War on ESG investing must shift focus to proxy advisers

It wasn’t long ago that Wall Street and special interests thought they could force environmental, social, and governance, or ESG, policies into our workplace, retirements, and lives. Much to their disappointment, the American people didn’t fall in line with this ideology. Conservatives and other everyday people have fought back against ESG, and our collective efforts have caused Wall Street to rethink and retreat from the ESG scheme. But we shouldn’t take our foot off the gas just yet.

Factoring ESG into investment decisions is wrong for many reasons. From a financial standpoint, ESG funds bring worse returns for some investors. That makes it more difficult for those invested to reach their retirement goals. Everyone in the finance industry has a fiduciary duty to clients to act in their best interest and get the best returns. Yet in recent years, financial leaders have interpreted that to mean utilizing other people’s money in a way they believe is best and factoring in environmental and social factors when investing and voting shares during proxy season.

Those managing funds should stick to maximizing investor returns, not injecting politics into investment decisions by a Nassau County schoolteacher or Suffolk police officer.

The past several years of conservative criticism of ESG investing have caused asset managers to pause and often move away from it entirely. But we can’t take a victory lap yet because asset managers are only half the battle. We should remain vigilant about other shadow actors pushing this ideology, particularly proxy advisers.

Proxy advisers evaluate lengthy shareholder proposals and recommend which way to vote on how companies approach operations and policies. Individuals and money managers trust these professionals to recommend the best long-term return, and most vote in lockstep with their recommendations. And the largest proxy advisory firms continue to push ESG onto clients through shareholder votes.

Generally, shareholders appear to be growing increasingly resistant; last year, ESG proposals only had a 5.1% passage rate.

Many asset managers deserve credit for walking back their support for ESG initiatives. A 2023 ShareAction report found that the "Big Four" asset managers listed in the report — BlackRock, State Street, Vanguard, and Fidelity — voted less favorably on ESG proposals than in the past. In fact, support for ESG resolutions hit a "new low," according to the report’s findings.

The same cannot be said for proxy advisers, who continue to overwhelmingly support ESG proposals; the largest such firms can sway proxy votes by as much as 30%.

In a small win pushing back against this ESG hegemony, BlackRock expanded its voting choice by introducing its own proxy service to its clients. One policy of this conservatively aligned investing choice prioritizes the wealth of investors, and specifically notes it steers clear of social or environmental goals.

This expansion of choice means increased competition in the industry and guarantees shareholders’ preferences will be met in their investment decisions. As a fiscal conservative, I know investors and consumers always benefit from more choices in the market, and they deserve to have their dollars match their values.

Hopefully, BlackRock’s initiative pushes other financial institutions and fund managers to offer more proxy options for their clients — including ones that push back against ESG.

We’re winning this battle. But to win the greater war, we need to shift the focus to proxy advisers, the real culprits in pushing the ESG agenda.

This guest essay reflects the views of Lee Zeldin, who represented part of Suffolk County in the House of Representatives from 2015-2023 and ran for governor of New York in 2022.