The National Association of Manufacturers (NAM), a trade group representing approximately 14,000 small and large manufacturers, has strongly criticized recent regulatory moves that tighten environmental, social, and governance (ESG) rules. In a letter addressed to the leaders of the House Financial Services Committee, NAM calls for action to protect businesses from what it describes as an “ESG activist regulatory onslaught” by the Securities and Exchange Commission (SEC).
NAM accuses the SEC of granting special privileges to ESG activists and reducing oversight of proxy firms. The trade group argues that the agency’s proposed rigid ESG mandates burden manufacturers without providing any tangible benefits to investors. NAM urges Congress to intervene by limiting the influence of proxy advisory firms, reinforcing fiduciary duty, and preventing activist agendas from undermining businesses.
The controversy surrounding proxy ballots is at the forefront of these issues. Proxy ballots allow shareholders to vote on matters of corporate governance or decision-making when they cannot attend shareholder meetings. However, NAM and other critics claim that proxy advisory companies have amassed too much power over corporate elections and advocate for tighter regulation.
Under the Trump administration, restrictions were imposed on proxy firms to enhance transparency. These restrictions required proxy advisers to inform companies how they were advising shareholders to vote in corporate elections. Additionally, investors were given access to companies’ opinions about proxy firms’ guidance. However, in July 2022, the SEC voted to rescind these rules, siding with critics who argued that the restrictions impeded the independence of proxy firms.
In response to the SEC’s decision, NAM announced plans to file a lawsuit, claiming that the SEC’s actions violated its obligations under the Administrative Procedure Act. However, a Texas court dismissed the lawsuit in December 2022, stating that the SEC’s rule changes were within the bounds of reasoned decision-making. This court decision has led to an increase in activist investors seeking to upset the delicate balance between shareholders and corporations, according to NAM.
The manufacturing lobby is calling on Congress to rein in the influence of proxy advisory firms and limit ESG agendas. NAM criticizes the SEC for rolling back common-sense guardrails designed to inform and protect investors, as well as proposing prescriptive and inflexible ESG mandates that increase costs for manufacturers while providing minimal benefits for investors. Republican lawmakers have also taken an interest in curbing activist investors through legislative measures targeting ESG.
Interestingly, there has been a decline in shareholder support for ESG proposals. Data from the Sustainable Investments Institute indicates that proposals to compel corporations to act against climate change have seen a decrease in approval from shareholders. Similarly, support for proposals related to social justice causes has also declined. These trends suggest a waning appetite for ESG among shareholders.
In conclusion, the NAM’s scorching criticism of the SEC’s regulatory moves reflects the concerns of manufacturers regarding the impact of ESG rules on their businesses. The trade group’s urge for congressional action highlights the need to strike a balance between the interests of shareholders and corporations. With the proxy ballot controversy at the center of the debate, the role of proxy advisory firms and their influence over corporate elections has come under scrutiny. As the ESG landscape continues to evolve, it remains to be seen how regulators and lawmakers will address the concerns raised by NAM and other stakeholders in the manufacturing industry.
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