Trump Orders Federal Crackdown on Proxy Advisors Over ESG and DEI Influence

President Donald Trump has escalated political pressure on proxy advisory firms by issuing a new executive order directing U.S. regulators to increase oversight of Glass Lewis and Institutional Shareholder Services (ISS). The move places proxy advisors squarely at the center of the broader Republican campaign against environmental, social and governance investing and diversity, equity and inclusion initiatives. The executive order instructs several federal agencies to investigate whether the two firms have violated antitrust, unfair competition or deceptive practices laws. It frames proxy advisors as powerful intermediaries that influence corporate decision-making across the U.S. economy, particularly on issues tied to climate action, racial equity and corporate governance reform. Glass Lewis and ISS together account for more than 90 percent of the global proxy advisory market, according to the order. Trump argues that this concentration of influence has allowed the firms to advance what he describes as politically motivated agendas through shareholder voting recommendations, particularly those related to ESG and DEI.

 

Why Proxy Advisors Are in the Political Crosshairs?

 

Proxy advisory firms provide research and voting recommendations to institutional investors on shareholder resolutions, board elections and executive pay. Their guidance is widely used by pension funds, asset managers and insurers that manage trillions of dollars in assets. Trump’s order specifically criticises the firms for supporting shareholder proposals that call for reductions in greenhouse gas emissions, racial equity audits and other governance reforms. The order characterises these positions as ideological rather than financial, arguing they may conflict with investors’ fiduciary duties. The administration also highlights the ownership structures of both firms, referring to them as foreign owned entities with outsized influence over U.S. corporations. San Francisco-based Glass Lewis was acquired in 2021 by Canadian investment firm Peloton Capital alongside Chairman Stephen Smith. ISS, headquartered in Maryland, was purchased the same year by German exchange operator Deutsche Börse. By emphasising foreign ownership, the order frames proxy advisors not only as political actors but as external influences shaping the policies of America’s largest companies.

 

Regulatory Agencies Directed to Act

 

The executive order directs three federal agencies to play a central role in scrutinising proxy advisory firms. The Securities and Exchange Commission is tasked with assessing whether proxy advisors should be required to register as Registered Investment Advisers, which would bring them under stricter regulatory supervision. The SEC is also instructed to consider whether additional disclosure requirements are needed around ESG and DEI methodologies, and to investigate whether investment firms’ reliance on proxy advice in these areas is consistent with their fiduciary obligations. The Federal Trade Commission is directed to review ongoing state-level investigations into proxy advisors and assess whether the underlying conduct may violate federal antitrust laws. The order also calls on the FTC to examine whether the firms engage in unfair methods of competition or deceptive practices that harm market participants. Separately, the Department of Labor is instructed to revisit regulations governing the use of proxy advisors by managers of ERISA-regulated pension plans. The focus of this review is to increase transparency around how proxy advice is used, particularly in relation to ESG and DEI considerations in retirement plan investments.

 

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Part of a Broader Anti-ESG Campaign

 

The order follows a series of recent actions by Republican-led states and federal officials targeting the proxy advisory industry. Attorneys general in Florida and Texas have launched investigations and lawsuits accusing proxy firms of coordinating ESG-driven voting practices that allegedly harm shareholders. SEC Chairman Paul Atkins has also signaled plans to examine what he described as the “weaponization” of shareholder proposals by activist investors, reinforcing the administration’s view that ESG-related resolutions distort corporate governance and capital allocation. Together, these actions suggest a coordinated effort to weaken the institutional infrastructure that supports shareholder engagement on climate risk, diversity and long-term sustainability issues.

 

ISS Responds to Executive Order

 

In response to the executive order, ISS said it is reviewing the directive carefully and rejected claims that it dictates corporate governance outcomes. An ISS spokesperson noted that the firm is already registered with the SEC as an investment adviser and has operated for more than four decades providing independent research and voting recommendations. The firm emphasised that its clients are sophisticated institutional investors who choose how to vote, either by adopting ISS voting policies or by creating customised guidelines tailored to their own priorities. ISS stressed that it does not set corporate governance standards, and that its role is advisory rather than prescriptive. The company said it remains committed to operating independently, ethically and in the best interests of its clients.

 

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Implications for Investors and Corporate Governance

 

The executive order raises new uncertainty for asset managers, pension funds and companies that rely on proxy advisors to navigate increasingly complex shareholder votes. If regulators impose stricter registration, disclosure or liability standards, proxy advisory firms may be forced to alter how they develop and communicate ESG-related recommendations. For institutional investors, the crackdown could complicate stewardship strategies at a time when climate risk, supply chain resilience and workforce practices are increasingly material to long-term financial performance. For corporations, it signals continued political resistance to shareholder-led efforts to influence sustainability and governance practices through voting. Whether the investigations result in regulatory action remains uncertain. What is clear is that proxy advisors have become a focal point in the U.S. political debate over the role of ESG and DEI in capital markets, with implications that extend well beyond the firms themselves.

 

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