Column: Voters, like investors, have had it with GOP extremism
Political observers searching for clues to how Tuesday’s state and local elections would turn out could have found them in another category of voting: shareholder votes on corporate culture issues.
Had they done so, they would have detected a distinct backlash against efforts to force corporations to neglect environmental, social and governance issues, or ESG.
Think of it as a strong anti-anti-woke movement among a class somewhat more conservative in social and fiscal matters than the average American.
Anti-ESG shareholder proposals have won some of the lowest support levels on record.
— Josh Black, Diligent Market Intelligence
That movement was validated across the board in Tuesday’s votes in states as politically diverse as Ohio, Kentucky, Iowa and Virginia. In those states, the Republican Party’s culture war was repudiated.
Voters wrote abortion rights into the Ohio state Constitution. Kentucky’s Democratic governor, Andy Beshear, won reelection in part by tying his Republican opponent to a harsh antiabortion position. (That’s a state Trump won in 2020 by 26 percentage points.)
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Voters in Virginia, an increasingly blue state, humiliated its Republican governor, Glenn Youngkin, by maintaining the Democratic majority in one legislative chamber and flipping the other to a Democratic majority.
Youngkin had tried to finesse the abortion issue by endorsing a proposal to ban abortions after 15 weeks, calculating that it would appear to be a “moderate” compromise on women’s reproductive health rights. Voters didn’t buy it.
Iowa was ground zero in the battle to exploit the notion of “parents’ rights” to secure broader partisan gains. The loser there was Moms for Liberty, a far-right organization that advocates for book bans in public schools — often of books about America’s racial history or LGBTQ+ people — and has fought anti-COVID initiatives in the schools such as mask and vaccine mandates.
The organization was spawned out of Florida Gov. Ron DeSantis’ culture war. Its founders have been closely connected to the Florida GOP. One, Bridget Ziegler, is the wife of Florida GOP Chairman Christian Ziegler.
Earlier this year, DeSantis appointed her to the board overseeing the special district encompassing Walt Disney World, which DeSantis created in retaliation for Walt Disney Co.’s criticism of his so-called Don’t Say Gay law suppressing discussion of gender issues in public schools.
The right wing is trying to turn environmental investing into a boogeyman, as it did with critical race theory.
Moms for Liberty has also made common cause with extremist groups such as the Proud Boys, which played a leading role in the Jan. 6 insurrection. In June, an Indiana chapter of Moms for Liberty sent out a newsletter sporting a quote attributed to Adolf Hitler. The chapter apologized, but at a subsequent organizational conference co-founder Tiffany Justice declared, “I stand with that mom.”
Moms for Liberty put up or endorsed candidates for school boards across Iowa. Its nine candidates in five school districts all lost, typically scoring 10% of the vote or less. Democrats also fended off the organization’s candidates or wrested control in school board elections in Pennsylvania and Minnesota.
What all this indicates is that the electorate has wearied of the partisan culture war — and especially of the assault on abortion rights. That brings us back to shareholder voting on ESG issues.
First, some background. ESG became an obsession of GOP culture warriors starting in 2021. The term became a partisan shibboleth, like “critical race theory” (CRT) — nebulous enough to be invoked automatically, indicating something offensive or evil without requiring its critics to explain exactly what they were critiquing.
Red states such as Texas, Florida, West Virginia and Tennessee withdrew public funds from BlackRock and other money managers they accused of pursuing ESG goals to the detriment of purely financial returns. BlackRock, one of the world’s largest investment firms, became a particular target because its chief executive, Larry Fink, had sounded an early alarm about the investment impact of global warming in his annual letter to corporate CEOs in 2020.
To a large extent, the anti-ESG crowd was merely carrying water for the oil and gas industry, which was typically targeted by shareholder proposals on environmental issues at corporate annual meetings. As I wrote last December, the anti-ESG campaign was really rooted in global warming denial.
Tennessee, for example, enacted a law forbidding the state treasurer to do business with a financial institution that refuses to finance companies in the fossil fuel industry (even though the oil and gas industry is a minor player in the state).
Rick DeSantis and other conservatives are crowing about having killed off “woke” policies. But their celebration is way premature.
West Virginia State Treasurer Riley Moore informed six leading Wall Street firms by letter that they had been provisionally found to be boycotting fossil fuel companies, possibly making them ineligible for state contracts. The firms are BlackRock, Goldman Sachs, JPMorgan Chase, Wells Fargo, U.S. Bancorp and Morgan Stanley.
