14 Nov PUBLIC PENSION CORNER, #21
NEWS:
I. European Banks Discriminate
The European Central Bank recently reported, based on the results of its Bank Lending Survey, that Eurozone banks are making it standard practice to give better credit terms to companies that are environmentally friendly. Social credit scores are, in other words, already a reality for businesses in Europe, and the ECB cheers the practice:
How do climate risks affect the lending conditions banks offer to green firms, high-emitting firms and those in transition to green? Overall, our survey shows that banks’ credit standards (i.e. their internal guidelines and loan approval criteria), terms and conditions for loans are notably affected by the climate performance of their clients. Since we introduced this question to the bank lending survey in 2023, banks have reported an easing impact of climate risk and measures to cope with climate change on their credit standards, terms and conditions for green firms and those in transition….
[W]e see that climate risk and measures to cope with climate change had an easing effect on euro area banks’ credit standards for loans to green firms and companies in transition. In fact, in the July 2025 BLS a net percentage of banks of 20% mentioned an easing impact on their credit standards for green firms, and 13% for firms in transition over the past 12 months….
By contrast, climate risk had a tightening impact for loans to high-emitting firms, which have not made much progress with the green transition or have not even started it yet (reported by a net percentage of banks of 35%). This suggests that banks offer a “climate discount” in their risk assessment to green firms and those in transition. Also, they seem to charge a “climate risk premium” for high-emitting firms. In other words, banks seem to grant loans at more favourable terms to environmentally friendly companies and those investing to become greener. That suggests that banks consider climate risks and measures to cope with climate change in their overall risk management.
II. SBTi Releases Draft of New Standards for Business Compliance
The Science Based Targets initiative (SBTi) released the second draft of its new standards for corporate compliance regarding greenhouse gases and the transition to Net Zero. Most notably, the draft standards drop the requirement that participating corporations pledge to reach Net Zero by 2050 and instead ask them to show progress toward that goal:
According to the SBTi, the new draft aims to enable more companies to set net zero goals by “making science-based climate action more accessible and actionable,” while simultaneously balancing the need to maintain alignment with global climate goals. Among the key changes introduced in the new draft is “a menu of options for companies to drive down their carbon footprint,” according to SBTi CEO David Kennedy, including multiple pathways allowed for target setting for direct emissions reductions, and clearer rules for the use of instruments such as carbon credits to reach decarbonization goals….
In March 2025, the SBTi released its initial draft of the new V2 standard, and launched a consultation into a series of the changes introduced, including proposals to add allow multiple methods for reaching emissions targets, require explicit Scope 2 (purchased energy) emissions targets, require large companies to set Scope 3 value chain emissions goals. The initial draft also included a consultation on options to address residual emissions on the pathway to net zero, including the introduction of interim carbon removal targets, as well as formally recognizing companies which are investing in Beyond Value Chain Mitigation (BVCM).
Following feedback from the first draft’s public consultation and expert working groups, the SBTi’s new draft further develops and refines the proposals, including an update to the key ambition for companies, changing from “Companies shall publicly commit to reaching net-zero greenhouse gas emissions by no later than 2050,” to “Companies shall set an ambition to transition their operations and value chains to align with the goal to be net-zero by no later than 2050,” with the SBTi noting that the new language avoids confusion from the word “commitment,” focusing instead on “the company’s overarching intention to reach net-zero by 2050.”
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Fixing the Proxy Advisory Problem”
I certainly wasn’t the first person to document the massive and massively compromising conflicts of interest at the two major proxy advisory services. That was James Copland at the Manhattan Institute, if I recall correctly. Nevertheless, I was among the first to discuss the issue at length and to explain just how closely those conflicts, especially at Institutional Shareholder Services (ISS), resemble a classic protection racket: “You buy our protection and we’ll make sure your windows don’t get broken. You buy our corporate solutions, and we’ll make sure that the asset managers we tell to buy your company are also aware that they should vote against any ESG proposals against your management.”
I wasn’t the first person to document that much of what the proxy advisory services did was and is self-serving. I think that was probably the good folks at the Canadian Institute for Governance of Public and Private Organizations. Nevertheless, I agreed with them and quoted their work to that end:
Despite [the proxy services’] definition of ‘good’ governance and the lack of (or very weak) empirical evidence that their kind of governance has any influence on the performance of companies . . . these proxy consultants have a vested interest in raising the bar of ‘good’ governance from year to year to justify their continued employment. They thus become de facto generators of new governance rules and the arbiters of compliance to their rules. Yet, these new ‘rules’ are not vetted nor subjected to the review process mandatory for any new rule proposed by the regulators.
