Worried About Deregulation? Take the Reins with ESG

The new administration’s rapid pen-strokes currently underway in Washington DC promise to change how business is done, particularly as executive orders aim to reduce business regulations. Whether you favor such regulation (or, like some, are concerned about regulations’ ineffectiveness and unintended negative effects), the rapid and widespread fluctuations in our federal system will ripple far, creating both opportunities and challenges.

The hope, of course, is that less regulation will encourage a healthier economy. Meanwhile, some fear that the apparent lack of oversight will embolden bad actors previously held in check by the threat of punishment.

Reducing government oversight of business behavior puts more control in the hands of a company’s owners. In many cases, that’s you and me … or our family, friends, neighbors, and anyone else who owns stock. And whether or not regulations guide how companies behave, all of us have the right and obligation to watch closely how companies we’ve invested in are using our dollars.

Say for instance that your love of food has led you to invest in various  companies. Then this morning, news breaks that your favorite breakfast cereal was made of orphaned baby dolphins fed exclusively on lead paint chips — two ingredients coincidentally just legalized (theoretically! don’t call your congressperson just yet). Now you’re holding 150 shares of scandal and horror. Your first reaction might understandably be to cut and run — to divest the offending stock and buy something else that represents your ethics.

But divestment is not a powerful way to express your protest. Selling your shares off may just put them in the hands of dolphin-haters or others who may pursue their bottom line without considering externalized costs. In all likelihood, you’d be handing your proxy votes to someone who doesn’t care and who wouldn’t encourage their invested company to make positive change.

However, holding those shares gives you a spot at the table. As a shareholder, you have a voice, and it can be a pretty powerful one. It starts with your proxy vote, when you can vote for or against board members, policies, compensation packages, and other aspects of running a company. Additionally, the ballot may include proposals from other shareholders, which can address environmental, social, and governance (ESG) issues — just the sort of stuff that made you almost sell your Leadfish Flakes.

Best yet, qualified investors* have the right to put forth their own proposals. If you feel strongly about an issue, your ownership is the key to actually ignite change. This tactic is most effective when investors band together, publicly engage, and work to inform other proxy voters.

You can read about many different ways to act for change in The Shareholder Action Guide — a book we recommend highly. Even hardcore non-investors who find Wall Street distasteful ought to read the first chapter for inspiration, or start with As You Sow’s Theory of Change to see how investing can give them a powerful voice in our world.

There’s no time like the present to use the power of the market for positive change. ESG data is a market solution designed for those among us who would be watchdogs. Properly applied, ESG can help the whole spectrum of investors use their money for good.

*Among other rules, investors must hold at least $2000 in stock for over a year, and still own them at the time of the proxy vote. Check out As You Sow’s Proxy Voting 101 for more information to get you started; this material is greatly expanded in The Shareholder Action Guide.