That move was ostensibly aimed at protecting the state’s coal industry, which has been on an inexorable slide toward economic irrelevance.
Texas enacted a law in 2021 prohibiting municipalities from dealing with banks that appeared to have pro-ESG policies. That was a costly stand: It led to the exit of five major municipal underwriters from the state, according to a study by Daniel Garrett of the University of Pennsylvania and Ivan Ivanov of the Federal Reserve. They estimated that the interest costs for Texas municipalities that had floated $32 billion in bonds during the first eight months after the law’s enactment were higher by as much as $532 million.
An Indiana measure mandating that the state’s pension funds divest from companies and investment firms that use ESG standards would cost the pension funds $6.7 billion in returns over 10 years, reducing the projected annual returns to 5.05% from 6.25%, state legislative analysts said. That would raise the annual contributions required of state agencies and localities.
Despite the estimate, Indiana legislators approved the measure and Gov. Eric Holcomb, a Republican, signed it.
The argument of the anti-ESG crowd — especially those, like Moore, who operated in the guise of monitors of their states’ public pension funds — was that a focus on environmental, social and governance factors distracted corporations and money managers from concentrating on their primary task, which is maximizing shareholder returns.
Of course, the opposite is true. ESG issues are anything but irrelevant. The consequences of global warming are manifold but they are manifestly relevant to corporate profits, and not only in the long term. “Climate risk is investment risk,” Fink wrote in 2020.
The structure of corporate governance, which includes the makeup and authority of boards of directors vis-à-vis managements, has a fundamental impact on how a company is operated. And social issues, such as abortion and LGBTQ+ rights, are deeply enmeshed with how a company recruits and retains talented workers and the image it presents to consumers.
That message clearly resonated with shareholders of many companies. In the 2021-22 proxy season, 42 shareholder proposals related to global warming were on the annual meeting agendas of corporations in the Standard & Poor’s 500 index, according to a tally by Diligent Market Intelligence. The resolutions garnered average support of 35.7% of shareholders — a strong showing, since resolutions opposed by managements almost always struggle to reach that level.
Proposals on social issues soared from 88 in 2020-21 to 168 the following year and 209 the year after that. Average support was 30.9% in 2020-21, dropping to 27.2% in 2021-22 and 18.1% in 2022-23.
Blindly protecting investments in coal and oil without taking account of the changing world is a formula for impoverishment — environmentally, socially, and especially financially.
At the 2021 annual meeting of Chevron, one of the world’s leading oil companies, a stunning 60.7% of shareholders voted for the company to “substantially” reduce its greenhouse gas emissions. That same year, an activist hedge fund unseated two board members of Exxon Mobil over concerns about the company’s role in global warming.
In the most recent proxy season, 62 resolutions on global warming reached the agendas. Average support dropped to 20.9%.
Several reasons have been offered for the trend. One is that the low-hanging fruit had been picked in previous proxy seasons, leaving bigger challenges.
It may also be the case that shareholder proposals on these issues have become more overtly political and specific, moving toward proposals that are harder to relate to fundamental corporate purposes.
What’s more interesting about the shareholder proposal landscape, however, is the fate of anti-ESG proposals, typically advocated by conservative and religious organizations. Those have almost invariably been losers.
“Anti-ESG shareholder proposals have won some of the lowest support levels on record,” Diligent’s Josh Black wrote in the preface to this year’s Diligent survey.
The National Center for Public Policy Research, a right-wing nonprofit that is among the leading voices in the anti-ESG movement, filed 31 shareholder proposals in 2022-23, Diligent reported.
Most received less than 2% support; proposals on environmental issues averaged 1.9% and those opposing diversity, equity and inclusion programs — a popular target of the anti-ESG campaigners — garnered only 1.6%. A proposal critical of human rights abuses in China attained the most support, 6.7% of shareholders.
The lesson should be plain to America’s conservative culture warriors: Voters want their leaders to focus on issues with concrete significance in their lives, such as economic policy, not on efforts to constrain women’s healthcare rights or clear school library shelves of reading material that offends small groups of vocal agitators.
By the same token, corporate shareholders have little patience with ideologues whose aim is to constrain the freedom of business managers to make investment decisions based on reality. They’re not fooled into thinking that global warming is a “myth.”
If our political leaders have any doubts about what really matters to their constituents, Tuesday’s results should deliver an inescapable message.
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