Investors face tighter US scrutiny on ESG and diversity votes
Proxy advisors that steer big investors on ESG and diversity votes are now in Washington’s crosshairs, with a new US executive order aimed squarely at their influence over corporate governance.
According to Reuters, US President Donald Trump has ordered regulators to tighten oversight of Institutional Shareholder Services (ISS) and Glass Lewis, whose recommendations shape how large institutional investors vote on board elections and shareholder proposals at major US companies.
For asset owners and managers relying on third‑party research, this raises questions about how easily they can continue to use proxy advice to back “diversity, equity, and inclusion” and “environmental, social, and governance” policies.
Reuters said the order tells the US Securities and Exchange Commission (SEC) and other agencies to increase scrutiny of proxy advisors.
As per Wealth Professional, it directs the SEC chair to review existing rules and guidance and to consider “revising or rescinding” anything that conflicts with the order’s goals, “especially to the extent that they implicate ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ policies.”
The order argues that proxy firms often “advance and prioritize radical politically-motivated agendas,” including support for racial equity audits and cuts to greenhouse gas emissions, according to Wealth Professional’s summary of US reporting.
It says one firm continues to give guidance based on “the racial or ethnic diversity of corporate boards” and raises concerns about “conflicts of interest and the quality of their recommendations,” calling for more oversight to promote “accountability, transparency, and competition.”
Reuters reported that the order also tells the SEC to consider “revising or rescinding all rules” related to shareholder proposals.
Investor advocates worry that this could weaken one of their main tools for holding boards to account on executive pay, board composition and long‑term risks linked to climate and human capital by making it harder to file or advance resolutions.
The move sits within a broader political pushback against ESG.
Bloomberg reported that Trump and his allies are using policy to challenge diversity and equity initiatives and efforts to address climate change.
Attorney Sanford Lewis told Reuters the order assumes issues like diversity and the environment are separate from financial performance, even though many investors and proxy advisers see ESG as central to long‑term, risk‑adjusted returns.
Dan Crowley of K&L Gates told Reuters the order “perpetuates the fiction” that investors choose between ESG and returns, rather than using ESG because of its impact on long‑term value.
Proxy firms have already started to adjust.
Wealth Profesional said ISS and Glass Lewis have recommended far fewer climate‑related proposals this year amid the backlash.
ISS has stopped considering boardroom diversity in its director recommendations, while Glass Lewis plans to register as an investment adviser and, according to Bloomberg, will phase out a single “house view” benchmark from the 2027 proxy season.
Both firms defend their role.
An ISS spokesperson told Reuters the firm will review the order and consider next steps “to help mitigate any potential adverse impacts on clients,” stressing that ISS is an SEC‑registered investment adviser that “does not dictate or set corporate governance standards” and remains committed to acting in clients’ best interests.
A Glass Lewis spokesperson told Reuters the firm welcomes the “clarity” on regulatory expectations and said it has “always operated with the highest ethical standards with our clients being central to everything we do.”
For institutional investors that integrate ESG and stewardship into their mandates, US media reports suggest this order signals a tougher regulatory and political environment for proxy advice touching on “diversity, equity, and inclusion” and “environmental, social, and governance” issues.
It may also lead to tighter limits on how ISS and Glass Lewis can support shareholder engagement.
