What impact is the anti-ESG campaign having?

How is the anti-ESG movement attempting to limit investors’ ability to hold companies to account?

Along with efforts to pass laws to ban or limit sustainable investing, the anti-ESG movement is trying to undermine regulations and limit investors’ ability to hold companies accountable.

The anti-ESG movement has taken aim at the ability of the Securities and Exchange Commission (SEC) to issue and defend regulations that would equip investors with more information to make better investment decisions. Most notably, the anti-ESG movement has taken aim at the SEC’s new climate risk disclosure rule and launched several lawsuits to take down the recently finalized rule. Better, more consistent climate data will help investors understand the risks and opportunities companies face and make more informed investment decisions.  The SEC has received public feedback in favor of more disclosure. Experts see clarity and consistency as key in global regulation: “The global economy needs common reporting standards to reduce fragmentation and drive comparability in climate-related financial data,” former SEC Chair and current Secretariat of the Task Force on Climate-Related Financial Disclosures Mary Schapiro has said.

Anti-ESG proponents are also trying to undermine shareholder action and allow companies to bypass the shareholder proposal process entirely. Shareholders’ ability to vote on issues and make proposals is overseen by SEC regulation. Anti-ESG lawmakers want to reform the proxy voting system, including by granting companies license to not put shareholder proposals to a vote. This would effectively gut the ability of shareholders to push companies to address financially relevant environmental, social, and governance issues.

How is the anti-ESG movement affecting investor action?

As political attacks on investors and companies that have voiced support for sustainability continue, investors began to pull back from supporting proposals related to environmental, social, and governance (ESG) issues in the 2023 shareholder voting season, especially the largest asset managers that have been a major target of the anti-ESG movement. The four largest asset managers — BlackRock, Vanguard, State Street, and Fidelity — hold 25% or more of the voting power at most U.S. companies and thus play a major role in determining the outcome of shareholder votes. Their retreat from their already lukewarm ESG support during the 2023 Annual General Meeting (AGM) season resulted in a decline in other investors’ ability to push companies to address important issues. 

The hesitancy on the part of the largest asset managers had a notable impact on proposals for racial equity auditing as well as board elections at oil & gas firms and other climate-critical firms, a key lever in getting companies to align with climate objectives. Racial equity auditing proposals, first popularized in 2021, received strong support in 2021 and stronger support in 2022, when average support climbed to 44% of shares voted, according to shareholder advocacy group Majority Action, and six proposals received majority support. 

However, in 2023, that support fell to just 19.5%. Voting by large assets managers, particularly BlackRock and State Street, played a critical role. While BlackRock—the world’s largest asset manager and the financial institution most squarely targeted by the anti-ESG movement as a “woke investor”—supported more than half of racial equity auditing proposals for S&P 500 companies in 2022, it voted against all such proposals in 2023.