The way that shareholders engage with companies on environment, social and governance and diversity, equity and inclusion issues is changing. In-House Perspective investigates the factors – from the Trump Presidency to jurisdictions placing an emphasis on growth – that have led to this.

The way that shareholders engage with companies on ESG and diversity, equity and inclusion (DEI) issues is changing. They’re responding to the marked shift in attitude and approach to these two areas from legislators and regulators in certain jurisdictions. The change in engagement practices is perhaps the most significant in the US, where the shift in tone has been dramatic. However, investors had begun to amend their approach to ESG and DEI before the new US administration came into power, suggesting their actions also reflect changing societal attitudes to these two areas.

Trump and the SEC

According to Nanette Heide, Chair of the IBA Corporate Governance and Activism Subcommittee, ‘DEI and ESG topics are no longer the first thing that [shareholders ask about]’.

Zally Ahmadi, Managing Director, Corporate Governance, ESG & Executive Compensation at proxy solicitation and corporate/financial communications company D.F. King & Co in New York, says she’s only seen one instance this year of traditional shareholder activism focused on environmental or social change. She says there’s also been fewer ESG and DEI-related shareholder proposals and those that have made it to a vote haven’t passed, in contrast to previous years. However, Ahmadi says proposals on some ESG topics, such as greenhouse gas emissions, still receive significant support of approximately 40 per cent of votes.

Ahmadi is also seeing a significantly higher number of anti-ESG proposals, which she says are ‘the number one proposal type this year in terms of volume,’ taking into account those concerning ESG topics and all others too. Support for these proposals remains low, however, at around 10 per cent of votes or fewer. John Robinson, a partner at Wachtell, Lipton, Rosen & Katz in New York, agrees that there’s ‘been a meaningful spike in anti-ESG and anti-DEI proposals over the last two to three years.’

Heide, who’s also a partner at Troutman Pepper Locke in New York, says shareholders are more focused on profitability and creating value for the overall shareholder base than on ESG or DEI issues. She adds that companies are also ‘making adjustments in the way that they approach the subject matter.’

Ahmadi says that, following the issuance of three executive orders by the administration of US President Donald Trump that target DEI initiatives in the public and private sectors and that are critical of those policies, there’s been less disclosure from companies on their programmes in this area.

Some of the largest investors have softened their approach to gender diversity. BlackRock, for example, has removed its numerical board diversity targets. State Street has also removed its numerical target for female directors on company boards. Some influential proxy advisers have also changed their policies on board diversity. ISS, for example, has said it will ‘indefinitely halt consideration of certain diversity factors in making vote recommendations with respect to directors at US companies.’

In Staff Legal Bulletin 14M, issued in February, the US Securities and Exchange Commission (SEC) addressed aspects of its Rule 14a-8 that relate to the circumstances in which a company can exclude a shareholder proposal from its proxy statement. According to Ahmadi, the new guidance expands the circumstances in which companies can receive no action relief for shareholder proposals to enable them to exclude them from their proxy statements.

According to Robinson, the revised SEC guidance on Rule 14a-8 requires proponents ‘to make a connection between the proposal […] and the business operations of the company.’ If that connection can’t be made, it’s much easier for a shareholder proposal to be excluded. Heide says the SEC’s revisions have ‘made it more difficult for shareholders to put those proposals forth now; it’s a much more stringent exercise.’

For Ahmadi, the changes to guidance on Rule 14a-8 have ‘definitely had an impact on how many proposals were on ballots this year.’ Robinson agrees that ‘the impact of the rule has been to fairly dramatically reduce the number of climate change proposals.’ He adds there’s also been significantly fewer human rights proposals. ‘It’s very difficult to disaggregate whether it’s a general social trend that is pushing the numbers [of proposals] down or whether it’s the changes the SEC made earlier this year,’ explains Robinson. He adds that it could well be a combination of both factors.

