Vanguard Exit Has Lawyers Mapping Out Wall Street’s Top ESG Risk

At a recent climate-finance meeting attended by Wall Street giants including BlackRock Inc. and Goldman Sachs Group Inc., no one spoke until a lawyer had finished reading out a disclaimer stating the group was not a cartel.

The newly formed ritual is a direct reaction to the increasingly hostile position of the Republican Party toward firms trying to incorporate environmental, social or governance factors into their strategies.

Those attending the latest quarterly meeting of the International Sustainability Standards Board’s Investor Advisory Group, at which the cartel disclaimer was made, were free to discuss how to improve corporate disclosures on sustainability risks after the lawyer finished his statement, according to two people present who asked not to be identified describing a private gathering.

It’s a pattern that’s been repeated for the past few meetings, according to a spokesperson for the IFRS Foundation, the nonprofit that’s overseeing sustainability disclosure standards across the globe. That way, the group can ensure it’s compliant with various anti-competition guidelines around the world, the IFRS spokesperson said.

The effectiveness of the GOP campaign to cajole Wall Street into tip-toeing around climate policies was underlined again this month, when Vanguard Group Inc. withdrew from the world’s biggest climate finance alliance. Not long after, it was excused from a grilling by Republican lawmakers in Texas targeting Wall Street firms they see as pro-climate.

But lawyers advising the finance industry say firms might be better off looking past GOP attacks and instead bracing for the bigger legal risk stemming from inadequate climate strategies.

“For all the talk of antitrust risk,” the bigger concern “flows from not acting in ESG friendly ways, not taking account of climate risk, not adequately preparing for the energy transition and not having a credible pathway to net zero,” Tom Cummins, a partner at law firm Ashurst, said in an interview. “From a litigation perspective, there has been a lot more activity and focus on claims against institutions for failing to take climate seriously.”