IN-DEPTH: Shareholder Votes Show Support for ESG Falling

Although 2022 was a ‘blow-out year’ for climate and race initiatives, 2023 isn't

IN-DEPTH: Shareholder Votes Show Support for ESG Falling
People walk past a Target store in New York on June 6, 2023. (Samira Bouaou/The Epoch Times)
Kevin Stocklin

This year’s spring season of shareholder voting is leading some to believe that the tide may be turning against the left-wing corporate pressure campaign that goes by the moniker of environmental, social, and corporate governance, or ESG.

“The big story this year is the drop in support for ESG proposals,” Scott Shepard, a fellow at the National Center for Public Policy Research (NCPPR), told The Epoch Times.

Citing data from the Sustainable Investments Institute, the Financial Times recently reported that proposals to compel corporations to act against climate change won approval from an average of 23 percent of shareholders, versus 36.6 percent in 2022 and about 50 percent in 2021. Support for proposals on social justice causes is also down by about 10 percentage points from last year.

Although the number of political and social shareholder proposals has increased, partly because of a 2021 Securities and Exchange Commission (SEC) rule change that allows more ESG petitions to go to a shareholder vote, only five of these proposals received majority approval from shareholders, compared to 34 in 2022.

The 2021 SEC ruling reversed a policy implemented under the Trump administration that allowed companies to exclude certain ESG petitions. This reversal by the Biden administration made 2022 “a blow-out year” for climate and racial resolutions, according to Heidi Welsh, executive director of the Sustainable Investments Institute.

Analysts ascribe this year’s drop in support for progressive petitions to a combination of anti-ESG efforts by red states, consumer boycotts, headline stock declines at companies such as Anheuser-Busch InBev and Target, fear of anti-trust investigations, and more light being shed on how the ESG industry works. These factors have raised questions about whether voting for these causes serves the pecuniary interests of their investors and whether asset managers are violating their fiduciary duties.

Money Managers ‘Under Significant Scrutiny’

“The big three investment houses [BlackRock, Vanguard, and State Street] and the proxy-advisory duopoly [ISS and Glass Lewis] are aware that they’re now under significant scrutiny, and that they may face legal, legislative, and regulatory challenges to their partisan behavior,” Shepard said. “So fewer certainly are chalking up wins. If that trend continues, as I expect it will, the focus must shift in part to what the investment houses are doing with the influence derived from other people's money behind the scenes.”

Critics of the ESG industry say that politically motivated fund managers are leveraging the savings of people who trust them with their money to vote in favor of corporate shareholder proposals ranging from disinvesting in oil, gas, and coal to race and gender-based programs. Given that institutional asset managers control about 80 percent of publicly traded corporate shares, these firms have tremendous influence over the management of most publicly traded corporations today.

The response from customers and shareholders to social-justice campaigns undertaken by Bud Light brewer Anheuser-Busch InBev, Target, Disney, Coca-Cola, and other activist corporations could be prompting corporate executives to reconsider steering their companies into controversial political issues.

The values of Target and Anheuser-Busch InBev have fallen by about $13 billion and $27 billion, respectively, after attaching their brands to controversial social justice causes. Stung by these losses, many investors worry that asset managers may be proxy-voting their shares against the interests of shareholders. For asset managers and corporate executives alike, this could create a legal liability.

‘Woke’ Corporations Could Face Class Action Lawsuits

On March 5, regarding the steep fall in Target’s share price, Elon Musk, founder of SpaceX and Tesla, wrote on Twitter, which he also owns, that it “won’t be long before there are class-action lawsuits by shareholders against the company and board of directors for destruction of shareholder value.”
On June 6, the NCPPR, a shareholder in Target, served the company’s management with a formal demand for corporate records regarding its promotion of LGBT products.

“Target has formally acknowledged to its shareholders the significant financial risks that would come from eroding positive public perceptions of its brand,” said Stephen Miller, president of America First Legal, which is representing NCPPR in the suit. “Yet Target went ahead and embraced the most radical and offensive excesses of anti-family, anti-child gender extremism, promoting products like ‘tuck-friendly’ bathing suits and Satanist-inspired clothing.”

Miller said Target is aligning its brand with an agenda that advocates puberty blockers and elective surgeries on healthy children.

“For Target to voluntarily and aggressively associate itself with this movement is an act of sabotage against Target shareholders and a destroyer of value, especially for countless Americans for whom shares of Target are part of the pension funds, mutual funds, and retirement accounts on which they depend,” he said.

On June 5, the Human Rights Campaign (HRC), which advocates for LGBT rights, stated that “recent pushback against businesses such as Anheuser-Busch and Target, blatantly organized by extremist groups, serves as a wake up call for all businesses that support the LGBT community."

“Research shows that if a brand publicly supports and demonstrates a commitment to expanding and protecting LGBTQ+ rights, Americans are 2 times more likely to buy or use the brand," the HRC stated. "It isn’t just LGBTQ+ consumers and communities: 70 percent of non-LGBTQ+ people believe companies should publicly support and include the LGBTQ+ community through practices like hiring, advertising, and sponsorships. At this moment, it’s critical that Target champions equity and inclusion as it has for over a decade.”

Anheuser-Busch, which previously had a perfect 100 percent score on the HRC’s Corporate Equality Index, had its rating suspended by the organization on May 9, one month after the brewer appeared to backpedal on its transgender promotional campaign for Bud Light following a drop in beer sales.

The Walt Disney Company saw similar pushback from shareholders. On April 5, Reed Rubinstein, former deputy attorney general in the Trump administration, issued a letter on behalf of shareholders to Disney’s board of directors, demanding a corporate investigation into CEO Bob Chapek’s “wasting of corporate assets,” including damage to Disney’s brand and reputation, as well as Disney’s violation of employees’ civil rights by fostering a discriminatory and hostile work environment against conservative staff.
This came after Disney fought against a parents’ rights law in Florida that banned the teaching of sexual topics to children in kindergarten through third grade. Chapek was fired by Disney in November 2022, with a $24 million severance package.

