Florida and Texas, two of the country’s most populous states, have recently enacted anti-ESG regulations. These regulations forbid state investment and pension fund managers from doing business with asset management firms and banks that consider environmental, social, and governance issues when making investment decisions.
In mid-August, Arizona state treasurer notified Morningstar that the company had 30 days to prove it is not violating Arizona law by boycotting Israel. Treasurer Kimberly Yee said her office had determined that Morningstar and its ESG-focused subsidiary Sustainalytics “uses anti-Israel and antisemitic sources to negatively impact the scores of companies doing business in Israel and Israeli-controlled territories.”
These efforts to stall ESG investing have gotten help from at least two conservative groups that have focused on using proxy voting to combat what they see as “the left’s malicious and mendacious purposes.” During the 2022 proxy season, The National Center for Public Policy Research’s Free Enterprise Project and the National Legal and Policy Center sponsored 55 shareholder proposals opposing ESG-type shareholder actions.
Among the proposals submitted by the Free Enterprise Project was one seeking racial equity audits at AT&T, CVS Health, and Disney. The audits are intended to investigate discrimination against white men at the companies.
The National Legal and Policy Center sponsored a proposal that would have required General Motors to monitor and report instances of child labor in the supply chain for its electric vehicles and another that would have required ConocoPhillips, McDonald’s, and Twitter to disclose their lobbying activities to make sure they are consistent with shareholders’ best interests.
In its voting guide for conservative investors, the Free Enterprise Project recommended voting against every board member at 22 of America’s largest companies like Apple, Coca-Cola, and Walmart. The group identified a dozen specific board members to vote against, including Marc Benioff of Salesforce, Larry Fink of BlackRock, and Al Gore of Apple.
The group’s director, Scott Shepard, wrote:
“[W]e have [in this report] shone a spotlight on some of the CEOs and other corporate executives who are most woke and hard-left political in the management of their corporations, and therefore most inimical to the Republic and its blessings of liberty.”
Shepard acknowledges that none of these directors has been unseated and might not be for a long time, but the outcome of the voting doesn’t matter. In the guide, clearly aimed at like-minded investors, he writes, “We are rallying allies like yourself to our cause, as well as the pension funds of states run by people who think like we do.”
Citing Engine No. 1’s success last year at replacing three ExxonMobil directors, Shepard writes:
“This victory for the enemy proves that it can be done, and why we must all work so hard together to get it done on our side. If we should sit back, if we should allow the left to take over the corporations the way it’s taken over so much else of our shared national life, we will see our lives constrained and contracted as energy prices soar and inflation gallops; as we fund the free world’s enemies by our insane national abstention from carbon-energy production increases; and as the power of the individual and of merit are swept aside in favor of a racial, sexual and orientational spoils systems until any inducement to effort and achievement has been destroyed.”
The Free Enterprise Project filed 30 proxy measures, and 17 were voted on. Most received less than 3% of the votes cast. The three disclosure proposals at ConocoPhillips, McDonald’s, and Twitter received between 19% and 40% of shareholder votes and will be resubmitted next year.
On a policy level, The Corporate Citizenship Project, a corporate governance think-tank, is actively meeting with State Treasurers, Comptrollers, and state investment fund managers to push them to eliminate the use of “robo-voting” state shares in line with proxy advisors like ISS and Glass Lewis on ESG issues. “Robo-voting” refers to the practice of automatically voting shares in line with a certain proxy advisor recommendation. The Corporate Citizenship Project, led by former US Ambassador to China and Iowa Governor Terry Branstad, aims to push policymakers to end this practice which they say is anti-democratic, hurts shareholder returns, and in many cases involves voting state shares against the will of state voters.
A particular foe of the anti-ESG forces is As You Sow, a leading nonprofit voice for shareholder advocacy to protect human rights, reduce toxic waste, and align investment with values. The group highlighted 529 ESG-related measures that had been submitted for shareholder votes during the 2022 proxy season. As of mid-July, 282 of the measures had been voted on at companies’ annual shareholder meetings, and 34 achieved majority support for disclosure and action.
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