were Arabesque S-Ray, Carbon Disclosure Project, FactSet, RepRisk, and Sustainalytics

Senator Cotton, R-Arkansas, sent a more threatening letter to 51 law firms who counsel investors and other actors in the ESG sector.

Cotton’s letter was co-signed by four other Republican senators including Marsha Blackburn of Tennessee, Chuck Grassley of Iowa, Mike Lee of Utah, and Marco Rubio of Florida. Several of the law firms were contacted for comment and either declined to comment or did not respond to the request.

Cotton’s letter indicated that firms applying ESG investment principles The letter does not specify a specific industry such as investment advice or ESG ratings but suggests that the “ESG movement” is colluding “to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad.”

This alleged collusion could violate anti-trust laws according to the senators’ letter, and it says that there is no ESG exemption to federal anti-trust law. The letter advises the firms to store documents related to their communications with clients about ESG in anticipation of anti-trust investigations.

These letters follow similar warnings sent to Blackrock in August by 19 Republican attorney generals which alleged that Blackrock was privileging its “climate agenda” over its fiduciary duties. Another group of Republican attorney general last month sent civil investigative demands to the six largest banks in the U.S. to explore the AGs’ assertions that the banks’ ESG pledges have harmed the energy sector.

The Louisiana state pension fund also divested from Blackrock last month for their “blatantly anti-fossil fuel policies.” Other states, including Utah and Missouri, have divested from BlackRock with similar reasoning.