Views
Anti-ESG Shareholder Proposals: What Does It Mean for Issuers?
The environmental, social, and governance (ESG) movement has become a focal point for issuers over the past decade, driven by growing concerns about climate change, sustainability, and social justice.
Many companies are being urged to consider their long-term environmental impact, social responsibility, and governance standards as part of a broader shift towards sustainable business practices. These factors are seen as essential to corporate longevity and value creation. NYU Stern reviewed over 1,000 studies and found a positive relationship between ESG and financial performance. Studies by Borsa Istanbul Review also found a similar correlation.
The rise of ESG initiatives has sparked a counter-movement, particularly in recent U.S. AGM seasons, where anti-ESG shareholder proposals are gaining traction. These proposals argue that focusing on sustainability and social responsibility may reduce profitability, harm shareholder returns, and limit board flexibility.
Anti-ESG proposals have multiplied this season, with over 70% of the proposals going to a vote. As this debate continues to unfold, it raises significant questions about the future of corporate governance and the balance between financial performance and ESG commitments.
This article explores the concept of anti-ESG shareholder proposals, their motivations, and their implications for corporate issuers.
What are anti-ESG shareholder proposals?
Anti-ESG proposals reflect a growing push from investors who believe companies should prioritise financial returns over ESG initiatives. They argue that focusing on non-financial goals can dilute strategy and risk profitability.
These proposals often address issues such as scaling back diversity, equity, and inclusion (DEI) programs, discontinuing racial justice audits, or reducing transparency around political donations and charitable contributions. They aim to limit corporate involvement in societal issues that are perceived to be politically charged or ideologically driven, focusing instead on financial metrics.
For example, proposals have been filed requesting companies to eliminate racial audits or review the risks associated with their DEI initiatives, as seen in cases involving firms like Home Depot and JPMorgan Chase. These proposals argue that such practices may promote divisiveness and undermine the merit-based systems that companies should prioritise.
Shareholder proposals reflecting this philosophy have grown significantly in recent years. In 2024, around 90 anti-ESG proposals were brought to a vote, a 60% increase from 2023. Despite this surge, these proposals garnered limited traction, with an average of just 1.9% support, reflecting ongoing resistance to the movement among mainstream investors.
This resistance can be attributed to various factors, including the perception that ESG considerations are integral to long-term value creation and risk management. Nevertheless, the rise of anti-ESG proposals underscores a widening divide in shareholder expectations, particularly in the U.S., where the debate over corporate responsibility is increasingly polarised.
While most anti-ESG proposals fail to pass, their presence signifies a growing challenge for issuers, who must now navigate competing demands from both ESG advocates and critics. This dynamic is reshaping discussions around corporate governance and strategic planning.
As anti-ESG shareholder proposals continue to rise, their implications for corporate issuers are far-reaching, even threatening future shareholder activism campaigns from both sides. Companies must not only address concerns from ESG proponents but also respond to a vocal segment of shareholders that challenges the value of these initiatives. For issuers, managing this balancing act will be critical as they strive to align shareholder interests while remaining committed to sustainable and ethical business practices.
Why are anti-ESG proposals gaining momentum?
Anti-ESG proposals have gained significant traction in recent years, particularly in the U.S., where the movement has seen a notable increase in filings. This rise is influenced by several factors, including changes in regulatory frameworks, shifting political landscapes, and growing scepticism of ESG practices among certain groups.
A key factor driving the surge in anti-ESG proposals is the easing of barriers to filing shareholder proposals. In 2021, the SEC modified its “no-action” process, making it harder for companies to exclude shareholder proposals from annual meetings. This change initially led to a wave of ESG-related proposals focused on sustainability, diversity, and corporate governance. However, it also opened the door for shareholders with opposing views to submit anti-ESG proposals, resulting in a sharp increase in their prevalence in the last few proxy seasons. For example, the number of anti-ESG proposals filed in 2024 rose to 102, up from 79 the previous year.
Another driver of momentum is the political environment, especially with elections on the horizon. The anti-ESG movement aligns with a politically conservative pushback against what many perceive as corporate “wokeness” — the idea that companies prioritise social and environmental goals over shareholder returns.
It has been reported that this sentiment is particularly strong among Republican leaders and state officials, including Florida Governor Ron DeSantis and Montana Governor Greg Gianforte, who have been vocal critics of ESG practices. These politicians argue that ESG considerations detract from financial performance and corporate autonomy, and they have pushed for policies that restrict the use of ESG criteria in state pension fund investments.
Support for anti-ESG proposals also stems from interest groups with ties to industries that feel threatened by ESG initiatives, such as the fossil fuel sector. Conservative think tanks and advocacy groups like the National Center for Public Policy Research and the National Legal and Policy Center have played an active role in filing anti-ESG proposals. These organisations argue that ESG initiatives distort market priorities and ultimately harm shareholder value.
