Critiques of both ESG and anti-ESG shareholder proposals [1] provide a valuable opportunity to clarify what matters in modern corporate governance: active shareholder participation, empirical evidence, and a holistic understanding of risk. While Michael Levin and others rightly highlight the enduring strength of governance proposals, dismissing environmental and social (E&S) initiatives as symbolic overlooks growing evidence that shareholders are ever more crucial in determining materiality against a backdrop of government inaction and market failure.
Governance Is the Infrastructure – E&S Is the Compass
Governance-related proposals endure because they target the architecture of corporate power: board elections, proxy access, audit committees, and transparency. These are not trendy issues. They are foundational to any accountability system and are widely recognized by most investors as “material” considerations when investing.
But materiality is not fixed. As information proliferates, so do views of what is material. Much of what is relevant emerges when addressing systematic risks as they become evident in our environment and society. E&S proposals often provide a strategic compass by identifying these long-term systemic risks – such as climate instability, social unrest, and labor exploitation – that can impair corporate value and the welfare of society.
Well-designed E&S proposals can also be seen as emerging governance proposals. Proposals seeking climate-competent board members, DEI-linked executive incentives, or oversight of human rights risks are not ideological detours – they are often tools to ensure that boards fulfill their fiduciary duties in a complex world.
As the late Robert Monks noted in many variations, “Ownership, like citizenship, comes with obligations… In the eyes of the law, shareholders are the primary regulators of companies.”
Most shareholders do not want dual-class shares, supermajority requirements to amend bylaws, or classified boards. Instead, we want the right to special meetings, to elect directors by majority vote, and to act by written consent. These governance rights empower shareholders to ensure accountability and responsiveness. Yet even these fundamental rights are frequently resisted by entrenched interests.
Votes Don’t Equal Value: Power Structures and Politics Distort Outcomes
Low average support for E&S proposals is frequently cited as evidence of their lack of merit. But that assumes an efficient and neutral voting marketplace. In practice, concentrated voting power among major asset managers, which face political and regulatory pressures, can limit the provision of meaningful support.
This year was especially difficult for E&S proposals for at least four reasons:
- As issues mature and are increasingly viewed as material, proposals often must be more specific. For example, rather than merely requesting recognition that climate change is material, if a company has already made such acknowledgements, future proposals are likely to seek specifics on how companies address such risks. The more specific the request, the more likely it is to be excluded on the grounds of “micromanagement.”
- Anti-ESG proposals, which often garner only 1–2 percent support and are filed by ideological actors with no financial stake, are nonetheless categorized by many reporters as ESG proposals, thereby skewing the perception of actual support.
- The SEC abruptly rescinded Staff Legal Bulletin 14L during the proxy season and invited companies to submit no-action requests after the deadline, without allowing shareholders to revise proposal language. This reversal reinstated SLBs 14I, 14J, and 14K, which make it easier for companies to exclude proposals under the guise of micromanagement or ordinary business.
- We are facing a presidential administration that is openly hostile to E&S concerns, weaponizing government tools against universities, corporations, and even other countries under a framework that resembles a protection racket. Diversity, equity, and inclusion have become coded triggers that invite retaliation. Many would-be filers are self-censoring rather than risk escalating backlash.
Yet, shareholder proposals will endure. As a 2022 Harvard Business Review [2] study and a 2021 NYU Stern report [3] [4] both found, companies adopting ESG proposals tend to experience better ESG performance, lower capital costs, and reduced downside risk. That is value creation. Meanwhile, anti-ESG proposals – often filed by ideological groups with no financial stake – are disproportionately symbolic, lacking fiduciary grounding or empirical justification.
Externalities Are Risks—ESG Helps Internalize Them
Environmental damage, income inequality, and labor abuses are not external to shareholder value – they are ticking time bombs within it. Corporate history is littered with disasters (e.g., Deepwater Horizon, Wells Fargo’s fake accounts) that stemmed from the neglect of E&S risks. Addressing these is not “civic lobbying” disguised as investing – it’s preemptive risk management.
When governments are captured or paralyzed, and when corporations themselves use their power to block regulation, shareholders are often the last line of defense. They push for disclosure, reform, and accountability – not out of idealism alone, but because they recognize that unmanaged externalities ultimately impair firm value and market stability.
Even though U.S. Supreme Court Justice Kennedy believed that political contributions were fully disclosed when he wrote the Citizens United decision, they are not. [5] Shareholders are divided on whether such disclosures are material to their investment decisions. Ironically, companies that voluntarily disclose such contributions may face more controversy than those that don’t, despite the underlying governance value of transparency.
Individuals and fiduciaries concerned only with the value of their shares at individual companies may logically vote against such disclosures. Broadly diversified shareholders whose returns depend on the continued viability of social and environmental systems are more likely to support them.
Democracy in Corporate Governance Is Essential—And Under Threat
The SEC’s proposed rule allowing closed-end funds to skip annual meetings is a prime example of the creeping disenfranchisement of shareholders. [6] The rights of shareholders, even their recognition as key players, are eroding at an alarming rate. In McRitchie v. Zuckerberg [7], the Delaware Court of Chancery stated:
[T]he directors’ duties run to the corporation for the ultimate benefit of the shares… The ultimate human beneficiaries of that value are incidental.
That decision starkly illustrates a central problem that both Vice-Chancellor Laster and Levin ignore. Shares have no agency, no ethics, and no voice. Only shareholders – real people – can steer companies toward resilience and responsibility. Disabling shareholder rights mechanisms, such as annual meetings or the submission of ESG proposals, cedes control to entrenched insiders and undermines the legitimacy of corporate capitalism itself.
“Materiality,” which in the U.S. legal framework relates to what facts a “reasonable investor” would consider in making a particular investment, is a social construct and requires affirmation by investors over time through mechanisms like ESG proposals to set what is or is not considered material at a specific time for a particular market, industry, or company.
Shareholders Are Citizens of Capitalism – Not Just Rentiers
From pensions and mission-driven funds to individual retail investors, many filers of ESG proposals are people invested in more than just short-term returns. They want justice, sustainability, and a system that works for the long term. Yes, they are market participants, but they are also civic actors. Any movement for real change must tap into human values and the human spirit. Shareholder participation cultivates a sense of agency and dignity, which strengthens not only portfolios but democracy itself.
E&S and Governance Are Partners, Not Opponents
Rather than dismiss E&S and governance proposals as competing or symbolic, recognize them as complementary pillars of modern corporate oversight:
- Governance is the scaffolding of accountability.
- Environmental and social proposals are instruments of responsibility for long-term risk management, reflecting the observation that “materiality”
is not a “state of being,” but is a “state becoming.” [8, p. 63] - Shareholder democracy is the force that holds both accountable.
In a world where apathy enables tyranny, and disengagement threatens both markets and societies, shareholder engagement is not a nuisance – it’s a necessity. We must protect and expand the mechanisms of participation, not erode them. When shareholders lose their voice, corporations lose their compass. Society and nature itself bear the cost. We cannot live without a salubrious environment.
[Note: This is a slightly edited version of an article by James McRitchie on the CLS Blue Sky Blog, August 29, 2025.]
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