Sen. Sullivan looks to curb power of giant investment firms embracing ESG

05.18.22

Sen. Dan Sullivan (R-AK) has introduced legislation to rein in the power over corporations enjoyed by the biggest asset managers, many of whom have provoked Republicans by embracing “Environmental, Social, and Governance” standards for businesses.

The Investor Democracy Is Expected Act would give more power to passive investors who invest their money in mutual and exchange-traded funds through firms like Vanguard. It would require money managers to vote proxies based on their clients’ wishes rather than the firm at large. Such a provision could limit the power of massive money managers to penalize oil companies, for instance, which are discouraged under ESG standards.

As passive investment vehicles such as ETFs and index funds have exploded in popularity, the three largest money managers (Blackrock, Vanguard, and State Street) have consolidated enormous voting power over publicly traded companies using the money of their clients, something that Sullivan and the dozen other Republican co-sponsors see as market distortion.

The three giants manage over $20 trillion in combined assets and represent more than 25% of all votes cast at the annual meetings of companies. Blackrock, Vanguard, and State Street are also the largest owners in 96% of the S&P 500. That consolidation gives them considerable sway in voting on various corporate proposals, including those that individual fund investors might not support

“The more we dug into it, the more it was, like, ‘Wait, why are they the ones who get to vote these shares, not the beneficial owner who actually own them?'” Sullivan told the Washington Examiner during an interview.

“Our bill is quite simple. It just says that the beneficial owner who owns the shares is the entity or person entitled to vote — not the managers of these massive passive index funds,” he added.

The legislation would allow individual passive investors to have shareholder voting power when their money manager owns more than 1% of a company’s voting…

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