The ESG movement—Environmental, Social, and Governance—achieved the rare feat of moving from business schools and boardrooms into mainstream public and political discourse. What began as a technical framework for evaluating firm-level risk has, over time, evolved into a sweeping set of expectations about what corporations owe not only shareholders but also society at large. In that evolution, ESG has taken on meanings far beyond its original analytic purpose, becoming a vehicle for advancing broader social priorities through financial markets.

In recent years, however, the concept has faced mounting scrutiny. Even prominent advocates, such as BlackRock CEO Larry Fink, have begun to distance themselves from the label, reflecting a broader shift in how ESG is perceived and discussed. That shift is the result of the growing discomfort with the gap between how ESG is described—as a neutral tool for managing long-term risk—and how it is often deployed in practice.

ESG investing lets financial managers use other people’s money to push their own values instead of letting individuals decide how their own money is invested. These proxy advisors wield significant influence over corporate governance by guiding how institutional investors vote their shares. Their recommendations can effectively standardize ESG priorities across vast swaths of the market, often without direct input from the underlying investors.

Because many institutional investors rely on these recommendations at scale, proxy advisors can act as de facto arbiters of what counts as acceptable corporate behavior, embedding ESG criteria into governance decisions even when ultimate beneficiaries are unaware. Research has shown that proxy advisory firms may incorporate ESG considerations into voting guidance in ways that do not always align with shareholder value, underscoring the complexity—and controversy—of their role.

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