BlackRock and Vanguard have paused their meetings with companies after the U.S. Securities and Exchange Commission (SEC) published guidance last week prohibiting investors from participating in environmental, social, and governance (ESG) activism.
The world’s top two assets fund managers are concerned they may be in violation of the new SEC guidance, which their teams are in the process of reviewing. If found in violation, these companies could face legal investigations led by the Trump administration.
Asset managers typically talk about voting decisions related to activism campaigns and discuss proxy ballot issues at annual shareholder meetings. While the discussions themselves are allowed, efforts to pressure management on matters such as climate questions are prohibited.
The SEC’s new guidance, released last Tuesday, specifically says recommendations on removing a company’s staggered board, eliminating its poison pill plan, changing executive compensation, or undertaking “specific actions on a social, environmental, or political policy” would all be seen as violations.
“Generally, a shareholder who discusses with management its views on a particular topic and how its views may inform its voting decisions, without more, would not be disqualified from reporting on a Schedule 13G,” the new SEC rules state.
The Schedule 13G form is reserved for passive investors, while the more complex Schedule 13D filing is used for activist investors looking to exert control.
“A shareholder who goes beyond such a discussion, however, and exerts pressure on management to implement specific measures or changes to a policy may be ‘influencing’ control over the issuer,” the SEC release adds.
The SEC regulations are part of the Trump administration’s efforts to reverse Biden-era policies that incorporated ESG activism into investing decisions. They were announced as cryptocurrency advocate Paul Atkins, President Donald Trump’s nominee for SEC chair, awaits a Senate confirmation hearing.
BlackRock and Vanguard canceled their scheduled engagement meetings until further notice. Semafor first reported on BlackRock’s move, and Reuters first reported on Vanguard’s action.
It remains unclear if State Street, another large asset management firm based in the U.S., paused its corporate meetings.
BlackRock and Vanguard, in particular, have been vilified by Republican lawmakers for their ESG investment practices under the Biden administration. They have also been sued by GOP states looking to rein in the companies’ climate activism.
BlackRock settled a legal dispute with Tennessee last month, agreeing to increase transparency surrounding its ESG investment funds and cast shareholder votes solely in the financial interests of its investors. The settlement came days before Trump took office.
“BlackRock’s peddling of political agendas through ESG takes another massive blow. For years, BlackRock’s CEO Larry Fink has been using the guise of ‘corporate engagement’ to effect mafia style shakedown meetings to strong arm Corporate America into adopting his far-left politics,” Will Hild, executive director of Consumers’ Research, said in a statement obtained by National Review.
“This guidance by the SEC is a huge step in returning law and order to woke asset managers, who have been flouting basic registration requirements for nearly a decade. President Trump is making good on his promises and destroying the rot that is ESG and woke capitalism, and BlackRock is rightfully running scared as their ESG scam continues to unravel.”