The SEC has also changed its guidance on its rules relating to investors that own more than five per cent of a voting class of equity shares in a company. These investors are required to report their beneficial ownership on a Schedule 13D form – which requires substantial disclosure – or a Schedule 13G form, which requires much less disclosure. Many institutional investors have historically reported their beneficial ownership using the latter, relying on exemptions that require that they haven’t bought their shares with the intention of changing or influencing the control of the company.

The new SEC guidance redefines the types of engagement that might constitute influencing control of the company. It now includes forms of engagement that might be undertaken by institutional investors on ESG or DEI matters, which could disqualify them from reporting using a Schedule 13G form. The guidance says that a shareholder that goes beyond routine discussion of certain topics ‘and exerts pressure on management to implement specific measures or changes to a policy may be “influencing” control over the issuer.’

Ahmadi says these changes were unexpected. Initially the larger investors paused their engagements while they decided how they’d respond. Following that pause, Ahmadi says, ‘engagement changed in the sense that a lot of these larger holders are essentially in listen-only mode now’ because they don’t want to trigger the long form. Consequently, engagement is different now for issuers because they can no longer rely on feedback from investors to secure their vote at their annual general meeting (AGM). ‘Issuers have to be a lot more pro-active about understanding what they should be discussing’ with investors, says Ahmadi.

Robinson agrees that companies ‘need to be on the front foot in setting the agenda’ for their engagement meetings with investors. He adds that companies shouldn’t be surprised if investors are ‘a little bit more in listening mode than they might have been historically.’

Evolution in the UK and Europe

While the change in position from regulators and governments on ESG and DEI in the UK and Europe has perhaps not been quite a stark as in the US, investor attitudes towards these two areas are altering in these regions too. This could be because the European Commission and the UK government are focussed on growth and competitiveness. It could also be part of a broader review of sustainability policies and targets by businesses, policymakers and society.

Rudolf Von Moreau, Secretary of the IBA Corporate Governance and Activism Subcommittee, says that in relation to ESG and DEI engagement in Germany, ‘we see a shift that this was very important to investors over the last years and it’s clearly getting less important to investors.’ Wilma Rix, counsel at Linklaters in London, says that in the UK ‘there’s less noise around both of those issues.’

Von Moreau, who’s also General Counsel, Executive Vice President and Head of Legal & Patents at Infineon Technologies in Munich, says this trend had begun before President Trump was elected, but it has become more pronounced since the new US administration took office.

Sara Feijao, a senior professional support lawyer at Linklaters in London, agrees that ‘the difference in engagement pre-dated the change in [US] administration.’ She says that over the last few years, some of the large asset managers have changed how they engage with their portfolio companies to be sensitive to external factors that may affect the latter. She says investors understand that even if some of their portfolio companies are saying less outwardly about ESG and DEI, they may still continue their internal programmes.

Rix argues the change in approach by investors could be symptomatic of a broader change in sentiment. ‘There’s a different vibe,’ she says, ‘because there is an emphasis on growth, competitiveness and taking advantage of new digital and AI opportunities.’

Feijao says investor engagement should also be viewed in the context of the more sophisticated discussion of ESG that’s taking place now. This would consider, for example, how companies will achieve certain goals and whether the timeframes they have set are realistic. She argues that greater emphasis on growth and competitiveness and more realistic discussions about decarbonisation strategies are ‘the new lens from which we’re seeing the ESG world develop.’ Investors, she says, will want to engage with companies in a meaningful way that recognises the realities they operate in.

Bernadette Young, a director at governance consultancy Indigo in the UK, says ESG and DEI continue to be a priority for activist investors there. She says some UK companies that are either US-owned or which have a significant interest in America may be feeling pressure to review some of their DEI policies in particular.

Young argues that ESG is constantly evolving and maturing and as such ‘expectations are not static; it’s quite dynamic.’ She adds that the context in the UK for discussing DEI issues is different to in the US and ‘investors remain part of that context.’