And I wasn’t the first person to argue that the two major proxy advisory services (ISS and Glass Lewis) were de facto advocates for ESG and that the only way to break ESG’s stranglehold on the marketplace would be to undermine their duopolistic power. That was Justin Danhof, formerly of the National Center for Public Policy Research and Strive, and currently of the U.S. Department of Labor. Nevertheless, I echoed Justin’s concerns and have written about similar issues countless times over the last five years, noting that the proxy advisory services are among the most important and change-resistant institutions in the ESG environment.
All of this, in other words, I enter into the record to establish my longstanding and multifaceted concerns with ISS and Glass Lewis and my unease with their stranglehold on power in the proxy voting space. I am, it almost goes without saying, anything but a cheerleader for the two. Nevertheless….
This week, the Trump administration has targeted – or threatened to target – the proxy advisory duopoly with two separate high-profile actions. The Wall Street Journal has the details on the first action:
The White House is exploring new measures to curb the influence of proxy advisers and index-fund managers, wading into a hot-button debate raised by high-profile CEOs including Elon Musk and Jamie Dimon in recent months.
Trump administration officials are discussing at least one executive order that would restrict proxy-advisory firms such as Institutional Shareholder Services and Glass Lewis, people familiar with the matter said. That could include a broad ban on shareholder recommendations or an order blocking recommendations on companies that have engaged proxy advisers for consulting work, the people said.
The Journal also has the details on the second action:
The Federal Trade Commission is investigating whether proxy advisory firms Institutional Shareholder Services and Glass Lewis violated antitrust laws through their business of guiding shareholder votes on contentious topics, people familiar with the matter said….
The probe, which is in its early stages, is focused on the firms’ competitive practices and how they steer clients on hot-button issues such as climate- and social-related shareholder proposals, people familiar with the matter said. The FTC told Glass Lewis it was investigating whether it and others may have engaged in “unfair methods of competition,” according to a letter sent in late September that was reviewed by The Wall Street Journal.
There are, I think, a few things worth noting about all of this (and remember, I am hardly a fan of the proxy advisors). First, as The Journal notes, the Trump administration’s efforts stem, in part, from complaints made by Jamie Dimon and, more to the point, Elon Musk. Both of those complaints were personal, not systemic. Indeed, both were responses to ISS and Glass Lewis taking positions in opposition to the complainants’ respective pay packages. Both Dimon and Musk got ticked off because the proxy advisors were standing between them and big paydays. Now, to be clear, the proxy advisors were wrong to do so, and Dimon’s and Musk’s complaints were connected to more serious issues with the services’ house recommendations. Still, the animating force here in both cases is personal.
Second, although ISS and Glass Lewis have more than earned their scrutiny, no one, to date, has explained what their clients are supposed to do if the government affects their ability to do business. It’s paradoxical, to be sure, but it’s still a real concern. I addressed this concern specifically in a post (written as an open letter to Dimon) last spring:
Proxy advisors exist for a reason, namely because they provide a service that the overwhelming majority of asset managers need. Some asset managers – BlackRock, Vanguard, State Street…JPMorgan Asset Management, etc. – have the resources to conduct all the due diligence regulatorily required of them in house. But most of them don’t. You know this, of course, and you also know, therefore, that making the proxy advisors “gone and dead and done with” without also overhauling the regulatory regime would result in that overwhelming majority of asset managers being gone and dead and done with as well. And the net result of that – as you also know – would be further consolidation in a business that is already outlandishly and distortingly centralized. Funny how that works, right? Kill the proxy advisors and suddenly BlackRock’s $11.7 trillion in AUM becomes $25 trillion, while JPMAM’s $4 trillion becomes $10 trillion. Nice work if you can get it – especially if you can get while remaining both CEO and Chairman of your company and while looking oh, so civically minded.
Third and perhaps most relevantly, while it is nice to have an administration that is concerned about and working to strengthen fiduciary duties and shareholder rights, it is also the case that private enterprise often provides the best remedies for the most seemingly intractable problems. As I have noted a couple of different times over the past few weeks, change is coming to the proxy advisory business, and it’s coming in the form of custom voting guidelines. Glass Lewis has dropped its “house” recommendations. Bowyer Research has its ESG-skeptical proxy voting guidelines (which recommended voting in favor of Musk’s pay package last week, by the way). Catholic University of America recently announced its faithful Catholic custom proxy voting guidelines. Change is coming – slowly but surely.
That’s not to say that the problem is “fixed.” It’s not, and an FTC investigation is not unwelcome. It is important, however, to remember that the proxy advisory duopoly represents a complicated matter that will defy (and has long defied) easy solutions. As with all proposed government action, “prudence” is the key to making things better, even in the face of seeming intractability.