States Fight on Both Sides of the ESG Movement

In addition to shareholder actions, more than a dozen states, including Florida, Texas, West Virginia, Utah, Kentucky, and Oklahoma, have passed or are considering passing laws and regulations to prevent state funds from being used to support the ESG industry. Some states have also boycotted banks and asset managers that they say discriminate against industries according to the ESG agenda.

“Conservative state treasurers and AGs have been pulling out all the stops to stop ESG,” Yitz Friedman, communications manager at the American Accountability Foundation (AAF), told The Epoch Times. “However, most state capitals have a ‘swamp’ of their own to deal with, and we have seen reluctance on the part of state pension boards to seriously address the ESG threat.”

The AAF reported that, despite, laws and regulations in Florida and Ohio that require state fund managers to make investment decisions and vote shares only according to monetary criteria, fund managers have continued to support progressive petitions in shareholder votes. Fund managers in Florida and Ohio reportedly voted for corporate resolutions in favor of climate and racial causes at companies including Boeing, UPS, AT&T, Home Depot, Disney, and ExxonMobil.

However, the Ohio Public Employees Retirement System (OPERS), which manages the state’s investments, denied that political issues were a factor.

“OPERS does not permit ideologies to influence our investment or proxy voting decisions,” Michael Pramik, an OPERS spokesman, told The Epoch Times.

As conservative states fight ESG, liberal states have been ramping up demands that asset managers include ESG in their investment decisions. In September 2022, fearing that BlackRock, the world’s largest asset manager, was faltering in its support for ESG initiatives, New York City Comptroller Brad Lander wrote BlackRock CEO Larry Fink demanding that “stronger action toward net zero emissions reduction across its portfolio.”

“Your 2021 letter to CEOs committed to ‘supporting the goal of net zero greenhouse gas emissions by 2050 or sooner’—in line with BlackRock’s pledge as a signatory to the Net Zero Asset Managers Initiative (NZAMI)—and asked businesses to disclose how they are integrating their own net zero plans into their long-term business strategies,” Lander told Fink. “Unfortunately, despite these repeated proclamations ... BlackRock now abdicates responsibility for driving net zero alignment in its own portfolio by saying that it does not ask companies to set specific emissions targets” as a result of pressure from conservative state AGs and financial officers.

Fink had famously declared in 2017, as the ESG movement was picking up steam, that “you have to force behaviors, and at BlackRock, we are forcing behaviors.”

Lander, who directs New York’s nearly $200 billion in pension assets, suggested that the city might take its business elsewhere if BlackRock failed to “use its position as the world’s largest asset manager, with all the corporate governance responsibilities that go along with that position, to move its portfolio companies to get their businesses in line with a net zero economy.”

This pressure from ESG advocates highlights the difficulties that companies face once they take on ESG causes. Having taken a political position, they soon face backlash from both sides when they attempt to extricate themselves.

Democrat lawmakers say ESG is a matter of economic liberty and that companies that support progressive causes should be free to pursue them without interference from government.

At a June 6 congressional hearing that criticized ESG investing, Rep. Katie Porter (D-Calif.) said, “Let’s call this what it is; it’s an attack on economic freedom.”

Columbia Business School accounting professor Shivaram Rajgopal testified, “To me, ESG in essence is a free market organic investor-driven movement to ask firms to disclose more information about the factors associated with their future cash flow.

"Investors would be derelict of their fiduciary responsibility to their stakeholders if they did not consider the material factors while making that investment decision.”

Rep. Lisa McClain (R-Mich.) said: “I am for freedom to invest your money into the causes you and the client actually believe in, but that’s not what’s happening here. Managers are investing your money in causes they believe in, and we are seeing real consequences for Americans’ retirements.”

In the Wake of the ESG Movement

Regarding the effects of ESG, Jason Isaac, a director at the Texas Public Policy Foundation, told lawmakers that the movement has taken a harsh toll on U.S. oil and gas production, leading to energy price hikes and making electric and gas bills unaffordable for more Americans.

“There has been an 81 percent reduction in the number of funds that provide private capital raised for oil and gas exploration in this country and a 94 percent reduction in dollars raised for oil and gas production,” Isaac said.

Over the past several weeks, stock analysts at JPMorgan Chase, Citibank, and KeyBanc Capital Markets downgraded their ratings of Target shares. Although the analysts said this was to some extent because of fears of a general decline in retail sales as consumers cut back on spending, Citi predicted that Walmart would gain market share from Target.
In October 2022, UBS, a Swiss bank, downgraded the shares of BlackRock, stating: “Early and energetic adoption of ESG principles in its fund management and shareholder proxy activities have positioned the firm as an ESG leader in our view. However, as performance deteriorates and political risk from ESG has increased, we believe the potential for lost fund mandates and regulatory scrutiny has recently increased.”

Shepard said there's every indication that final shareholders, as opposed to the fund managers who vote the shares on their behalf, are opposed to ESG.

“If the institutional investors began using their influence with corporations honestly—pushing for ESG goals with the assets that are specifically invested in ESG funds, but pushing against ESG goals in favor of neutrally running companies in non-ESG labeled funds—ESG would be over tomorrow,” he said.

Kevin Stocklin is a business reporter, film producer and former Wall Street banker. He wrote and produced "We All Fall Down: The American Mortgage Crisis," a 2008 documentary on the collapse of the mortgage finance system. His most recent documentary is "The Shadow State," an investigation of the ESG industry.