The influence of ESG may soon be decided by everyday investors

This summer, BlackRock, the world’s largest asset manager, made an announcement about a potential policy change for its largest exchange-traded fund, IVV. The change would allow ordinary retail investors to have more control over how their fund shares are voted in corporate annual meetings. This is significant because these votes have become increasingly politicized with the encouragement of Biden administration regulators. The new voting policy from BlackRock aims to address criticism that the company has been using its shareholder voting power to push companies towards environmental and social policies favored by the progressive left. BlackRock’s competitors, Vanguard and State Street, already allow for customized voting for institutional investors, but this is the first time such policies have been extended to everyday investors, and others are likely to follow suit. Large investment firms like BlackRock have become a home for the battle over “woke” issues such as the environment and race relations. The “Big Three” asset managers, including BlackRock, have been at the forefront of the ESG movement, pushing corporations to pursue environmental goals and left-oriented policy objectives. However, their endorsement of left-wing ideas on corporate proxy ballots has sparked conservative backlash. Last year, Florida pulled $2 billion in assets from BlackRock funds due to the investment manager’s environmental and social activism. 21 state attorneys general sent letters to BlackRock, State Street, and other asset managers expressing concerns that their pursuit of ESG goals may violate fiduciary duties and other laws. The House Financial Services Committee also held hearings to investigate environmental and social investing. Despite competition between the asset managers, collectively they control almost a quarter of the shares in the S&P 500, indicating significant influence over corporate America. Collusion among these firms can be seen through initiatives like “Climate Action 100+”. The increased attention on asset managers’ progressive activism poses legal, political, and brand risks. Vanguard, in particular, has been closing the gap on BlackRock in terms of market share. BlackRock’s move to give individual investors more “voting choice” is commendable, as it allows investors to align their stock holdings with their preferences. However, it should be noted that BlackRock is not proposing to allow ordinary investors to vote on all shares in companies held by its IVV fund. This would be difficult administratively and contradict the purpose of index funds. Instead, investors in the BlackRock fund can shift control of their shareholder voting to a proxy advisory firm. These firms, such as ISS and Glass Lewis, have significant control over corporate shareholder votes and often recommend voting with progressive activists. Proxy advisors are unregulated and foreign-owned, following UN-led initiatives that prioritize progressive policy priorities over financial returns. BlackRock’s initial steps towards empowering investors are praiseworthy, but more work is needed to ensure that every invested dollar maximizes its potential return. Ultimately, individual investor assets should be managed for their financial benefit, not to serve the progressive agenda of BlackRock’s CEO.



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