Despite attempts by the current administration to accelerate recent fossil fuel production, the International Energy Association found in its annual Electricity 2025 report that coal’s share of total generation is set to drop below 33 percent for the first time in the last 100 years.
The IEA also found that solar PV and wind energy already account for 17 percent of the global supply and continue to increase. Hydropower generation remains at 14 percent, despite the impact of recent droughts. Nuclear power generation is set to hit a new record in 2025, and will continue to rise in 2026, largely due to widespread adoption in Japan, China, India, Korea, the United States, and France.
Renewable and nuclear sources of energy are expected to meet the additional global demand for electricity over the next three years. Global carbon dioxide emissions from electricity generation are expected to plateau after increasing by 1 percent in 2024, a slight slowdown compared to 2023, though emissions from electricity generation remain the highest of any sector.
While these trends are encouraging, the slow renewables adoption rate warrants a more accelerated grid transformation. It is for this reason that Natural Investments recently endorsed the Sierra Club’s Principles for Climate Solution Investments. These principles highlight the essentiality of restricting financing for fossil fuel expansion, linking capital access for major emitters to significant decarbonization commitments, scaling investments in clean energy sources (plus, improving grid infrastructure, energy storage, and energy efficiency), and holding companies accountable for their emissions.
As we’re already seeing rising costs in insurance, agricultural products, utilities, and basic goods, and experiencing extreme economic losses due to climate change, it’s a critical time in human history that requires immediate, comprehensive, global action to maintain economic stability and governments’ provision of basic needs and services.
In particular, the Sierra Club’s principles call for green affordable housing, urban community greening and biodiversification, coastal restoration, improving air and water quality, and providing local, fair, inclusive, and equitable green jobs that help communities adapt to a changing climate reality.
The principles also call for credible transition finance for high-emitting companies, which must be conditional based on the impact of their decarbonization strategies. There is no place for small or greenwashing endeavors, and transition finance must be approached with strong guardrails, as well as human rights due diligence.
POLICY BATTLES OVER ESG
Both the states and the federal government are continuing to seek legislative and regulatory limits on investor freedom to integrate environmental, social, and governance factors into their investment decision-making.
But the courts are thus far rejecting such Republican efforts. In Texas, a judge blocked a Texas law that had restricted a couple of major proxy voting advisor firms from advising shareholders on diversity, environmental, and governance practices. These firms—whose 3,300 clients subscribe to their services—make recommendations on most shareholder ballot items for hundreds of companies, which Texas lawmakers and the governor had endeavored to characterize as non-financial advice. Other proxy advisors, like As You Sow, the service to which Natural Investments subscribes, are not affected by the lawsuit. As such, As You Sow is currently not making voting recommendations for companies incorporated or headquartered in Texas, including Dell, BNSF Railway, Chili’s, FedEx Office, FritoLay, Greyhound Lines, Inc., JCPenney, Oracle, Tesla, Toyota North America, Whole Foods Market, American Airlines, Southwest Airlines, Kimberly-Clark, Sysco, AT&T, Tailored Brands, Darling Ingredients, and Sally Beauty Holdings.
In Washington, the GOP members of the House of Representatives continue to float resolutions and legislation that, if passed, would restrict investors’ freedom to assess material investment risk. At its September hearing, Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value, the House Financial Services Committee heard numerous proposals designed to limit the impact of proxy advisory firms by:
- Allowing companies to decide for themselves when a shareholder proposal is material to their operations;
- Allowing companies to prohibit shareholder proposals on annual meeting ballots;
- Excluding shareholder proposals that may relate to ESG issues or that may be similar to ones on ballots in the past five years;
- Placing reporting requirements on investment professionals to defend their ballot votes and decisions to adopt or reject proxy advisor recommendations;
- Requiring investment managers and advisers to vote with corporate management or not at all;
- Prohibiting investors from automatically voting with the recommendations of a proxy advisory firm or pre-populating votes on a proxy advisory firm’s electronic voting platform with their recommendations.
It’s clear that investors’ use of proxy advisors to help them evaluate company risk before voting is something Republicans want to prevent. They seek to bar proposals if they don’t conform to their own narrow definition of financial materiality, requiring a demonstration of current, company-specific material effect on financial performance. The truth is that risk identification pertains to potential rather than actual harm, so such calculations aren’t always readily available. Instead, they are justified from research studies showing the correlation between such issues and financial performance. This is why experienced investors and expert investment professionals have already accepted that long-term or systemic risks from companies’ ESG policies and practices directly affect financial performance—even if not immediately—despite politicians’ continued attempts to explore ways to stop this “best practice.”
We surely cannot allow companies to determine the issues shareholders should be concerned about; shareholders have historically identified important issues and risks (e.g., opioids, predatory lending, and climate change) that company management previously ignored, and that ultimately had a negative impact on share value. Proposals not only alert directors and shareholders to the dangers of pursuing short-term gains at broad social cost, but also support long-term value creation, as empirical studies confirm that shareholder engagement improves company performance. Investors must retain the right to inform management of such risks, reducing corporate accountability on issues that affect both the company and the broader economy through which profitability is possible.