By Ross Kerber and Chris Prentice
BOSTON/NEW YORK, Oct 7 (Reuters) - The US Securities and Exchange Commission said on Wednesday it will not charge top asset managers over their actions with a climate group ahead of ExxonMobil's 2021 shareholder meeting.
But Wall Street's top regulator warned it remains concerned about investors' work with the group, known as Climate Action 100+, and said all large investors should review their regulatory obligations ahead of next year's proxy season.
The SEC's decision
is a partial win for the fund firms mentioned by the agency, including BlackRock, Vanguard and State Street, since they will not face SEC charges that could have involved financial penalties.
But the agency released a rare "Report of Investigation" that indicated certain activities and approaches by large investors could change their passive status, and trigger different reporting requirements.
Known for their big passive funds, the three asset managers typically own top stakes in S&P 500 companies. None of the three firms commented on the SEC's report. ExxonMobil also did not comment.
Michael Boudett, general counsel for sustainability nonprofit Ceres, which coordinates CA100+'s work in North America, said it has always operated within US securities law to help investors assess the financial risks of climate change. "It is up to every participating Climate Action 100+ investor to make their own decisions, including how they vote their shares," Boudett said in a statement.
CLIMATE SHOWDOWN
Exxon's 2021 shareholder meeting became a flashpoint in a broader debate over how investors — and Corporate America — should weigh environmental, social or governance factors such as climate change.
BlackRock, Vanguard and State Street successfully backed some dissident directors from a slate put forward by activist hedge fund Engine No. 1, which argued the Texas oil company needed to focus on the energy transition. CA100+ aligned with Engine No. 1 ahead of the meeting.
Since then, various Republican politicians, often from energy-producing states, have criticized asset managers over their ESG stances. Upon retaking office in 2025, US President Donald Trump issued executive orders pressuring companies to abandon ESG considerations.
BlackRock joined CA100+ in 2020 but largely stepped back in early 2024, citing legal considerations. State Street also quit at that time. Vanguard never joined CA100+ and was the first of the trio to leave a different fund industry climate group in 2022, citing a need for independence.
A 2024 report from a Republican-led congressional committee showed BlackRock and State Street had been wary of joining CA100+ lest they trigger antitrust concerns or image problems. Wednesday's SEC report detailed how some pension fund members of CA100+ pressured the asset managers to take tougher stances.
MORE EXPENSIVE REPORTING
Set up as a bipartisan agency, the SEC currently operates with only two Republican members, including Chairman Paul Atkins. Last year, the SEC tightened reporting guidance for fund managers who pressure companies on ESG issues, leading BlackRock and Vanguard to soften their interactions lest they face a higher, more expensive level of disclosure of their holdings.
"Membership in an organization whose stated purpose is to change or influence control of a specific issuer by promoting the election of dissident directors or otherwise could be a factor in the loss of eligibility" to use the cheaper forms, the SEC report states.
SEC officials said the approach they outlined still leaves room for traditional investor communications.
In a statement, Jim Moloney, director of the SEC’s Division of Corporation Finance, said the report "reminds asset managers and investors of their responsibilities with respect to shareholder engagement, especially in the context of organized efforts that follow a playbook similar to that of Climate Action 100+. Shareholders have the right to express their views on a particular topic and explain their voting decisions."
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(Reporting by Ross Kerber in Boston and by Chris Prentice in New York; Editing by Mark Porter, Andrea Ricci, Rod Nickel and Cynthia Osterman)
