Policy Paper

How State Attorneys General Advance Social Considerations in Responsible Investing






Environmental, Social, Governance (“ESG”) considerations are tools that responsible investment professionals use to evaluate a company’s long-term risk and return. The “S” captures the critical role and potential risk that social factors can have on businesses. When considering social factors in their decisions, investors are—broadly speaking—assessing how companies manage their relationships with their customers, their employees, and the communities in which they operate.  

There are innumerable examples of how social factors impact a company’s bottom line. When a company fails to disclose the potential harms that a product can cause—litigation and financial consequences ensue. When workers strike over wage disputes or unfair workplace conditions—services are interrupted and profits stall. All of these point to the material risk or financial consequences social factors could have on a company. Unsurprisingly, social factors overlap with the work state attorneys general conduct every day on behalf of their constituents—from protecting consumers, standing up for workers, defending civil rights, or combatting human trafficking.  

Some interest groups have inaccurately characterized social factors, claiming that utilizing social considerations is imposing one’s personal “ideological” or “political” values onto companies. This is fundamentally false. Social factors are about value, not values. This distinction is important to understanding what ESG is and how it works within a responsible investing framework.  

Why State Attorneys General, Businesses, and Investors Care About Social Risk Factors 

Investors ask social questions in order to understand all the financial risks a company faces. Some of their questions take into account legal, reputational, and political risks—all of which impact companies. Many of these questions also arise when attorneys general pursue legal claims against a company, which is why ESG issues are so important to state attorneys general. 

Below are some examples of the types of social risk factors investors and corporate boards ask about when evaluating a company.   

  • Labor:  
    • Does the company struggle with retention or high-turnover?  
    • Does the company provide fair and livable wages?  
    • Does the company provide safe working conditions for its employees?
  •  Diversity, Equity, and Inclusion (DEI): 

    • Does the company have implicit bias training and policies in place, which can reduce turnover and the risk of discrimination claims?  
    • Does the company demonstrate diversity and inclusion in its workforce, the c-suite, and the boardroom? 
    • How does the company respond to incidents of discrimination and harassment?  
    • Does the company have pay equity within its workforce, regardless of race, ethnicity, gender, religion, or sexual orientation? 
  • Community Engagement: 
    • Does the company have an adverse relationship with the local community/communities where it operates?  
    • Is there a perception that the company exploits or gives back to local communities?  
    • Does the company demonstrate transparency, care, and collaboration when certain identity groups or communities raise concerns? 
  • Supply Chain:   
  • Does the company (or any of its business partners) engage in child labor?  
  • Does the company (or its business partners’) products and services cause physical, psychological, or environmental harm to others? 
  • Does the company (or its business partners’) operations disproportionately impact indigenous communities and/or their homes?

Companies—quite literally—cannot afford to ignore social factors. Which is why some investors consider it an obligation to look at social data before embarking on a new investment.  

A Deeper Look: Social Risk Factors in the Asbestos Industry and Activision’s Handling of Workplace Harassment 

There are many case studies detailing instances where investors and companies ignored or underestimated social factors. This paper focuses on just two.  

Case Study 1: The Fallout of the Asbestos Industry and Its Harm to Workers’ Health 

Asbestos is a hazardous chemical that has been around since the 1800s. It has largely been used in the construction industry due to its durable, fireproof, lightweight properties. Asbestos is found in everything from ceiling tiles, floor tiles, paint, piping, roofing, and more.  

But by the 1900s, a concerning trend linking asbestos exposure to workers’ experiencing life-threatening illness entered the American lexicon and the future of companies that produced asbestos became a lot more volatile. Unfortunately, that did not stop companies from continuing to profit off this deadly chemical. 

The asbestos industry was soon put under a microscope by United States regulators. In 1989, the Environmental Protection Agency (EPA) enacted a temporary asbestos ban and lawsuits that had already impacted the industry multiplied. As recently as 2019, the state of New Jersey passed a law banning the sale or distribution of products containing asbestos. That same year, 12 attorneys general sued the EPA for failing to collect necessary information from companies that utilize asbestos and 19 attorneys general called on congress to ban asbestos in the United States. 

Anyone who had previously invested in the once thriving asbestos market will have by now realized that this panned out to be a poor long-term investment. To date, about 100 companies have declared bankruptcy in part due to asbestos-related liability. Within a 20-year period, annual asbestos production and consumption worldwide were cut in half (from 4.8 million metric tons in 1980 to 2.0 million metric tons in 2000). In 2002, the last asbestos mine in the United States closed, marking the end of more than 110 years of asbestos production in America.  

What drove this market downturn was not high production costs. It was not narrow profit margins. It was the social costs—i.e., the consequence of ignoring the real, human impact that one chemical could have on hundreds of thousands of families across the United States. A Harvard Business Review article written by a former employee of a leading manufacturer of asbestos (Manville) said it best: 

“In 1982, Manville filed for Chapter 11 protection and was on its way to the top of Fortune’s list of least admired corporations. The company was reorganized in 1988, and its stockholders—many of them Manville workers or retired workers—lost as much as 98% of their equity…Our ultimate acknowledgment of the asbestos problem in the 1980s, which even then was grudging and halfhearted in some parts of the company, had come 50 years too late.”  

