The American Accountability Foundation (AAF) recently published a report on the ESG movement’s use of pressure campaigns to target conservative organizations and undermine donor privacy for a wide range of causes. Far from endangering just conservative organizations, this increasingly potent weapon has the potential to harm nonprofits with views across the political spectrum.

ESG is an investment philosophy that commits companies to meeting Environmental, Social, and Governance objectives. One frequent tool of ESG advocates discussed at length in the AAF report are resolutions filed by activist shareholders with publicly traded companies requiring corporations to disclose their contributions to ideologically-aligned think tanks and membership in industry trade associations. Armed with these disclosures, ESG rating firms and activists then pressure companies to divest from advocacy organizations with views they oppose or withdraw from advocating for their business and their employees’ interests altogether.

A key actor in this ecosystem are ESG ratings firms like Climate Action 100, which rates companies according to their express commitments to addressing climate change. Under the Climate Action 100 pledge, companies are negatively rated if, among other things, they are members of right-of-center trade associations or have donated to conservative think tanks.

While positive ESG scores from evaluators like Climate Action 100 greenlight investors to invest in a company, low scores discourage investments from institutional investors such as BlackRock, which holds nearly $10 trillion in assets. As just one example, AAF highlights a report by Proxy Preview, a professional publication for activist shareholders, lamenting that many corporations disproportionately contribute to industry groups that oppose ESG objectives.

Shareholder resolutions to expose corporate membership in trade associations and support for nonprofits are becoming more frequent. In 2018, there were only 51 shareholder resolutions at S&P 500 companies proposing additional disclosures of corporate political activity and giving to nonprofits, but those resolutions received only 28.7% support on average. By summer 2020, there were 55 such shareholder proposals, and support increased to an average of 35.5%. Six proposals even received majority support.

In one illuminating example of how activists compel disclosures of political spending, the New York State Comptroller, who oversees the $242 billion New York State Common Retirement Fund, filed a resolution with seven different companies mandating disclosure of their political spending and lobbying activities. The proposal specifically sought disclosure of both monetary and non-monetary contributions to political campaigns, efforts to influence public opinion, and participation in trade associations that support traditionally conservative causes. The resolutions were only withdrawn after the Comptroller successfully bullied the companies into agreeing to regularly report the desired disclosures.

Similarly, BlackRock is leveraging its nearly $10 trillion in assets to spur companies to disclose more of their political and lobbying activities. In 2020, BlackRock announced that it would “seek confirmation from companies, through engagement or disclosure, that their corporate political activities are consistent with their public statements on material and strategic policy issues. Moreover, we expect companies to monitor the positions taken by trade associations of which they are active members on such issues for consistency on major policy positions and to provide an explanation where inconsistencies exist.”

The threat is also emanating from federal agencies. At his confirmation hearing, now-Securities and Exchange Commission (SEC) Chairman Gary Gensler expressed his view that mandatory disclosure of corporate giving to nonprofits “is something I think the Commission should consider in light of the strong investor interest.” This position was echoed by Chairman Gensler’s predecessor, Commissioner Allison Herren Lee, who opined that “[a]nother significant ESG issue that deserves attention is political spending disclosure.” Fortunately, Congress continues to pass an annual budget rider with bipartisan support prohibiting the SEC from pursuing such a privacy invasive and harmful rulemaking.

Corporate membership in trade associations, especially those with a free market orientation, has also drawn the ire of ESG activists. At Altria’s shareholder meeting, an activist investor filed a resolution pressuring Altria to disclose their giving to and relationships with the U.S. Chamber of Commerce and American Legislative Exchange Council.

Companies join trade associations to ensure that their stakeholders, to include employees and customers, are properly represented in policy discussions. These associations offer an opportunity for companies with shared interests to advocate on behalf of the industry. Pressuring companies to exit trade associations removes a critical voice in national policy debates. Nonetheless, the intent of the resolution was clear far beyond Altria’s headquarters: Corporations that support certain organizations will be punished for their decision if their giving is exposed and continues.

Where proponents of disclosure have been unable to achieve their desired policy changes through the legislative process or have been thwarted by the courts, they are increasingly turning to the private sector with pressure campaigns to accomplish what they could not achieve via the public sector. AAF’s report highlights how an organized campaign of activists have usurped corporate capabilities to silence their policy opponents. No matter the target today or in the future, such tactics should concern all nonprofits and their supporters, regardless of their views.