The fate of capitalism is at stake. Those who want to remove government obstacles and revert to the good ol’ days of building a white empire by unethically exploiting labor, communities, customers, People of Color, immigrants, and the environment are having their moment.
They’re weaving their dangling threads of power through tax loopholes and harmful practices they know are less tolerated—given that the younger, more diverse populations’ values are transforming capitalism into something more responsible and that serves society’s best interests.
As conservatives attempt to consolidate power for themselves and their oligarchic supremacist friends, the resistance is taking shape. Governments and corporations are held in the public trust. Their policies and charters are authorized to serve society according to the rule of law, not just their whims. It’s now up to citizens, shareholders, and the courts to hold them both accountable.
In this political environment, where fiduciary responsibility and risk management are being politicized, the Republican Party (GOP) falsely characterizes advocacy efforts by socially responsible investors to disclose and curtail company risk as nonpecuniary, financially immaterial, and a disguise for a liberal political agenda.
The House Judiciary Committee is continuing to make unsupported claims via its post-election report that advocates of responsible environmental, social, and governance (ESG) business practices are a “climate cartel” illegally colluding to cause harm to the entire economy, purporting a dichotomy between profit and climate that simply doesn’t exist.
While legal experts suggest that such anti-trust charges are baseless— due to the lack of a conspiracy to harm competition and no direct financial benefit demonstrated from such advocacy—preparations are nevertheless underway at many companies, foundations, and organizations for lawsuits that government law enforcement agencies are expected to file.
ADDRESSING CLIMATE CHALLENGES AMID POLITICAL PUSHBACK
In other parts of the world, anti-trust rules are already changing to adapt economies to the reality of climate change. The EU Guidelines on Horizontal Agreements, UK Green Agreements Guidance, and similar authorities in Japan, Singapore, South Korea, Australia, and New Zealand are not inspired by politics or ethics, but acknowledge the current price of goods and services fails to account for the cost of unabated greenhouse gas emissions, nature destruction, and pollution associated with their production. They see the physical, economic, and financial damage consumers suffer because of events attributable to climate change—and are helping, rather than impeding, companies responsibly preparing for this rapidly changing reality.
In 2024, the United Nations’ Emissions Gap Report concluded the world is on course for a catastrophic temperature rise of 3.1 degrees Celsius. Climate change effects are already leading to economic and societal risk cascades involving disease, food and water shortages, mass population displacements, economic crises, political change, instability, and local and international conflicts. A 2024 report by the Network for Greening the Financial System (NGFS) of 140 central banks projects the anticipated 3 degrees Celsius of planetary warming without mitigation efforts will reduce global economic production by 30 percent, severely debilitating many societies.
Nevertheless, the ideologues are seizing the moment to demonstrate their ignorance. So far this year, 59 anti-ESG bills have been introduced in 23 states, and since 2021, 54 such bills and resolutions have already been passed into law. On the positive side, the 24 states representing 55 percent of the U.S. population that formed the U.S. Climate Alliance in 2017 reaffirmed in January their commitment to upholding state-level targets of the Paris Agreement despite the President withdrawing the country from it. In fact, the Alliance is on track this year to meet its member states’ near-term target to reduce greenhouse gas emissions 26 percent below 2005 levels.
Republicans appear to believe companies live in a vacuum and aren’t influenced by people and the planet. Last month, 22 GOP state finance officials wrote to the Securities and Exchange Commission (SEC) and the Department of Labor (DOL) requesting they place restrictions on ESG investment practices. That advocacy is already working. The SEC just released new Staff Legal Bulletin No. 14M, reverting to the standard under President Trump’s first term regarding the exclusion of shareholder proposals from proxy ballots. This makes it easier for companies to exclude shareholder proposals that are seen as micromanaging how companies operate (for example, proposals that detail strategies to achieve goals rather than merely setting goals). Democratic Commissioner Caroline Crenshaw published a statement in dissent, noting that “political policy shifting mid-season serves to undercut capital formation, not facilitate it,” and that the shift is being championed by “those who wish to diminish corporate democracy.”
But she’s in the minority. Republican Commissioner Hester Peirce stated in a late January speech that there exists a “never-satisfied set of stakeholders that brazenly grasp at company resources to do something other than maximize the value of the company.” Obviously, she and other Republican commissioners haven’t seen the research proving the positive correlation between ESG and financial performance, but that doesn’t stop their ideology-based attacks on investors seeking to maximize profit while being a force for good in the world.
