This year’s proxy season – the time between mid-April and mid-June when most large, publicly traded companies host their annual meeting and shareholders vote on various resolutions – will test how far the anti-ESG movement sweeping the US is gaining a foothold in corporate America. To date, the anti-ESG (environmental, social and governance) movement, 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 ‘boycotting’ 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 ESG factors over business models.
They will also be given the opportunity to vote on a small (but growing) share of ‘anti-ESG’ proposals that have been tabled by various right-wing groups.
Proxy Preview 2023, 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 ‘anti-ESG’, 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.
Climate change continues to be the biggest single topic on the proxy agenda this year, while the “two biggest shifts” observed between 2022 and 2023 are the continued increase in climate change proposals, as well as a “significant expansion of resolutions about reproductive health” in response to the US Supreme Court’s 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.
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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 – nor with many companies", the report states.
"Dark money sources" driving anti-ESG resolutions
“[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,” the report notes.
These include proposals that demand greater reporting on risks of “racial justice efforts”, “anti-discrimination policies” as well as on “ties to Communist China”. 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 “been around for a long time”; for example, the National Center for Public Policy Research think tank in Washington, DC, in the past two years “they have filed many more proposals”, the report finds.
These players tend to receive funding from “dark money sources” with connections to Leonard Leo from the Federalist Society and the Marble Freedom Trust, who the New York Times last year revealed has “used 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”.
Si2, As You Sow and Proxy Impact also reveal that “new players” 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 – a resolution launched at US oil major Chevron that demands the company’s board establish a “decarbonisation risk committee”.
Specifically, this proposal asks that “Chevron’s Board of Directors charter a new Board Committee on Decarbonization Risk to evaluate Chevron Corporation’s (the Company) strategic vision and responses to calls for Chevron decarbonization on activist-established deadlines”.
The Trojan horse tactic
While these proposals may sound like they favour enhanced environmental reporting, 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 “verbatim the resolved clauses [desired actions] of their ideological opponents or use language in resolved clauses that makes the resolutions appear to support sustainability objectives”.
It refers to this phenomenon as the “Trojan Horse tactic”, which the Proxy Advisory company Glass Lewis describes as "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 ‘diversity’ resolution at Facebook in 2019 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’ "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 report suggesting this “mirroring” tactic makes it “harder for investors to spot such proposals and identify their true intent”.
Capitalism is winning
Andrew Behar, CEO of As You Sow, concludes in the Proxy Preview report that “while this [anti-ESG] political theater may have chilled a few asset managers’ 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’s largest asset manager and a target of the anti-ESG backlash, voted on each of the anti-ESG resolutions detailed in last year’s annual report, it found that it voted against all of them.
However, in response to the annual letter to shareholders penned by BlackRock CEO Larry Fink last week, campaigners noted the absence of any explicit mention of ESG and the company’s insistence that as an asset manager its role is as a steward of client interests, not an engineer of change. A number of NGOs expressed concern that “continuing to steer client investments into the very causes of the climate crisis is engineering an outcome – further climate chaos and the financial crises that will ensue”.
Concern that the world’s 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 January 2023 analysis 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 block a number of key climate votes last year.
This trend was particularly notable within the energy sector, where ShareAction’s 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’ 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 record profits in the wake of the war in Ukraine, 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 “could well continue into 2023”, such as the “nature of the proposals, especially those that are of lower quality, [or] less relevant to the company’s business”, as well as “the nature of the recipient, such as companies that already have strong ESG records”.
Felix Nagrawala, research manager at ShareAction, says large asset managers like BlackRock have recently adopted the practice of “client-directed voting”, a novel approach that gives clients a say in the vote, and could impact the results of votes taken in 2023’s proxy season.
Nagrawala adds that in light of the anti-ESG backlash, asset managers could be trying to “wash their hands of the situation” 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 regulatory environment is increasingly behind investors who support climate policy, with its introduction of the Inflation Reduction Act last year, and the Securities and Exchange Commission (SEC) due to introduce mandatory climate disclosure rules in the coming months.
In addition, on 20 March, Joe Biden issued the first veto of his presidency by overturning an ‘anti-ESG’ bill that would have repealed a Department of Labor rule 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: “Environmental and social challenges are not going away just because they prompt controversy. Proxy season will give companies feedback on reform ideas, but there’s no indication attacks on ESG investing are going to dampen investor appetite for facts and disclosure, which make the capital markets work better.”