Despite the rise in filings, anti-ESG proposals have garnered limited support from shareholders, suggesting that while the movement is gaining visibility, it has yet to gain widespread backing from the broader investor community.
In summary, anti-ESG proposals are gaining momentum due to regulatory changes, political backing, and a growing critique of corporate ESG efforts. However, despite the increased filings, they continue to face significant challenges in securing broad shareholder approval.
How do anti-ESG proposals impact corporate strategy?
Anti-ESG shareholder proposals can significantly impact corporate strategy by challenging the balance between financial performance and ESG goals. These proposals can force companies to reevaluate their strategies and may influence their reporting, brand image, and stakeholder relations.
Impact on issuer’s reputation
One of the primary impacts of anti-ESG proposals is the potential harm to the issuer’s brand image. Companies that have made significant commitments to ESG efforts may face reputational damage if they are perceived to be moving away from these initiatives due to shareholder pressure.
This could lead to boycotts or negative media attention, particularly if the company’s ESG efforts have been central to its public image. For instance, Ford reportedly received some backlash from customer segments who believed that their DEI initiatives were divisive.
Furthermore, companies may feel compelled to shift their focus toward short-term profitability rather than long-term sustainability, which could alienate a portion of their customer base, employees, or investors who value social responsibility.
Heightened responsibility & reporting
Issuers may also experience increased scrutiny over their ESG-related expenditures. Anti-ESG proposals often call for more detailed reporting on the costs associated with implementing ESG policies. This can put pressure on management to justify these costs more explicitly, potentially leading to a reduction in ESG budgets.
For example, companies might be asked to provide detailed analyses of how ESG initiatives impact shareholder returns, which could lead to a more conservative approach to future ESG spending.
Pressure to curb ESG initiatives
Another strategic impact arises in the realm of diversity and inclusion. Many anti-ESG proposals specifically target diversity initiatives, with almost half of the proposals aiming to discourage them. This can influence how companies approach workforce diversity and inclusion policies, possibly leading to a scaling back of such initiatives in favour of a more traditional, profit-centered approach.
However, rolling back diversity measures could trigger internal dissatisfaction or external backlash, especially as many employees and consumers increasingly prioritise inclusivity and representation.
Studies have shown that diversity characteristics and inclusion impact the satisfaction of employees with a company which indicates the possibility of negative events when DEI measures are cut down.
Rethinking financial decisions
In the financial sector, anti-ESG proposals can affect investment strategies. Financial institutions might change their practices to avoid being blacklisted by states pushing anti-ESG legislation.
For instance, in response to state-level anti-ESG laws, some financial firms may divest from industries like renewable energy to prevent being added to restricted lists, particularly in states such as Texas or Florida, which have enacted laws to limit the use of ESG principles in investment decisions.
Ultimately, while anti-ESG proposals haven’t garnered widespread support, they are shifting corporate dynamics. Companies are being compelled to defend their ESG strategies more rigorously, and they face pressure from a growing segment of investors to ensure their business objectives remain primarily focused on financial returns rather than broader societal goals.
This movement could lead to a narrower focus on profitability in corporate strategy, especially in sectors where ESG principles have been deeply integrated into the business model.
What are the legal and regulatory implications?
The rise of anti-ESG shareholder proposals has brought significant legal and regulatory challenges for issuers, altering the landscape of corporate governance and strategy. These implications are multifaceted, impacting everything from legal liabilities to shareholder engagement.
Increased legal liability
One of the most immediate concerns for companies is the heightened legal exposure associated with ESG initiatives. Companies that ask investors to go beyond compliance with federal or state regulations, especially in areas such as climate commitments or DEI efforts, may face legal challenges. Critics of ESG argue companies should prioritise financial returns over broader societal goals, and this viewpoint has spurred lawsuits claiming fiduciary duty violations.
For example, as companies integrate ESG metrics into their corporate strategies, some politically conservative groups have begun legally challenging practices they view as overreach or a violation of fiduciary responsibilities. These lawsuits could force companies to balance profitability with their public commitments to ESG principles in more legally cautious ways.
Polarisation and conflicting regulations
The regulatory landscape surrounding ESG is increasingly polarised, with sharp differences between regions, particularly between the U.S. and the European Union (EU). U.S. federal and state-level regulations are frequently at odds, making compliance complex for multinational corporations. For example, while the EU pushes forward with stringent ESG disclosure rules, such as the Corporate Sustainability Reporting Directive (CSRD), the U.S. is seeing a rise in anti-ESG legislation.
