ESG proposals and support decline again

Environmental, social and governance (ESG) issues have been a hot topic for both Republicans and Democrats for years now. But more recent reports indicate waning support for ESG proposals, and the latest numbers may indicate it’s on its way out for good.

In January, reports found that ESG funds revealed mediocre performances and a decrease in investments into the funds. At the end of 2023, there was approximately $323 billion in sustainable funds — a 12% decline from the record at the end of 2021. In March, a PitchBook report that found asset managers are pulling back from public ESG commitments and regulation of ESG-related activities remained hard to implement and comply with.

Over the Summer, Bloomberg reported ESG fund launches were stalling. Just last month, McKinsey & Company found that Generation Z consumers (those born approx. 1997-2012) in particular have lost interest in ESG. Earlier this month, Gallup released a study that found fewer than 4 in 10 adults believe businesses should take a public stance on policy issues. And today, BlackRock Investment Stewardship (BIS) released their 2024 Global Voting Spotlight that revealed they hit a new lost of only supporting just 4%.

The Global Voting Spotlight report also revealed other insights about the impending expiration of ESG support. It notes important numbers like the 169,200 management and shareholder proposals the firm voted on globally, with the majority being routine matters such as director elections. And in 88% of the total proposals, BIS supported management — consistent with previous years.

Not consistent with previous years is their support for environmental and social issues. In 2020-21, BlackRock supported 47% of ESG resolutions; in 2023, they had supported 6.7%, now down to the new low of supporting just 4.1% of environmental and social related proposals.

BlackRock pushed back on the notion that the retraction of support is not based on the political backlash they’ve faced over the years. “In our assessment, the majority of these (proposals) were over-reaching, lacked economic merit, or sought outcomes that were unlikely to promote long-term shareholder value,” the report noted. “Our ongoing, two-way dialogue with companies provided us the opportunity to listen to their perspectives and inform our voting decisions.”

In the first bullet of their highlights page, they also remind that they have that fiduciary duty legally tying them to vote consistent with their clients’ investment objectives.

Regarding shareholder proposals on climate and “natural capital,” the report states, “As an asset manager, our role is to help our clients navigate investment risks and opportunities; it is not our role to engineer a specific decarbonization outcome in the real economy.” Due to that, BIS supported just four out of 161 shareholders proposals (about 2.5%) on climate and natural capital.

The common climate related proposal themes were regarding value chain and scope 3 emissions reduction, climate-related corporate political activities, and natural capital-specific issues such as disclosures on water risks, plastic use, and sustainable material sourcing. Scope 3 emissions reporting — similar to ESG — has slowly died since 2022, when the Securities and Exchange Commission (SEC) proposed companies disclose scope 3 emissions if they were material or had a goal that included them.

It’s worth noting that the other big players in the annual general meeting season, proxy advisors, continue to recommend voting in favor of ESG proposals. All asset managers historically vote more conservatively than they are advised to by the leading proxy advisors, Glass Lewis and Institutional Shareholder Services (ISS).