In February, 17 Democratic state finance officials countered their colleagues’ falsehoods in a letter to the SEC and the DOL refuting the notions that climate change is unproven and nebulous, ESG proponents are solely pursuing nonpecuniary goals, and that investors don’t need to consider long-term financial risks. They noted the SEC shouldn’t place limits on what risks fiduciaries can consider because it could lead to poorer performance and higher market volatility while placing retirees’ pension values at risk.
WHITE HOUSE INFLUENCE AND STATE-LEVEL PUSHBACK ON CORPORATE ACCOUNTABILITY
The President signed an order that expands White House control of independent agencies by requiring the SEC, the Federal Trade Commission (FTC), and the Federal Communications Commission (FCC) to submit proposed regulations to the White House for review and requiring the Office of Management and Budget to review the agencies’ spending to ensure it aligns with the President’s priorities. Executive branch commissions and agencies historically operate independently, so while this move is expected to face legal challenges, it reflects further efforts to by the White House to control the day-to-day affairs of government regulators.
State governments are also getting into the act. Just after the election, 11 U.S. State Attorneys General sued asset managers BlackRock, State Street, and Vanguard, alleging they cooperated as shareholders in U.S. coal companies to force a reduction in coal production. Additionally, post-inaugural letters from Republican Attorneys General to JPMorgan Chase, Bank of America, Goldman Sachs, BlackRock, and Morgan Stanley accuse the companies of violating the law by engaging in investment practices that they interpret as failing to uphold their fiduciary responsibility by maintaining and advocating for board and supplier diversity policies. Again, the assumption is that diversity measures are extraneous to financial return, which research proves they are not. But the bullying continues.
What are conservatives failing to grasp? Clearly they don’t want to weaken the economic value of the extractive and exploitive industries in their states that responsible investor wish to avoid. But rather than help such companies evolve, they’re trying to prohibit investors’ rights to change corporate behavior and divest from companies with unacceptable levels of risk.
When it comes to changing corporate behavior, conservatives fail to recognize that shareholder proposals— even when successful—are advisory in nature. They don’t force companies to do anything. But they do help to mitigate material risks that can affect profitability. They also attempt to hold companies accountable for financial, legal, operational, and reputational issues that boards may be ignoring, downplaying, or underestimating and that express the collective will of investors. Some companies simply don’t want to be held accountable or told what they should and should not do.
The 2024 proxy season illustrated ongoing investor concerns about climactic disruptions of supply chains, carbon emissions, political contributions, data privacy, the spread of misinformation, and the ethics surrounding artificial intelligence. Requests that companies acknowledge the serious implications of these issues to their bottom line are critically important for investors to have a complete understanding of the investments they own.
Such advocacy, even when done via coalitions or other forms of cooperation, is therefore not an anticompetitive practice as suggested by GOP members of Congress, because it isn’t attempting to control prices or output or circumvent laws. Rather, there’s a legitimate reason to be concerned about companies that fail to acknowledge—let alone plan for—the impact of social and environmental issues on their long-term value. Investment managers and financial advisors have a legal obligation to maximize the financial return of their clients’ portfolios, but this doesn’t mean we’re obligated to ensure the profitability of any individual company.
Companies involved in risky sectors or practices put investors’ portfolios at risk, so we’re obligated to do what we can to attempt to reduce that risk and achieve higher performance. This is the foundation of shareholder advocacy—there is no ulterior motive beyond protecting investors’ portfolios. It’s as if Republicans want both investment professionals and corporate management to ignore these risks— which are increasing every year—so companies can do whatever they want. They fail to understand that investors want to protect companies, not harm them. The impacts of climate change, lack of diversity, and environmental degradation affect the bottom line. Conservatives who fail to see the risks at hand are suggesting that investors and the investment industry ignore their fiduciary responsibility.
COMMUNICATING LOUD & CLEAR
Ironically, the so-called party of small government and deregulation is practicing the exact opposite behavior, asserting that elected officials, regulators, and judges know more about investing than the professionals and institutions that have developed such expertise. Most investors and companies have consensus around the notion that the relationship of business to society and the environment is material to how it performs. Republicans are nevertheless seeking to interfere with investors’ freedom to invest according to the criteria they define.
Finally, as we reflect on the efforts underway to limit investors’ choices, let us not forget the free speech protections of the Constitution. Investment institutions seeking to protect asset values and reduce portfolio risk by avoiding excessively risky endeavors, as well as encouraging companies to take action on climate change as an important political and economic issue of the day, are both First Amendment freedom of speech rights. Commercial speech, even profit-motivated speech, is protected— particularly when the government seeks to regulate speech when it disagrees with the message. We must all communicate loud and clear that the citizens of this country will not be subjected to government tyranny.
