ESG developments this week
Economy and Society is Ballotpedia’s weekly review of ESG stories that characterize the growing intersection between business and politics.
In Washington, D.C.
House passes two bills opposing ESG
The House of Representatives passed two bills opposing ESG on Sept. 18 and Sept. 19. HR 5339 would require fiduciaries to make investment decisions based on financial factors. HR 4790 proposed limiting the Securities and Exchange Commission’s (SEC) climate risk disclosure requirements:
On Wednesday, the House passed HR 5339, which would revert a retirement plan rule back to standards passed by the Trump administration, “requir[ing] fiduciaries of employer-sponsored retirement plans to make investment decisions based only on pecuniary factors.” However, it would also allow “nonpecuniary factors to be considered in certain situations, such as when selecting investment options for certain participant-directed retirement plans or if the fiduciary is unable to distinguish between investment alternatives on the basis of pecuniary factors alone,” according to the bill summary. That legislation also has other anti-ESG proposals folded into it, including one that could limit retirement plan fiduciaries from supporting certain issues in proxy votes.
On Thursday, there was a hearing on a separate bill, HR 4790, the “Guiding Uniform and Responsible Disclosure Requirements and Information Limits Act of 2023.” The bill, which was passed on a mostly party-line vote, counters a recent SEC rule that requires large public companies to report climate risks and emissions data to investors. It would also establish a committee that would advise the SEC on regulatory priorities, public reporting and corporate governance, proxy voting, and other issues.
The bill’s sponsor, Rep. Bill Huizenga, R-Mich., said that material information is already required to be disclosed to investors.
On Wall Street and in the private sector
State Street report shows reduced support for environmental and social proposals
State Street supported fewer environmental and social shareholder proposals during the first half of 2024, according to a report published Sept. 19. The firm joined the two other largest U.S. money managers—BlackRock and Vanguard—that also reported reduced support for such resolutions during the 2024 proxy season. According to Bloomberg:
The three biggest US money managers slashed their support of environmental and social shareholder proposals, marking a stark turnaround from 2021, when they voted in favor of a record number of such resolutions.
State Street Corp.’s investing unit said on Thursday that it supported 6% of environmental shareholder proposals in the first half of the year and 7% of social ones, less than what it did in the same year-ago period. Vanguard Group said last month that it didn’t back any of those resolutions, while BlackRock Inc. said it voted for 4% of the proposals in the 12 months ending June, down from 7% a year earlier. …
The so-called Big Three are taking a more circumspect view of such shareholder proposals, said Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics.
Climate Action 100+ gained 87 members since June 2023
Climate Action 100+ gained 87 financial institution members since June 2023, according to Inside Climate News. Most new members are European-based financial institutions. Notable American-based financial firms and banks dropped out of the initiative during the same period:
Over the past few months, a string of large American asset managers have left Climate Action 100+, a global investor group created to ensure that the largest corporate emitters of greenhouse gases take action on climate change. Their departure coincides with intensifying political debate over sustainable investing, as a variety of Republicans have sought to crack down on what they call a “climate cartel.”
The backlash and withdrawal, experts say, is unique to the United States. … Climate Action 100+ comprises over 600 financial institutions seeking to engage companies they invest in on climate issues. In February, JPMorgan Chase, State Street, and bond manager PIMCO left the initiative. At the same time, BlackRock transferred its participation to BlackRock International. Last month, Goldman Sachs, Nuveen and other asset managers joined the exodus.
Despite those prominent American departures, Climate Action 100+ is growing. Overall, 87 financial institutions signed onto the initiative since June 2023, more than double the amount of departures. Nearly 60 percent of the new members are based in Europe.
About 24% of Vanguard’s clients voted in favor of ESG
Vanguard reported Sept. 17 that approximately 24% of clients participating in its Investor Choice pilot program voted in favor of ESG policies during the 2024 shareholder season. The report said many clients who voted for ESG corporate policies owned ESG funds. The Investor Choice program allows clients to cast proxy votes for the stock shares underlying their funds:
Vanguard launched its Investor Choice pilot in early 2023, offering investors with the ability to select from a range of policy options to meet a series of preferences. The pilot was expanded in 2024 to include five equity index funds comprising more than $100 billion in assets, with the policy options available including the “Company Board-Aligned Policy,” voting in accordance with the recommendations made by the portfolio company’s board of directors; “Third Party ESG Policy,” voting in accordance with the recommendations of Glass Lewis’s thematic ESG Voting Policy, which follows the view that investment returns can be enhanced through a focus on disclosing and mitigating risks related to ESG issues; “Vanguard-Advised Funds Policy,” administered by Vanguard’s investment stewardship team, and; “Not Voting Policy.”
According to Vanguard, approximately 40,000 investors participated in the program in the 2024 proxy season, with 24.4% selecting the Third Party ESG Policy, 43% selecting the Vanguard-Advised Funds Policy, 30.3% selecting the Company Board-Aligned Policy, and 2.3% choosing the Not Voting Policy.
Vanguard noted that investors in the Vanguard ESG U.S. Stock ETF were three times as likely to select the ESG voting policy, at 78%, while investors that were least likely to choose the ESG policy were those in the Vanguard Dividend Appreciation Index Fund, at around 18%.
In the spotlight
Columnist George Will argues against ESG
Conservative commentator and columnist George Will on Sept. 20 published an opinion piece in The Washington Post arguing against ESG. Will says that ESG efforts, along with diversity, equity, and inclusion (DEI) initiatives, are receiving less support:
Regarding ESG, last year, $13 billion was withdrawn from asset managers making investment decisions based on “environmental, social and governance” considerations. Unpacked, those categories mean the woke agenda: decarbonizing the economy, social engineering based on identity politics, gender equality, union power and more. Even the solemnly woke Securities and Exchange Commission has deleted ESG from its list (why does it have one?) of investing priorities. …
ESG is the stealthy socialization of wealth, the surreptitious semi-confiscation of others’ wealth. But progressives’ ESG aspiration is worse than a strange nostalgia for the 1300s. It also is a repellent yearning for the 1930s. …
ESG aspires to achieve comprehensive social control by making the private sector no longer private. With semantic sleight of hand, ESG advocates created their obfuscating category “stakeholders.” This camouflages awkward echoes of the statism of 20th-century totalitarians. Still, the echoes are undeniable.
Steve Soukup—an ESG critic and author of The Dictatorship of Woke Capital—argues that Will’s stance is noteworthy. Soukup said, “Between this column and the book co-edited by Phil Gramm, the old-school conservative establishment, which was reluctant to get involved in this debate, shows that it has come to understand the importance of this issue.” Click here for more information about the Phil Gramm book.