What do self-appointed ‘climate champions’ Fidelity and Federated Hermes have in common?
Sponsoring anti-climate lobby group, the State Financial Officers Foundation (SFOF).
Fidelity Investments a household provider of retirement funds and other 401 services to millions of Americans, has so far evaded scrutiny after a number of companies were revealed to be sponsors of SFOF.
This should be cause for concern for climate-conscious clients and customers of the firm. Groups like SFOF have recently ramped up attacks on responsible investing –– attacks which are politically motivated, since from a financial point of view, ignoring the financial risk that future stranded assets present puts Fidelity investors in a dangerous situation.
Fossil fuel politicians don’t show any signs of relenting, either. Consumers’ Research, a major supporter of SFOF, just launched a new 501c4 called Consumers’ Defense with a starting budget of around $8 million. This new vehicle is specifically aimed at pushing anti-ESG legislation.
This culture war is not just a media debate: Legislation penalizing responsible investing is being passed in statehouses and states are pulling state funds from Blackrock and other financial institutions. We are watching this take place while knowing that continued fossil fuel support and lack of climate action will only increase economic and energy instability and put investors at risk of stranded assets in the future.
Fidelity, who previously ranked the worst asset manager on climate engagement, is not the first to come under the spotlight. In September 2022, Federated Hermes dropped its ‘gold’ sponsorship of SFOF after public scrutiny. But it wasn’t only Federated Hermes feeling the heat: in an apparent attempt to reduce visibility, SFOF removed their list of sponsors from their website. This has meant that other sponsors, including Fidelity, have emerged from the initial racket relatively unscathed.
Who is behind Fidelity Investments?
So why would a major asset manager like Fidelity Investments sponsor a group that puts their assets – and their clients’ money – at risk?
The sponsorship of SFOF from Fidelity Investments is the cherry on top of a fossil fuel-flavored cake, compromising climate action through classic culture war tactics. By supporting groups like SFOF, Fidelity Investments is contradicting its public position with the apparent motivation to prolong the shelf life of the fossil fuel industry, at any cost to the planet and the economy.
Over the past 75 years, the Johnson family has helmed as founders, chairs and chief executives of Fidelity Investments. From founder Edward C. Johnson II to his son Edward “Ned” Johnson III, who stepped down in 2014, passing the torch onto his daughter Abigail Johnson who is currently spearheading the company as its CEO and Chairwoman of the board.
With assets in the trillions, Fidelity Investments’ influence within the global financial system is equal to the United Kingdom. But much like their status as a private company, the Johnson family has remained shrouded in secrecy and has been able to control their public image carefully.
The secretive nature of the Johnson family and aversion to the public domain allows them to evade commenting on several issues, including their promotion of climate denialism and supporting groups like SFOF. This culture of evasion also extends to their company: When questioned about their sponsorship of SFOF, Fidelity Investments declined to comment.
Fossil fuels run in the family.
One doesn’t have to look far to spot evidence of the Johnson family’s ties to fossil fuels. Abigail Johnson has donated money to both Republicans and Democrats over the years. Of note are donations to prominent Republicans like Jeb Bush. During his presidential campaign, Jeb Bush supported SFOF sponsors, the climate change denial group Heartland Institute, both of which have been central to the culture wars pushed by fossil fuel politicians.
But the Johnson family’s relationship with fossil fuels goes much deeper than their choice of elected officials. Despite their attempts at obscuring their links to the fossil fuel industry, a report by the Public Accountability Initiative discovered that Abigail Johnson and her brother Edward Johnson IV are active owners of Discovery Natural Resources.
Discovery National is an oil and gas drilling company (more commonly known as fracking) operating in the Permian Basin. Furthermore, Discovery Natural Resources has been scrutinised for violating labour laws, with workers claiming wage theft after not being compensated for overtime on two accounts.
Corporate filings show only one listed owner with a 10% stake in Discovery Natural Resources, a company known as “Horizon Natural Resources Investors LLC”, which coincidentally is registered at Fidelity Investments Boston headquarters.
Furthermore, the listed manager of “Horizon Natural Resources Investors LLC” is “Star Horizon Management LLC”. The management team of “Star Horizon Management LLC” is Abigail Johnson, Edward Johnson IV and three top Fidelity Investments executives.
The Johnson family’s direct and indirect financing of the fossil fuel industry demonstrates a clear conflict of interest with Fidelity Investments’ net-zero commitments. The risk of stranded assets from fossil fuel expansion jeopardizes both their wealth and their board directors’ wealth.
The wider web of Fidelity Investments
It’s not only the Johnson family that has a stake in fossil fuels: Fidelity Investments executives do, too. Across its two largest funds, 15 out of 19 independent trustees have some form of existing or past connection to the fossil fuel industry, such as:
- American Electric Power (one of the largest national polluters)
- Blackstone (responsible for the construction of the controversial Dakota Access Pipeline)
- Business Roundtable (a lobbying group that has recently come under fire for blocking climate action, exposing the hypocrisy towards its climate commitments).
There is also cause for concern over their charitable division. Fidelity Charitable operates by utilizing “donor-advised funds“, an investment approach that allows corporations to donate money to a fund and then distribute the funds to a charity and at a time of their choice. In return, the donating corporation receives an up front tax break.
However, as the donations can be made anonymously, Fidelity Charitable has facilitated $12 million in donations to identified Islamophobic and anti-LGBTQ hate groups over the past five years, according to Bloomberg. Yet, Fidelity Charitable state that they are ’cause neutral’.
Furthermore, there is very little transparency or deadlines set for when companies must donate the money; other corporations have used Fidelity Charitable to shift money around to other donor-advised funds, meaning that very little money is actually distributed to charitie..
Ultimately, Fidelity Investments and the Johnson family’s ties to fossil fuels are putting their clients and customer’s investments at risk and yet another example of the company generating wealth at the expense of investors. Importantly, employees (who own 49% of the company), institutional clients, and retail clients now have the opportunity to engage with Fidelity Investments to ask for clarity on their sponsorship of SFOF.