This year鈥檚 proxy season 鈥� the time between mid-April and mid-June when most large, publicly traded companies host their annual meeting and shareholders vote on various resolutions 鈥� will test how far the anti-ESG movement sweeping the US is gaining a foothold in corporate America. To date, , led by Republican politicians seeking to limit environmental or social influences over capital, has largely manifested itself in state-level actions; for example, laws preventing state investments in financial institutions seen to be 鈥榖oycotting鈥� companies that sell harmful products like guns or fossil fuels.
This spring, shareholders will have the chance to vote on hundreds of resolutions tabled in the past year, most of which support actions seeking to increase the influence of factors over business models.
They will also be given the opportunity to vote on a small (but growing) share of 鈥榓nti-ESG鈥� proposals that have been tabled by various right-wing groups.
an annual report published today (22 March) by shareholder advocacy group As You Sow, in conjunction with the sustainable non-profit Sustainable Investments Institute (Si2) and ESG shareholder aggregator Proxy Impact, reveals that anti-ESG resolutions are on the rise this year, although they remain dwarfed by the number of shareholder resolutions in support of ESG aims.
The report reveals that of the 542 shareholder resolutions filed for the 2023 proxy season, the bulk focus on ESG issues; just 8% are 鈥榓nti-ESG鈥�, an increase of three percentage points compared with last year. As of mid-February 2023, the total number of anti-ESG proposals was 42, which is nonetheless significantly higher than the 27 such proposals observed at the same point last year.
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By GlobalDataClimate change continues to be the biggest single topic on the proxy agenda this year, while the 鈥渢wo biggest shifts鈥� observed between 2022 and 2023 are the continued increase in climate change proposals, as well as a 鈥渟ignificant expansion of resolutions about reproductive health鈥� in response to the US Supreme Court鈥檚 June 2022 decision to overturn Roe vs Wade. This sustained focus on climate suggests that despite all the noise, the anti-ESG movement is failing to gain significant traction in corporate America.
Crucially, the researchers find that, historically, anti-ESG proposals have received very little voter support, averaging 4% or less in previous years. "The ideas in anti-ESG resolutions have no traction with investors 鈥� nor with many companies", the report states.
"Dark money sources" driving anti-ESG resolutions
鈥淸While] much recent public controversy about sustainable investment has centered around climate change and fossil fuel companies, almost all the shareholder proposals from organizations opposed to ESG investment considerations instead concentrate on social policy,鈥� the report notes.
These include proposals that demand greater reporting on risks of 鈥渞acial justice efforts鈥�, 鈥渁nti-discrimination policies鈥� as well as on 鈥渢ies to Communist China鈥�. Resolutions on ties to China are the "sole exception" to anti-ESG resolutions failing to gain traction with investors, the report finds.
While the main proponents of these proposals have 鈥渂een around for a long time鈥�; for example, the National Center for Public Policy Research think tank in Washington, DC, in the past two years 鈥渢hey have filed many more proposals鈥�, the report finds.
These players tend to receive funding from 鈥渄ark money sources鈥� with connections to Leonard Leo from the Federalist Society and the Marble Freedom Trust, who the New York Times has 鈥渦sed his connections to Republican donors and politicians to help engineer the conservative dominance of the Supreme Court and to finance battles over abortion rights, voting rules and climate change policy鈥�.
Si2, As You Sow and Proxy Impact also reveal that 鈥渘ew players鈥� are emerging in the anti-ESG proposal space; for example, David Bahnsen, who leads the Bahnsen Group, which manages $4bn in assets, and sits on the advisory board of the National Review, a magazine founded by William F Buckley in 1955 to promote conservative ideas.
Bahnsen is behind one of the three (out of 42) anti-ESG proposals relating to corporate climate policy 鈥� a resolution launched at US oil major that demands the company鈥檚 board establish a 鈥渄ecarbonisation risk committee鈥�.
Specifically, this proposal asks that 鈥淐hevron鈥檚 Board of Directors charter a new Board Committee on Decarbonization Risk to evaluate Chevron Corporation鈥檚 (the Company) strategic vision and responses to calls for Chevron decarbonization on activist-established deadlines鈥�.
Other anti-climate proposals include one at Alliant Energy, that it 鈥渞eport on net-zero goal feasibility鈥� and one at Duke Energy, that it also establish a 鈥渄ecarbonisation risk committee鈥�.
The Trojan horse tactic
While these proposals may sound like they favour , they perform the opposite function. The Proxy Preview report notes that while most anti-ESG proposals do clearly cite right-wing opinions that underscore their purported goal, a few go as far as copying 鈥渧erbatim the resolved clauses [desired actions] of their ideological opponents or use language in resolved clauses that makes the resolutions appear to support sustainability objectives鈥�.