Asbestos remains the leading cause of work-related deaths in the world.  

Case Study 2: Workplace Harassment Claims Against Activision and the Regulatory Consequences 

In 2021, after a two-year investigation, the state of California sued Activision Blizzard—the video game company famously known for Call of Duty—over claims the company fostered a “frat boy” workplace culture where sexual harassment ran rampant. The suit further alleged that the company failed to take proper action when it was made aware of such misconduct. Following the state lawsuit and the horrific accounts detailed within, the company faced swaths of backlash, including: employee walkouts, pressure from shareholders, and an $18 million lawsuit settled with the Equal Employment Opportunity Commission (EEOC). Additionally, six state treasurerswho manage billions of dollars of assets for their respective states—requested a meeting with the company’s board of directors to discuss its risk exposure following the reputational damage.   

Notably, the company reached a $35 million settlement with the Securities and Exchange Commission (SEC). This was a novel action by the SEC, which claimed Activision violated two provisions of the Securities and Exchange Act of 1934, one of which is related to disclosure controls. In 2017, 2018, 2019, and 2020, Activision disclosed in its Form 10-K that “[i]f we do not continue to attract, retain, and motivate skilled personnel, we will be unable to effectively conduct our business.” Per the Securities and Exchange Act and the SEC’s order against Activision, when the company discloses a material risk, it must implement and maintain proper disclosure controls and procedures. If it does not, “its management may not have adequate information to assess whether the disclosures it makes to investors are fulsome, accurate, and not misleading by omission.” The SEC found that the company did not demonstrate that it sought to obtain and assess (from a disclosure perspective) complaints related to workplace misconduct.  

Analysis: What These Case Studies Tell Us About the Past, Present, and Future of ESG 

Though vastly different, these case studies are evidence that social considerations are too important to ignore.  

There are several differences between these two case studies: one involves issues pertaining to supply chains, workplace safety, and consumer harm; the other involves issues pertaining to workplace safety, DEI, and stakeholder relationships. In the asbestos case, social risks drag on for decades and tainted an entire industry. Conversely, in the Activision case, social risks snowballed within just a few short years.   

In both cases, there were early warning signs that companies ignored. The asbestos industry was first made aware of its harms in the early 1900s, but failed to take those harms seriously until it was far too late. Similarly, Activision learned of California’s investigation in 2019, but initially denied the allegations even after they were made public.  

In both cases, there is a trend that is consistent with what is seen worldwide: federal and state regulators are not afraid to take action. In the case of Activision, regulators are becoming more and more creative with the basis they use for inquiry.  

State Attorneys General Continue to Play an Important Role in Addressing Social Factors that Impact Corporate Success 

State attorneys general have every reason to defend the “S” in ESG. While ESG is a relatively new and relatively unknown term, it is not so different from what attorneys general do every day. Many of the social factors that ESG considers—from consumer protection, workers’ rights, civil rights, and more—are distinct sections or divisions within attorney general offices. Attorneys general have full teams of lawyers and other professionals who hold companies accountable on these issues. 

Not unlike what the treasurers did in the Activision case, attorneys general can step in when social issues are brought to the surface. Furthermore, they can work in collaboration with the financial professionals in their states to do so. In Kentucky, Treasurer Allison Ball and Attorney General Daniel Cameron have joined forces to issue inquiries into state pension funds opposing their use of ESG considerations. Progressive attorneys general partner with Treasurers on ESG-related issues and can continue to do so to advance social-related causes in their states. For example, New York Attorney General Letitia James worked with New York Comptroller Brad Lander to recover monies, including unpaid wages, from a real-estate developer. Furthermore, some attorneys general have fiduciary roles within their state and can use those roles to elevate the importance of ESG. Minnesota Attorney General Keith Ellison, for example, sits on the Minnesota State Board of Investment, which has adopted ESG investing practices. In July, Attorney General Ellison testified before the House Financial Services Committee to support ESG considerations. As Attorney General for the state of Minnesota, investment board member, and former member of the House Financial Services Committee – his authority on this issue is critical. Like Attorney General Ellison, state attorneys general can continue to use their bully pulpit to stress the importance of ESG. 

The Leadership Center for Attorney General Studies is a non-partisan organization dedicated to educating the public about the important role state attorneys general play in addressing pressing issues, enforcing laws, and bringing about change. 

Abby Wilhem is the former Chief of Staff for the DC Attorney General’s Office. She is currently a Policy Fellow for the Leadership Center for Attorney General Studies. She also has several years of policy and communications experience in both the public and private sector. 

Jonathan Sclarsic is the Chief Operating Officer and General Counsel for the Leadership Center for Attorney General Studies and the Progressive State Leaders Committee. He is a former Assistant Attorney General and Director of the Division of Open Government in the Massachusetts Attorney General’s Office and a former legislative director in the United States Senate.