Investors Keep Tech Bros in Sights
President Trump’s “bullying” tactics have prompted US-based firms to water down ESG commitments, while investors maintain support for DEI, fair voting rights, responsible tax.
US-based tech firms’ close ties with the Trump administration are unlikely to discourage continued pushback and engagement from ESG-focused investors in the longer term.
Tech firm oligarchs are currently benefitting from their relationship with US President Donald Trump, as he challenges diversity, equity and inclusion (DEI) policies and programmes, and looks to retaliate against other countries’ taxes on American multinationals.
Although some of the largest US tech firms are rowing back their ESG-related commitments, recent shareholder resolutions have shown that investors are continuing their support for sustainability.
“Aligning with political leaders may seem expedient in the short-term, but tech company heads may regret going all in if these leaders’ popularity declines or their policies are seen to be capricious and harmful to people and markets,” Jessica Dheere, Advocacy Director at non-profit Open MIC, told ESG Investor.
“Engagement continues and may even have the effect of galvanising sustainability efforts against such a starkly contrasted vision of the future as that offered by Trump.”
Responsible investors have long been engaging with tech companies on poor social performance and governance issues.
“While this unprecedented alliance [between big tech firms and Trump] presents a significant issue for [US] democracy, it’s critical that investors raise their voices and share their concerns with these companies,” said Kristin Hull, Founder and Chief Investment Officer of Nia Impact Capital.
Minimal support for anti-DEI
Trump has signed executive orders 14151 and 14173 in a move against “illegal DEI”, which has since prompted several US-based companies to drop or water down their related commitments and policies.
Meta has terminated its DEI programmes, while proxy advisor Institutional Shareholder Services said it would no longer consider the diversity of a company’s board when making vote recommendations on the election or re-election of directors at US-based companies.
Investors have clearly demonstrated their concerns and continued support for DEI.
An anti-DEI shareholder proposal filed at Apple was rejected by 97% of shareholders in February.
“The proposal did so badly that it cannot be filed for consideration next year,” said Jonas Kron, Chief Advocacy Officer at Trillium Asset Management.
“This really shows how the investor community is against the wholesale destruction of DEI programmes.”
Anita Dorett, Director of the Investor Alliance for Human Rights (IAHR) highlighted US tech firms’ degree of dependence on a diverse user base.
“Core to the success and role of big tech in the US has been enabling an enormous user base from all over the world and from different walks of life to exercise their fundamental human rights, like the right to free speech and opinion, the right to religious freedom and the right to be free from discrimination,” she said.
As such, DEI should be considered financially material, with tech firms that support a wide-ranging and diverse user base likely to enjoy a more competitive edge, Dorett argued.
Investors are also increasingly looking to engage US tech firms on the climate-related implications of AI this proxy season, with resolutions calling for disclosures on climate transition commitments for data centres filed at firms including Alphabet and Meta.
“With the growth of AI and its energy demands, there are a lot of questions being posed at tech companies about whether they are going to be able to meet their climate commitments,” said Kron.
Dodging change
Investors’ concerns regarding the governance structure of US tech firms – with some of the largest utilising dual class share structures (DCSS) – are also likely to continue, according to Trillium’s Kron.
Fifty-two percent of the voting power at Alphabet belongs to two men, Mark Zuckerberg holds 60% of the voting power at Meta, and Jeff Bezos is Founder and Chair of the board at Amazon, while still holding 11%.
“Those are very concerning and troubling ownership profiles, and I don’t think it’s a coincidence that these companies come up the most in conversations concerning behaviour – they are very personality-driven,” said Kron.
“In contrast, Microsoft and Apple are widely held – not dominated by founders – and that gives them a healthier governance profile.”
Investors’ efforts to engage with US tech firms on adopting responsible tax practices may face more challenges.
Trump has signed an executive order promising retaliatory action against digital services taxes (DST) introduced by other countries to raise revenue from digital and technology firms not covered by the Organisation for Economic Co-operation and Development’s proposed tax reforms.
DSTs are taxes levied on revenues generated from certain digital services, such as online advertising and the sale of user data. Countries have implemented DSTs to collect revenues from multinational companies providing digital services in their jurisdiction, even if they do not generate income through the ownership of assets there.
They impact the biggest tech firms – the majority of which are headquartered in the US.
A fact sheet accompanying the executive order has underlined the EU’s Digital Markets Act and Digital Services Act as examples of policies that will prompt retaliatory action.
Withstanding the test of time
Earlier this year, the US Securities and Exchange Commission rescinded SLB 14L, which had restricted companies’ ability to exclude shareholder resolutions, replacing it with new guidance outlined in SLB 14M.
As such, tech companies will find it easier to exclude shareholder resolutions from the ballot – citing reasoning such as micromanagement – which is expected to have an impact on the number of ESG-focused proposals that shareholders can vote on.
The willingness by some of the largest tech firms – such as those led by Zuckerberg, Bezos and Elon Musk – to vocally push back against ESG-focused policies has “shown their true colours” to investors, said Michael Connor, Executive Director of Open MIC.
“Trump is a bully, and unfortunately people – and companies – often succumb to that bullying behaviour, at least in the short-term,” he said.
“It won’t be easy for tech firms to navigate through the next four years, but they would be well-advised to embrace policies and practices that will withstand the test of time. While Trump will undoubtedly have an impact short-term, we think ESG principles will ultimately prevail because they represent a smart way of doing business.”
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