Dive Brief:

• Attorneys general from 10 states, led by Texas AG Ken Paxton, sent letters to six major U.S. financial institutions Thursday, warning that some of their diversity, equity and inclusion and environmental, social and governance commitments could lead to enforcement if found to violate state or federal law.
• Paxton focused on stated employment or board quotas disclosed by the firms, as well as their ESG proxy voting policies in the letters. The warnings were addressed to Bank of America, BlackRock, Citi, Goldman Sachs, JPMorgan Chase and Morgan Stanley.
• Paxton recently dropped a probe into many of the same institutions following their departure from the United Nations-backed Net-Zero Banking Alliance. The new investigation comes as President Donald Trump looked to quickly overturn Joe Biden’s legacy on DEI, including ordering his agencies to target private-sector DEI programs.

Dive Insight:

The probe requests information from the financial institutions about how they planned to meet their stated DEI hiring goals or initiatives, including supplier diversity programs. The attorneys general said DEI initiatives that included quota-based goals for hiring, board diversity recommendations and such supplier diversity programs may violate Texas law or federal laws.

Paxton argued in the letter that the companies may have breached their fiduciary duties by pursuing an “ulterior political motive or agenda.”

“We are extending to each of you an opportunity to avoid a lengthy enforcement action,” Paxton wrote.

The letter gives the institutions 45 days to respond. Paxton was joined in the action by the attorneys general from Alabama, Idaho, Indiana, Iowa, Montana, Nebraska, South Carolina, Utah and Virginia.

The attorneys general have asked the institutions about how they have implemented policies to increase gender and racial diversity in hiring and reach vendor diversity goals, as well as how they fulfilled obligations as members of net-zero climate groups like NZBA, its related group the Net-Zero Asset Managers initiative and Climate Alliance 100+.

“Unlawful race- and sex-based quotas and so-called ‘green energy’ schemes will not be allowed to stand and I will continue to urge these organizations to uphold the legal obligations they owe to consumers and investors,” Paxton said in a release announcing the action.

The questions also center on how proxy voting and board election decisions were made with consideration to the stated diversity or ESG priorities.

Before the probe was announced, JPMorgan CEO Jamie Dimon, when pressed at the World Economic Forum last week about how his firm would deal with anti-ESG and anti-DEI activists, said “bring them on.”

While he acknowledged some of JPMorgan’s policies may change, he said the bank will continue to follow its own plans on climate and outreach to minority communities.

“We’re not trying to pander to any which side or any which thing,” Dimon told CNBC’s “Squawk Box,” filmed from Davos, Switzerland. 

Paxton had previously targeted Bank of America, Morgan Stanley and JPMorgan Chase for their NZBA membership, but all three were among the raft of departures from the organization between December and January. He announced earlier this month that he would drop the probes into the banks following their exits. Citi and Goldman Sachs were also among the firms that departed NZBA.

Following BlackRock’s departure from NZAM, the group announced it would suspend all signatory tracking and review its program. Prior to its suspension, JPMorgan Asset Management was still considered a signatory.

Climate Action 100+ and its members have faced federal probes from House GOP leadership, and more than 70 investors have left the group since the Judiciary Committee opened an investigation. JPMorgan and Goldman Sachs both left the group last year, while BlackRock transferred its membership to a smaller international arm.

Paxton’s latest probe came a week after BlackRock announced it settled a lawsuit with the state of Tennessee that alleged it misled consumers about its ESG strategies. BlackRock agreed to make additional disclosures for its funds, but was not fined and was not found to have violated any laws through the settlement.

Paxton is also suing BlackRock, along with Vanguard and State Street, alleging that the asset managers have conspired “to artificially constrict” the coal market. In separate statements at the time, BlackRock and State Street spokespersons called the lawsuit “baseless.”