Last year’s ESG backlash spawned a vigorous debate about the use of environmental, social and governance factors in capital allocation. I met with numerous state financial officers, pension-fund boards, policy makers and corporate leaders who solicited my perspectives and those of competing asset managers as they grappled with fiduciary questions relating to ESG. These discussions appear to have prompted the Big Three asset managers—BlackRock, State Street and Vanguard—to undertake small reforms, likely aimed at mitigating legal liability risk. Vanguard withdrew from the Net Zero Asset Managers initiative (though it remains affiliated with at least four similar associations); BlackRock and State Street announced new proxy voter choice programs (albeit only for a fraction of client assets and thus far limiting third-party alternatives to proxy advisory firms that also promote ESG); all three began to offer greater transparency to states about their proxy voting policies (although they are still opaque about the content of most shareholder engagements, which Vanguard defines as “direct contact with companies to discourage undesirable corporate behavior”).

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