It refers to this phenomenon as the 鈥淭rojan Horse tactic鈥�, which the Proxy Advisory company Glass Lewis "antisocial" shareholder proposals that mimic the form of traditional resolutions on a variety of topics, but implicitly or explicitly promote an agenda that is at odds with those traditional resolutions.
One example is a 鈥榙iversity鈥� resolution at that could seem to require 'diversity' in terms of race or gender but which upon closer reading had the opposite intent, asking the board to adopt a policy that disclosed to shareholders employees鈥� "skills, ideological perspectives, and experience" to break down the "ideological hegemony that eschews conservative people, thoughts and value". The Proxy Preview 2023 report claims that this misleading language was responsible for the "bump-up" in average support for Conservative resolutions observed in 2018.
The authors of a Harvard Law School paper warn of a similar effect this coming season in a March 2023 suggesting this 鈥渕irroring鈥� tactic makes it 鈥渉arder for investors to spot such proposals and identify their true intent鈥�.
Capitalism is winning
Andrew Behar, CEO of As You Sow, concludes in the Proxy Preview report that 鈥渨hile this [anti-ESG] political theater may have chilled a few asset managers鈥� willingness to assess clear risks and opportunities, most view the anti-ESG activities as anti-capitalist and ironically as anti-conservative".
Indeed, when Energy Monitor analysed how BlackRock, the world鈥檚 largest asset manager and a target of the anti-ESG backlash, voted on each of the anti-ESG resolutions detailed in last year鈥檚 annual report, it found that it voted against all of them.
However, in response to the penned by BlackRock CEO Larry Fink last week, campaigners noted the absence of any explicit mention of ESG and the company鈥檚 insistence that as an asset manager its role is as a steward of client interests, not an engineer of change. A number of NGOs that 鈥渃ontinuing to steer client investments into the very causes of the climate crisis is engineering an outcome 鈥� further climate chaos and the financial crises that will ensue鈥�.
Concern that the world鈥檚 largest asset managers, namely BlackRock, Vanguard and State Street Global Advisors, will not use this proxy season to support environmental and social issues is warranted, finds a recent report. A by the non-profit ShareAction of how US, UK and European asset managers voted on these resolutions reveals that those with the biggest influence worked to last year.
This trend was particularly notable within the energy sector, where ShareAction鈥檚 data reveals that BlackRock went from supporting 72% of climate votes in 2021 to just 16% in 2022.
ShareAction suggests that hostility towards investors taking a stance on climate change expressed through the anti-ESG movement could play a role. The group also suggests that investors鈥� reluctance to challenge the oil and gas sector could also be related to their wariness of being on the wrong side of executives who have earned in the wake of the , which has resulted in increased dividends and buybacks for shareholders.
According to the Harvard Law School report, declining support for shareholder proposals on environmental and social topics last year is more likely to reflect other factors that 鈥渃ould well continue into 2023鈥�, such as the 鈥渘ature of the proposals, especially those that are of lower quality, [or] less relevant to the company鈥檚 business鈥�, as well as 鈥渢he nature of the recipient, such as companies that already have strong ESG records鈥�.
Felix Nagrawala, research manager at ShareAction, says large asset managers like BlackRock have recently adopted the practice of 鈥渃lient-directed voting鈥�, a novel approach that gives clients a say in the vote, and could impact the results of votes taken in 2023鈥檚 proxy season.
Nagrawala adds that in light of the anti-ESG backlash, asset managers could be trying to 鈥渨ash their hands of the situation鈥� by allowing clients to vote directly, although it is unclear if this could result in a further backsliding of support for climate issues.
While the number of anti-ESG proposals raised could spark some concern, the broader policy climate tilts much more strongly in favour of ESG sentiment. For example, the US behind investors who support climate policy, with its introduction of the last year, and the Securities and Exchange Commission (SEC) due to introduce mandatory .
In addition, on 20 March, Joe Biden issued the first veto of his presidency by that would have repealed a Department of Labor that allows the government to consider material ESG risks when making investment decisions on retirement plans.
While Republicans have tended to court the corporate vote, the ideological bent of anti-ESG proponents seems to be having the effect of alienating their former bedfellows.
As Heidi Welsh, executive director of Si2 and co-author of Proxy Preview 2023, says in the report: 鈥淓nvironmental and social challenges are not going away just because they prompt controversy. Proxy season will give companies feedback on reform ideas, but there鈥檚 no indication attacks on ESG investing are going to dampen investor appetite for facts and disclosure, which make the capital markets work better.鈥�
