State Street’s Exit from $68 Trillion Climate Investing Group Signals Shift in Strategy

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State Street Corp. headquarters at the One Congress office tower in Boston. © David L. Ryan/Globe Staff

State Street Corp. is withdrawing from Climate Action 100+, the world’s largest investor group focused on addressing climate change. The decision by the Boston-based firm’s asset-management arm, managing $4.1 trillion of client wealth, comes as they believe the latest requirements from the organization are not aligned with their independent approach to proxy voting and engagement with portfolio companies.

The move reflects a broader shift within the finance industry regarding climate change, driven in part by political pressure from Republicans investigating firms’ climate and environmental, social, and governance (ESG) policies. Climate Action 100+, established in 2017, aims to pressure corporations into reducing greenhouse emissions, with over 700 investors holding $68 trillion in assets.

State Street’s decision to exit the group is a response to new goals set by Climate Action 100+ last year, intended to extend until 2030. These goals include urging companies to translate climate change pledges into tangible actions, enhance corporate disclosures, and implement transition plans to achieve targets. The group requires lead investors to submit annual engagement schedules outlining their planned actions and strategies. JPMorgan Asset Management also announced its departure from the coalition on the same day as State Street’s decision.

The new goals within Climate Action 100+ coincide with heightened pressure from Republican lawmakers on financial firms regarding Environmental, Social, and Governance (ESG) issues.

State Street, BlackRock Inc., and Vanguard Group Inc. are among those subpoenaed by a Republican-led panel in the US House of Representatives, seeking documents related to their ESG policies. The House Judiciary Committee’s investigation focuses on potential collusion and violations of US antitrust law related to efforts to combat climate change.

This increased scrutiny has led major financial firms to withdraw from international initiatives and underscore their independence and decision-making processes. Vanguard exited the Net Zero Asset Managers initiative, while Munich Re and Axa SA withdrew from the Net-Zero Insurance Alliance.

Climate Action 100+’s primary strategy has been engagement rather than divestment, relying on significant investors’ influence to encourage global corporations to decarbonize. While the effectiveness of this approach is debated, many believe it’s crucial for persuading the most polluting companies to reduce emissions and combat climate change.

Despite Climate Action 100+’s efforts since its founding in 2017, carbon emissions have continued to rise. Large emitters have been less inclined to cut emissions amid elevated energy prices and governments prioritizing energy security post-Russia’s invasion of Ukraine.

In June, Climate Action 100+ announced a shift towards “active ownership” as its next phase of engagement.

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