Arkansas' ESG Oversight Committee voted Thursday to find that six financial service providers that conduct business with state government discriminate against energy and/or fossil fuel companies.
The six financial service providers will be notified about the committee's findings and given an opportunity to demonstrate within 30 days' receipt of the written notice that the providers are not discriminating against energy and/or fossil fuel companies. Committee Chairman David Scott said the written notice would be sent by certified mail early next week.
In voice votes, the five-member committee determined the six financial service providers that discriminate against energy and/or fossil fuel companies based on public statements in providers' reports are:
Credit Suisse Asset Management and Credit Suisse Group AG.
Goldman Sachs Asset Management, Goldman Sachs & Co., and Goldman Sachs Group Inc.
Royal Bank of Canada Global Asset Management and RBC Capital Markets.
TD Asset Management, TD Bank Group and TD Securities.
UBS.
Nomura Asset Management, Nomura Group and Nomura Securities.
All six financial providers conduct business with the state treasury, UBS conducts business with the Arkansas Teacher Retirement System, and Goldman Sachs conducts business with the Arkansas Local Police and Fire Retirement System, state officials said Thursday.
The Arkansas Teacher Retirement System is invested in three funds managed by UBS, including the UBS Trumbull Property Fund with a current value of about $125.5 million, the UBS Agrivest Core Farmland Fund with a current value of about $62 million, and the UBS Trumbull Property Income Fund with a current value of about $52.5 million, system Deputy Director Rod Graves said after the committee's meeting.
The Arkansas Local Police and Fire Retirement System made an investment in the 2016 Goldman Sachs Vintage VII Private Equity Secondaries Fund that has a current market value of $10.1 million as of Dec. 31, and this fund purchased secondary interests in limited partnerships and is in the process of returning funds to investors as part of its distribution process, the system's investment consultant and Stephens Inc.'s executive vice president, Larry Middleton, said after the committee's meeting.
The state treasury has used Credit Suisse, Nomura, RBC, Goldman Sachs, TD Securities and UBS as broker-dealers to effectuate the buying and selling of fixed-income securities such as U.S. Treasury securities, U.S. Agency securities, and mortgage-backed securities for the portfolio of the treasury, state treasury spokesperson Heather McKim said after the committee's meeting.
The state treasury has its own investment management team that makes decisions as to which securities are to be bought and sold, McKim said, and the state treasury's portfolio securities are held at its custodian bank, Bank of New York Mellon. The state Board of Finance approves specific broker-dealers to provide investment services that the state treasury does business with, she said.
The state treasury investment practices prioritize the three key objectives of safety, liquidity, and return on investments, and the objectives guide the decision-making process, McKim said.
The ESG Oversight Committee is required to prepare and provide to each public entity by May 14 a list of financial service providers that discriminate against energy, fossil fuel, firearms or ammunition companies, or otherwise refuse to deal based on environmental, social justice or other governance-related factors under Act 411 of 2023. The state treasurer must maintain the list as determined by the ESG Oversight Committee on the state treasurer's website.
The state treasurer is required under the law to divest the state of direct or indirect holdings with a financial services provider included on the list, as are state and local governments. Upon furnishing the list to the state treasurer, the committee shall expire automatically under Act 411 of 2023.
In a voice vote Thursday, the committee voted to approve committee member Mike Frost's motion not to place BlackRock International and BlackRock on the committee's initial list of financial service providers that discriminate against energy, fossil fuel, firearms or ammunition companies because BlackRock is a registered investment adviser.
"I am not saying their hands are clean," but there is "a specific carve-out" for an investment adviser under Act 411 of 2023, Frost said.
Under Act 411 of 2023, discrimination "does not include actions by an investment adviser according to the investment-related guidelines, policies, or preferences of its clients."
Committee member Tom Lundstrum said "I don't see a blanket statement in here [from BlackRock of discrimination] like I saw from" the six other financial service providers that the committee determined discriminated against energy and/or fossil fuel companies.
Based on the information the committee has on BlackRock, he said he doesn't believe putting it on the "do not use" list would meet the legislative intent of Act 411 of 2023.
Scott said BlackRock maintains that the choice of where to invest ultimately rests with its clients, and it's bound to adhere to clients' investment guidelines and objectives and does not dictate particular investment strategies.
Committee member Steve Cook said, "I think BlackRock has gotten smarter since they have been on these state [ESG] lists and, from my vantage point, they should not be on the list [and] I will not vote to put them on the list."
Committee member John Sinclair described himself as "a fence rider" on this matter.
On March 14, officials representing state government retirement systems told the ESG Oversight Committee they have not divested any investments as a result of Act 411 of 2023 and were waiting for the committee to determine its list of financial service providers that discriminate against energy, fossil fuel, firearms or ammunition companies, or otherwise refuse to deal based on environmental, social justice or other governance-related factors.
At that time, Mark White, executive director of the Arkansas Teacher Retirement System, said the system had more than $1.2 billion invested in three funds managed by BlackRock, and the three funds didn't discriminate against energy, fossil fuel, firearms or ammunition companies. The system's holdings, managed by BlackRock, include investments in energy, fossil fuels and the firearms and ammunition industries, he said.
On March 14, the oversight committee voted to direct the state treasurer's office to determine the financial services providers that conduct business with state government that are part of Climate Action 100 and either part of the Net Zero Banking Alliance or the Net Zero Asset Managers Initiative.
That was the method used for winnowing the financial service providers that the committee evaluates for placing on its list.
Based on that methodology, Scott said the state treasurer's office reviewed the public statements of 22 companies to attempt to find evidence of their discrimination against energy, fossil fuel, firearms or ammunition companies or refusal to deal based on environmental, social justice or other governance-related factors.
Based on the state treasurer's office review, the committee on Thursday voted to find that 15 companies do not do so.
According to the treasurer's office report to the ESG Oversight Committee, these 15 financial service providers include:
Acadian Asset Management.
ATLAS Infrastructure.
IFM Investors.
Insight Investment.
Lazard Asset Management.
Neuberger Berman.
Russell Investments.
Wellington Management.
Bailie Gifford.
Aristotle Capital Management.
Atlas Responsible Investors.
Franklin Resources, which is known as Franklin Templeton Investments.
Parametric.
PIMCO.
William Blair Investment Management LLC.
But Lundstrum said he's worried some companies "might drop through the cracks" that should be on the committee's initial list, and he wants the committee to evaluate whether Citibank, Bank of America and Wells Fargo should be on the list.
Scott said the committee decided to use the methodology of screening companies based on their participation in Climate Action 100 and either in Net Zero Banking Alliance or the Net Zero Asset Managers Initiative because of the committee's lack of time and available resources to make decisions under the terms of Act 411 of 2023.
It would be better for the committee to evaluate other companies after the governor reestablishes the committee, he said.
Frost said he would like to see the committee meet annually.
The governor may reestablish the committee at any time by notifying the Senate president pro tempore, the speaker of the House, the attorney general and the state treasurer if the governor believes a financial services provider has begun to discriminate or ceased to discriminate against such companies as described under Act 411 of 2023.