Some states have enacted laws that prevent the consideration of ESG factors in public investments or corporate decision-making. As a result, companies are caught between conflicting pressures—being penalised for pursuing ESG goals in some states while being mandated to do so in others.
State-level anti-ESG legislation
A growing number of states, led by Republican lawmakers, have introduced anti-ESG legislation targeting corporate ESG practices. For example, Texas’s Senate Bill 13 restricts the state from doing business with financial institutions that divest from fossil fuel companies, effectively punishing firms for ESG-related investment strategies.
Similarly, other states have passed laws preventing pension funds from considering ESG factors, such as Florida’s anti-ESG proposals. Some of these legislative efforts include the compilation of “restricted lists,” where financial institutions accused of boycotting specific industries (like fossil fuels) are prohibited from managing state funds. Such laws put pressure on issuers to adapt their strategies to avoid being excluded from lucrative contracts with state governments.
Scrutiny from investors and legislators
Anti-ESG shareholder proposals and the broader anti-ESG movement have led to increased scrutiny of corporate ESG practices. Companies are now facing closer examination from both investors and regulators.
This scrutiny can manifest in various ways, including more private engagements between corporations and investors, where shareholders may demand detailed reports on ESG-related costs and benefits.
It could increase pressure on companies to justify their ESG activities in terms of financial returns, leading to more frequent and detailed disclosures of ESG-related investments and strategies.
Impact on shareholder engagement
Finally, anti-ESG movements are seeking to reshape the norms around shareholder engagement. Shareholder proposals, a common way for investors to influence corporate policies, are increasingly being used to challenge ESG priorities.
Proponents of anti-ESG proposals argue that ESG considerations are diverting attention from core financial performance. These proposals often aim to reduce the emphasis on climate-related goals or DEI initiatives. Some states, through legislation like House Bill 1267 in Florida, have even attempted to criminalise certain ESG investments by classifying them as violations of fiduciary duties.
This environment has created a more contentious landscape for corporate boards as they navigate between ESG advocates and opponents.
In summary, the legal and regulatory implications of anti-ESG proposals present a challenging dynamic for issuers. Companies must carefully assess their strategies to avoid legal pitfalls, comply with an increasingly fragmented regulatory landscape, and manage the growing scrutiny from both sides of the ESG debate.
As anti-ESG sentiments continue to rise, particularly in politically conservative states, the pressure on corporations to strike a delicate balance between financial performance and ESG commitments is intensifying.
How can issuers manage anti-ESG proponents?
Managing anti-ESG shareholder proposals presents a significant challenge for issuers. Here are key strategies issuers can adopt to manage anti-ESG proponents and proposals effectively:
Monitor anti-ESG sentiment
One of the first steps issuers can take is to monitor anti-ESG sentiment within their shareholder base and the broader market. Companies should keep a close watch on the volume and nature of anti-ESG proposals submitted year-over-year. If a proposal is submitted consecutively, it could signal growing investor frustration or increasing support for anti-ESG viewpoints.
Keeping track of voting trends, political shifts, and media narratives around ESG can provide insights into the potential impact of anti-ESG movements on the company. This early monitoring enables boards to proactively engage with shareholders and mitigate possible conflicts.
Review and clarify ESG policies
In response to anti-ESG proposals, issuers should thoroughly review their existing ESG policies and performance metrics. This internal review helps the board understand where the company stands on critical ESG issues such as diversity, climate risk, and social responsibility. Armed with this understanding, issuers can communicate more effectively with both anti- and pro-ESG shareholders.
If anti-ESG proponents target specific policies, companies should be prepared to justify the financial and strategic value of these initiatives. Being transparent about the long-term benefits of ESG, including risk management and innovation, can help counter anti-ESG narratives that focus solely on short-term financial performance.
Address governance-related proposals promptly
Governance-related proposals, often at the heart of anti-ESG campaigns, demand swift attention. Proposals that question the effectiveness of corporate governance or challenge executive compensation and board oversight can lead to significant reputational risks.
Issuers should address these proposals by demonstrating that their governance structures are robust and align with both shareholder expectations and best practices. Showing that the board is strong on governance helps reassure shareholders that ESG initiatives are not undermining financial performance or accountability.
Engage shareholders with transparency and data
Effective shareholder engagement is critical when managing anti-ESG proponents. Companies should adopt transparent shareholder communication strategies, including providing clear data on the costs and benefits of their ESG programs.
Effective communication doesn’t just involve responding to proposals but actively engaging shareholders year-round. Companies that maintain an ongoing dialogue with shareholders are better positioned to address concerns before they escalate into formal proposals.
