Wake investing is increasingly under scrutiny on Wall Street. However, sources indicate that State Street, one of the largest asset managers in the country, continues to leverage this strategy to gain favor with progressive state and local officials managing vast pension funds.
The firm has made headlines due to its initiatives focused on diversity, equity, inclusion, and green energy, particularly following New York City Comptroller Brad Lander’s recent efforts to block BlackRock, a competitor, from overseeing the city’s pension funds.
Senator Tommy Tuberville from Alabama pointed out on social media that State Street was already adhering to what he calls “WOKE Mamdani climate change policies” before Lander took office. Lander is a proponent of socialist policies, much like Mayor-elect Zoran Mandani, who advocates for DEI and green energy.
On the flip side, State Street claims it’s battling a negative reputation, which seems to be somewhat warranted. The asset manager offers multiple proxy voting frameworks, tailored even for pension funds in politically conservative regions that might shy away from progressive initiatives.
Interestingly, State Street doesn’t directly advocate for diversity or green energy within U.S. companies. Instead, it facilitates easier voting on such matters for its clients—like Mr. Lander—during proxy season when significant investors weigh in on corporate governance proposals.
This controversy certainly isn’t trivial. Lander seems determined to keep his connection to BlackRock, which has drawn criticism for mishandling retirement benefits for the city’s firefighters and educators. His main worry is that BlackRock has failed to keep up with progressive values recently.
Despite embracing environmental and social governance investing, BlackRock seems less adamant about enforcing carbon neutrality. They’re not pushing ExxonMobil to pivot to wind energy, nor are they strictly regulating gender or racial diversity in board appointments.
In contrast, State Street’s “Sustainability Stewardship Services Proxy Voting and Engagement Policy” outlines how it will support shareholder voting for clients focused on progressive governance issues, which some critics argue have dubious legal grounding.
These criteria include assessing “progress against deforestation” and whether companies affiliated with their portfolios evaluate human rights risks. Critics are particularly concerned about their diversity standards, suggesting that gender diversity is critical for effective oversight of long-term strategies, though the specific requirements can vary.
State Street’s approach stands in stark contrast to a broader trend of companies pulling back from strict DEI commitments. Even firms that traditionally emphasize diversity, like JPMorgan and BlackRock, are reevaluating their policies regarding hiring practices and asset management.
In response to these shifts, former President Trump has reinforced efforts to eliminate DEI across sectors, mandating federal departments to act against any perceived discriminatory practices.
State Street maintains that its handling of DEI and related shareholder voting is entirely appropriate and requested by clients such as Mr. Lander, also facilitating conservative votes for officials managing pension assets in different regions.
Spokesperson Marc Lavoie stated, “The voting policies you mention are options that clients may or may not select… We comply with U.S. law in our practices.” He chose not to comment on Tuberville’s remarks.
Some competing firms have a different view. A senior executive at a rival management firm suggested that State Street is imposing obligations on its clients similar to those it places on their portfolio companies.
Recently, State Street has updated its policies to caution clients who are reluctant to engage on DEI and sustainability matters. This shift is particularly significant as State Street is a federal contractor, especially with regard to Trump’s executive order targeting DEI both in the federal space and private sector. They oversee a substantial portion of a retirement fund for federal employees.
No comment was provided by White House representatives regarding State Street’s DEI practices.
