Proxy advice firms are in the firing line, but the White House’s wider objective remains the reduction of investor oversight and engagement.
An executive order (EO) signed by Donald Trump in December broke new ground in targeting proxy advisory firms, as part of a wider campaign against investors filing and voting on ESG-related resolutions at AGMs. By issuing the EO, the US President has elevated concern about the role of proxy advisors to the White House level to direct the government’s action.
Proxy advisers are the headline topic against a backdrop of Securities and Exchange Commission (SEC) rules already firing at ESG in shareholder resolutions. Denouncing proxy adviser voting recommendations, the president has urged the SEC to increase oversight of these firms, specifically Glass Lewis and ISS.
One way to limit their role is to reduce shareholder votes on ESG ‒ also addressed in the EO. In the face of a multi-pronged backlash at the federal and state level, the number of ESG shareholder resolutions has already declined significantly. An SEC ruling in 2025 to narrow the scope of permissible resolutions has been particularly powerful, reverting AGMs to a pre-2021 regime under which companies could exclude resolutions from the proxy ballot.
“That has reduced the number of resolutions in 2025, and you probably will expect that to continue in the 2026 proxy year,” observes Lindsey Stewart, Director of Institutional Insights at analytics firm Morningstar Sustainalytics.
Even more powerful, perhaps, is an SEC announcement in November not to adjudicate on decisions to exclude resolutions. “This now essentially gives companies the green light to remove from the proxy any proposal they choose,” says Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility (ICCR), a US-based investor coalition.
But the elimination of ESG resolutions may not be the most likely outcome, says Stewart. “It may go the other way and issuers may just decide to include all shareholder resolutions to reduce litigation risk.” Lawsuits may arise if a shareholder believes the proposal has been properly presented to the company.
Compliance risk for investors
Building on this action and a judicial ruling in 2025, the EO adds another agenda item for the SEC: that proxy advisers serve as a vehicle enabling class formation by investors. “All of a sudden now investors could be at compliance risk because unwittingly a group of other investors have used the same off-the-shelf voting process”, explains Bryan McGannon, Managing Director of US SIF, a membership association that promotes sustainable and responsible investing.
Proxy firms are facing further changes to their business model after it was reported that JP Morgan Asset Management is shifting from use of third-party data collection or voting recommendations in the US to an in-house AI-powered tool.
But perhaps the most damning clause threatening ESG advocacy and scrutiny by investors is an instruction in the EO to consider revising or rescinding rules, guidance, bulletins and memoranda relating to shareholder proposals.
“The SEC chairman is exhorted by the Trump administration here to do everything in his power to eliminate shareholder proposals. That has been the chairman’s clear intent anyway…but this EO puts force of White House behind this,” says Zinner.
Swift action from the SEC is expected following the EO consultation this year given its affinity with the presidential view. Pushback is limited. McGannon says the US SIF will continue to campaign for responsible investment through the consultation.
“We have a number of success stories on how things have changed as a result of shareholder proposals. We can amplify the voices of our members using this process to enhance value of their holdings,” he said.
US SIF and its members will also continue engaging with issuers, but McGannon recognises this is in jeopardy. “Companies may not have an incentive to engage in stewardship if they don’t have that threat of shareholder proposals,” he points out.
Draconian new rules are likely. “The SEC has already signalled an intent to do a rule-making this spring that would significantly reduce or eliminate the ability of investors to file shareholder resolutions on ESG issues,” says Zinner.
Secondly, he foresees action particularly affecting pension funds. “We anticipate the Secretary of Labor is going to issue a rule that will tell pension fund fiduciaries that they cannot consider these long-term ESG risks in their investments. This infringes on the fiduciary duties of pension funds.”
The rule from Joe Biden’s Presidency which permits private-sector retirement plans to consider ESG factors was subject to legal challenge last year.
Weaponising antitrust
Zinner also expects an attack from the Federal Trade Commission (FTC), which enforces civil antitrust law. “There’s concern based on this EO that the federal government will also weaponise antitrust to try and chill investor engagement on long-term risk.”, he says. This would impact institutional investors who engage with companies on climate risk.
Books and records requests, votes against directors and direct action against corporations are now more probable, says Zinner. “Investors will start to take other measures that are more problematic, such as ‘vote no’ campaigns on boards and litigation against companies.”
Stewart of Morningstar notes that votes against directors are rare and may be ineffective due to lack of transparency. “They send a less clear signal to the market on what shareholders might be concerned about because in the US shareholders don’t publish rationales.” This limits their appeal.
In the meantime, proxy advisers are becoming more cautious. For example, Glass Lewis is changing its business model to provide a range of voting perspectives for shareholders, rather than a single house view. It is also converting to investment adviser status.
“Proxy advisers have a fear of falling foul of anti-competition investigation or other actions”, says Stewart.