Additionally, presenting a compelling narrative around how ESG practices align with financial performance can help sway undecided shareholders and counter the arguments of anti-ESG proponents. Engaging with proxy advisors, who influence voting recommendations, and keeping institutional investors informed through detailed reporting on ESG metrics can also strengthen support.
Issuers should adopt solutions like Proxymity Shareholder Insights suite to track movements in ownership, identify key shareholders, and understand their voting preferences. By analysing past voting trends and real-time behaviour during AGMs, companies can better anticipate potential challenges from anti-ESG proponents and tailor their communication strategies accordingly.
Additionally, by making the negotiation process public and mentioning the proponent’s role in the proxy statement, issuers can demonstrate a commitment to transparency and foster trust with their shareholder base.
Consider negotiated withdrawals
Sometimes, a constructive dialogue with anti-ESG proponents can lead to a mutually beneficial resolution. Issuers may consider negotiating with shareholders who file anti-ESG proposals to reach a withdrawal agreement. Such negotiations can avoid a public vote, which may lead to unwanted media attention or internal conflict.
For instance, an example with Royal Bank of Canada shows how effective engagement with a lead filer and sticking to the commitment or displaying value can help persuade proponents to withdraw their proposal. While this example relates to an ESG case, it highlights the value of leveraging this tactic.
By demonstrating a willingness to listen and collaborate, companies can maintain control over their ESG narrative while also addressing specific shareholder concerns.
Undertake multi-jurisdictional compliance reviews
Given the varying regulatory landscapes across regions, companies must undertake multi-jurisdictional compliance reviews. Anti-ESG legislation is often passed at the state level in the U.S., creating complexities for companies that operate across multiple regions.
A compliance review helps issuers navigate conflicting regulations, ensuring that their ESG efforts are aligned with legal requirements in different jurisdictions. This approach also minimises the risk of legal liabilities arising from misaligned ESG practices.
Proactive communication on discrimination and DEI initiatives
Many anti-ESG proposals specifically target DEI programs. In response, issuers should proactively explain their actions to address discrimination within their workforce and among stakeholders. Clear communication about the business value of DEI—such as fostering innovation, improving company culture, and attracting diverse talent—can help counter objections and reinforce the importance of these initiatives to shareholders.
Anti-ESG vs ESG, what does the future look like?
The debate between ESG and anti-ESG shareholder proposals is intensifying, with both sides influencing corporate governance. However, the future appears promising for ESG despite the rise in anti-ESG filings.
Legislation trends favour ESG
In 2024, bills supporting ESG initiatives were 42% more likely to pass than anti-ESG legislation in the U.S. While some states, such as Texas and Florida, enacted anti-ESG laws to prevent public entities from considering ESG factors, 23 other states rejected similar measures.
This mixed legislative response shows that ESG remains more widely accepted, especially at the federal level where ESG disclosure is being promoted.
Investor support stabilises for ESG
Investor backing for ESG proposals has stabilised, with 2024 seeing median support for social proposals at 20.7%, compared to 18.5% in 2023. This stabilisation reflects growing recognition of ESG’s role in driving long-term value, as institutional investors like BlackRock and Vanguard continue to advocate for sustainable practices.
Anti-ESG proposals: rising but weak in support
Although the number of anti-ESG proposals surged in recent years, support remains low. As stated before, anti-ESG proposals grew by 60%, but only 5% exceeded the 5% support threshold. This weak backing suggests that while anti-ESG proponents are vocal, their influence is limited, with the broader shareholder base prioritising sustainability.
Investor interest leans toward ESG
Governance proposals saw an 18% surge in support in 2024, indicating continued interest in strong corporate governance and transparency. Investors are increasingly recognising the financial benefits of ESG-focused strategies, ensuring that ESG will remain a crucial part of corporate governance discussions despite opposition from anti-ESG factions.
So, while anti-ESG proposals continue to gain attention, the future looks brighter for ESG as legislative support, investor interest, and shareholder backing for sustainable practices remain strong.
Learn more about anti-ESG proposals
This growing debate underscores the need for issuers to stay agile and responsive to shifting shareholder dynamics. Regardless of how the landscape evolves, one thing is clear: proactive and effective shareholder engagement is crucial to navigating these trends.
By openly communicating the financial and strategic value of ESG initiatives, companies can build trust, reduce potential conflicts, and align their goals with shareholder interests.
Solutions like Proxymity offer issuers the tools to enhance real-time, transparent shareholder engagement, helping them better understand voting behaviour and trends. This enables companies to maintain stronger connections with their investors, ensuring their strategies are clearly understood and supported.
For issuers seeking to strengthen their shareholder communication and manage the complexities of the evolving ESG landscape, contact us to explore how Proxymity can facilitate a smoother, more efficient engagement process.