Summary: Corporate America’s recent leftward lurch on many divisive sociopolitical issues has not occurred in a vacuum. While it doubtlessly has many causes, chief among these is the pressure that businesses face from left-of-center ESG activists, often in the form of shareholder resolutions. Understanding how these resolutions have accelerated both quantitatively and qualitatively goes a long way toward explaining the phenomenon sometimes called “woke capitalism.” The good news for those who prefer that companies not continue down this particular path is that as ESG demands have increased, so has the pushback against them.
The pronounced leftward ideological shift that appears to have taken place within corporate America over the past several years doubtlessly has many causes. On the shortlist, however, must be the constant pressure on businesses from left-of-center ESG activists. Those looking to understand how and why certain companies seemingly became “woke” so rapidly should look to how rapidly the activists’ demands have accelerated, both quantitatively and qualitatively. One of the best ways to illustrate this is by examining shareholder resolutions.
Understanding ESG Activism
ESG is short for environmental, social, and corporate governance. In the broadest sense, it refers to the consideration of these non-financial factors in corporate operations or evaluations. While few would argue that companies should completely ignore such things, to many observers ESG has become largely synonymous with “woke capitalism”—a term applied to corporate America’s pronounced leftward lurch on divisive sociopolitical issues that are often facially unrelated (or indeed, downright harmful) to their core business operations.
It is helpful to conceptualize ESG as consisting of two basic branches: investing and activism. ESG investing refers to making investment decisions based on ESG factors. It is inherently subjective, but not especially problematic so long as it is being undertaken by informed and consenting investors. People should be free to invest their own money based on any criteria they like, even at the expense of maximizing financial returns. ESG investing does, however, become a problem when large institutional asset managers (such as public pension funds) engage in it on behalf of beneficiaries who may not approve—or even be aware—of how their money is being invested on the basis of non-pecuniary factors.
ESG activism goes further than this. It refers to efforts intended to harness corporate power to advance often-controversial sociopolitical goals. It is almost always problematic. Today, many ESG activist campaigns scarcely retain even the pretense of furthering shareholder value and have instead largely devolved into a vehicle for (largely left-leaning) political issue advocacy.
The core objective of ESG activists is to achieve through corporate actions what they are unable to achieve through the traditional democratic political process. ESG activism is therefore in many cases best thought of as a tactic, rather than a distinct issue itself. It is often distinguished more by its target than its substance. Climate activists would like to legislate or regulate against oil and gas, so they target corporate emissions. Abortion activists are furious that Roe v. Wade was overturned and that many states have subsequently enacted pro-life laws, so they target corporate policies that they consider to be insufficiently pro-abortion. Race- and ethnicity-focused activists seek to pressure companies into basing more of their decisions on those factors, and so forth.
Like most other forms of activism, ESG activism is incremental (“progressive”) by its very nature. As soon as one goal is achieved, a new more ambitious campaign begins. For many, the long-term goal is to fundamentally reorient the corporate sector away from its traditional function as an instrument of society-wide wealth creation and toward a new role as an instrument for left-progressive social change. This creeping pressure from ESG activists goes a long way toward explaining how and why corporate America has shifted so notably leftward—particularly on social and cultural issues—in recent years.
Sometimes ESG investing and activism overlap, such as when activists also happen to be investors in the targeted company. This classically manifests itself through shareholder resolutions—what author Stephen Soukup has called “the primary tool of the corporate activist.” These are nonbinding proposals submitted by shareholders to corporate leadership, which may ultimately be voted on by other shareholders at the company’s annual meeting. Management will frequently seek to negotiate with the resolution’s proponent before that happens, and the goal of ESG shareholder activists is as much to put pressure on the C-suite and secure favorable concessions as it is to actually win a majority vote at the annual meeting.
Accordingly, shareholder resolutions are an excellent benchmark for understanding the current priorities of ESG activists and how those priorities have shifted over time. Firms like Georgeson provide interesting data and analysis of trends that are evident from each annual proxy season.
ESG activists themselves are also a good source for analyzing resolutions. Most notably this includes the yearly Proxy Preview report, which catalogs hundreds of proposals filed primarily by left-of-center interests. Described by the Chicago Tribune as the “Bible for socially progressive foundations, religious groups, pension funds, and tax-exempt organizations,” the Proxy Preview devotes its pages to listing, categorizing, describing, and analyzing these resolutions from a sympathetic pro-ESG perspective. It is itself one of the best “proxies” for understanding what is currently driving ESG activism on the left.
The Proxy Preview is published by a 501(c)(3) nonprofit called As You Sow, which is itself one of the most prominent shareholder activist groups in the country. As of mid-June 2023, As You Sow’s website detailed 683 shareholder proposals “on which As You Sow represents investors,” broken down by year, company, initiative, and program. It also provides the operative language from each resolution (the “resolved clause”), which helps illustrate how ESG activists have ramped up their demands of American companies in recent years.
A different online database focused specifically on environmental shareholder resolutions is maintained by another 501(c)(3) nonprofit called Ceres, which coordinates a massive network of more than 220 institutional investors that collectively manage over $60 trillion in assets. The goal of this network is to “advance sustainable investment practices, engage with corporate leaders, and advocate for key policy and regulatory solutions to accelerate the transition to a just, sustainable, net zero emissions economy.” It is a classic example of how ESG activists coordinate to shoehorn substantive public policy debates into the private corporate sector.
The 2022 Proxy Preview noted that the Ceres investor network coordinated most of the climate change shareholder resolutions that were profiled in that year’s report, while in 2021 the network was said to have coordinated “nearly all” of them. Notable members of the Ceres investor network include major asset managers BlackRock and State Street (but not Vanguard); the left-progressive philanthropic foundations such as Park Foundation, the Rockefeller Foundation, the Nathan Cummings Foundation, and the Skoll Foundation; activist nonprofits such as As You Sow and the Sierra Club Foundation; labor unions such as the AFL-CIO and the SEIU; various pension funds; higher education endowments; and the treasurers offices of at least nine states.
An analysis of shareholder resolutions from such sources demonstrates how ESG activism has significantly expanded in recent years, both quantitatively and qualitatively.
In the next installment, the number of ESG shareholder resolutions spiked in recent years.