Research recently published by Young’s organisation found that shareholder revolts on executive pay at FTSE100 annual general meetings (AGMs) more than doubled in the first half of 2025. Such a revolt is defined in the research as any vote of 20 per cent or more by shareholders against a specific resolution proposed by a company board at its AGM. This threshold is also adopted in the UK Corporate Governance Code, which requires companies to outline how they’ll respond to a vote against a resolution by 20 per cent or more of their shareholders.

Young says the research ‘highlights the continued rise in shareholder engagement and intensifying scrutiny of FTSE100 boards.’ She says the culture of shareholder stewardship has been evolving in the UK and investors are becoming more willing to take public action if they feel they aren’t making sufficient progress in private engagements with companies.

Young adds that ‘remuneration is always a contentious subject.’ She says the recent jump in shareholder revolts on this issue in the UK could be linked to attempts to increase director pay in line with the US. UK companies are taking a bolder approach towards their remuneration policy, she says, moving away from the restraint they had previously shown.

In Germany, ‘some US investors are focussing less on ESG and DEI, but some global, namely European investors are still interested in what companies do on DEI and ESG,’ Von Moreau says. He adds that the German press takes a negative view of companies that withdraw their DEI programmes in response to pressure from the US.

These conflicting stances are making the ESG and DEI terrain challenging for German companies to navigate. ‘It’s more difficult for a European company maybe,’ says Von Moreau, ‘because a US company is focussed on the US and [a German company] has to focus on Germany, on the EU, and on the US.’

Young says working with investors with different viewpoints is something listed companies are used to doing. She says shareholders have never been a homogenous group with a single view and, with that in mind, a listed company will always analyse its major shareholders and their voting policies. ‘Companies have always had to go out and consult and try to find a path through what can be quite diverging views,’ she says. Young adds that what’s perhaps unprecedented about the current situation is the speed with which sentiment has changed in the US. This has caused a polarisation of views where the middle ground might be harder for companies to find.

Implications for in-house lawyers

In-house lawyers should apply the lens that changing views and policies on ESG and DEI could be a factor in how the company carries out its operations and may present new hurdles to doing business.

Robinson says companies still want to do the right thing. He says in the US the pressure from the government is such that it’s not as simple as not talking publicly about what the company is doing on ESG and DEI. Instead, it’s about ‘focussing on the most important, most impactful internal initiatives and also being very deliberate and careful about how you talk about it publicly,’ he says.

Ahmadi says the changes in the US SEC guidance on Schedule 13D and Schedule 13G forms and the impact they’ve had on shareholder engagement mean companies and their in-house legal teams ‘should be proactive in setting agendas.’ She says they should identify any weak spots in their corporate governance profiles that might trigger concern from investors and proactively address them. Companies should be aware that investors won’t always come to them with issues they’re concerned about. Therefore, in-house lawyers will need to understand the topics that are important to their investors.

Ahmadi says this new dynamic between companies and investors in the US makes understanding the industry a little more important for in-house lawyers. That could mean relying slightly more on external advisers. ‘Producing risk analysis is more important than ever,’ she says, especially on ESG issues.

When it comes to navigating shareholder proposals, Ahmadi says in-house lawyers need to understand the landscape. While there are many anti-ESG proposals, for example, support for them remains in the single digits. Companies should take into account how successful certain proposals are likely to be when planning their strategy for responding to them.

Von Moreau believes that in-house lawyers need to have a solid understanding of the rules, which at the moment are constantly changing, particularly in the US. This will allow them to give good advice to the board and bring all their shareholders together. He says this is part of the legal function because in-house teams usually have a very broad view of what’s going on in the company, which makes it easier for them to interact with almost every function in the business to consolidate what the organisation is doing.

Heide argues the culture of businesses has long been to care about DEI and ESG issues. ‘I don’t think you’re ever going to get away from the idea that diversity should be promoted within a company,’ she says. She adds that companies will continue to ensure they have diverse pools of candidates for positions, they just may not be as outward facing in their approach.