A group of 21 Republican state Attorneys General announced the publication of an open letter to over 50 of the largest asset managers in the U.S., warning them of potential violations stemming from their ESG investment activities and participation in climate-focused alliances.

The letter, led by the AGs of Montana, Louisiana and Utah, marks the latest in a series of anti-ESG initiatives by Republican politicians in the U.S., including a recent attempt to reverse a DOL rule allowing for the consideration of ESG factors in investment decisions in ERISA plans which was vetoed by President Biden, and the formation last month of an alliance of state governors, led by Florida Governor Ron Desantis, aimed at coordinating actions to “protect individuals from the ESG movement” with actions including banning the use of ESG considerations in state and local pension funds.

While many of those efforts have targeted the use of ESG factors in the management of ERISA and state pension funds, the current letter appears to be a broader attack on ESG investing in general, warning asset managers that their ESG commitments, and particularly participation in alliances such as the Net Zero Asset Managers initiative (NZAM) and Climate Action 100+ “cast doubt on their adherence to fiduciary requirements, representations to consumers about their services, and compliance with antitrust laws.”

The 21-page letter highlights a broad range of concerns by the Attorneys General, including the consistency of the asset managers’ commitments to climate-focused alliances with their fiduciary duties to clients, and the negative impact to competition through “horizontal agreements related to voting and engagement through organizations such as Climate Action 100+ and NZAM.”

The letter also warns about misrepresentations in advertising, with the AG’s arguing that asset managers that have committed all AUM to environmental goals should label all funds as ESG funds, among others, adding:

“Investors looking for low cost, passive indexing investments may be unwittingly funding your ESG activism. Any misrepresentations regarding the funds you are offering is legally troubling.”

For funds that are labelled as ESG funds, the AGs state that many asset managers “have not adequately explained to investors the downsides and risks,” adding that “many of your environmental assumptions appear to be dubious.”

Some of these concerns have recently led to high-profile withdrawals from climate-focused alliances. In December, Vanguard announced its exit from NZAM, explaining the decision as providing investors with “clarity… about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors.” Last week, insurer Munich Re announced its withdrawal from a related coalition, the Net-Zero Insurance Alliance (NZIA), citing antitrust risk.

The letter concludes with the Attorneys General warning the asset managers that they “will continue to evaluate activity in this area in line with our ongoing investigations into potential unlawful coordination and other violations that may stem from the commitments you and others have made as part of Climate Action 100+, Net Zero Asset Managers Initiative, or the like.”

Click here to access the open letter.