Proxy Power: ESG Faces Opposition, But Its Influence Endures

What Is Proxy Season and Why It Matters

Proxy season is underway. As public corporations hold annual meetings and release reports, shareholders are making decisions that shape company direction—often from a distance. Most corporate votes happen by proxy, meaning shareholders cast ballots without attending the meetings. This is standard practice and, along with the annual report, is required by federal law. Noncompliance can result in penalties from regulatory agencies or shareholder litigation.

These annual spring meetings, often held between April and June, are when most Environmental, Social, and Governance (ESG) proposals are introduced and voted on. ESG has become a key focus within shareholder advocacy, especially for those using investing to reflect faith-based or values-driven goals.

ESG and Faith-Based Investing: Shared Roots

ESG is often misunderstood as a recent trend, but its roots run deep in faith-based investing traditions. This approach blends values with financial decisions, often guided by Catholic Social Teaching (CST), Corporate Social Responsibility (CSR), Socially Responsible Investing (SRI), and Corporate Social Performance (CSP).

While faith-based investing includes a broader moral compass, ESG has gained prominence among shareholder initiatives in 2024. Its aim: to push corporations to consider their impact on the planet and society alongside profitability.

Despite long-standing skepticism that values-based investing sacrifices returns, research paints a different picture. A 2015 Morningstar analysis found that in roughly 60 percent of cases, funds incorporating ESG factors performed on par with or better than their peers. In 2020, amid the COVID-19 pandemic and a fraught U.S. election cycle, public discourse shifted toward what societies truly value. This period marked a turning point in mainstream acceptance of ESG.

The Role of Proxy Voting in ESG Progress

Proxy voting is regulated by the Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. These votes are often cast through mutual funds, pension plans, or institutional investors, each with its own proxy policy that outlines how it votes on behalf of investors.

This makes it critical for individuals to review not only a fund’s financial risk profile but also its proxy voting policy. Whether you invest through BlackRock, Fidelity, Schwab, Calvert, or a faith-aligned endowment, your vote on environmental and social issues is often outsourced to these institutions.

Proxy cards include ballots on board appointments, executive compensation, and shareholder resolutions—many of which involve ESG-related proposals. That’s why proxy season matters: it’s where investor influence becomes actionable.

The Rise of Counter-ESG Proposals

Despite growing awareness of environmental and social issues, ESG faces organized resistance. Counter-ESG proposals, which challenge corporate efforts on climate action, diversity, or human rights, have increased both in number and proportion.

Between 2020 and 2023, anti-ESG proposals grew from just over 2 percent of all shareholder resolutions to more than 13 percent. In 2024, 85 anti-ESG proposals were submitted by Russell 3000 companies, nearly double the year prior.

Support for these measures remains minimal. Most garner only 2 to 3 percent of shareholder backing, but their presence may be influencing overall support for ESG proposals. In a polarized political climate, anti-ESG campaigns have gained traction among certain policymakers, despite limited buy-in from institutional investors or the public.

Still, the anti-ESG faction remains a minority. In 2023, the average vote in favor of anti-ESG proposals dropped to just 2.5 percent, even as the number of submissions spiked. Much of this movement is backed by dark-money donors and politically motivated advocacy groups.

ESG Isn’t Going Away, But the Debate Is Growing

Climate-focused proposals remain a core part of ESG activity in 2024. Although the number of climate-related resolutions dropped slightly from last year, many still focus on emission reporting, carbon financing, and climate risk disclosures. Out of 106 proposals, 42 target transition planning, 21 seek emission targets, 25 address broader impacts, and 17 relate to financial exposure to carbon-heavy industries.

This year’s proxy season reflects a push and pull between values-aligned investing and ideological opposition. While ESG principles continue to influence corporate governance, their politicization has made the conversation more contentious.

Yet the data is clear. ESG is not a passing trend. It is an investment philosophy grounded in risk management, ethical responsibility, and long-term value. And it is through proxy votes—large and small—that investors continue to shape a more sustainable, equitable economy.

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References:

https://corpgov.law.harvard.edu/2024/03/13/2024-u-s-proxy-season-preview-governance-back-on-agenda-while-sustainability-recedes/

https://corpgov.law.harvard.edu/2024/04/24/environmental-social-policy-issues-in-the-2024-u-s-proxy-season/

https://insights.issgovernance.com/posts/the-latest-in-esg-and-stewardship-regulation-april-2024/

https://corpgov.law.harvard.edu/2024/04/24/environmental-social-policy-issues-in-the-2024-u-s-proxy-season/