In my last article, ESG: The Bigger Picture, I discussed why sustainable investing is about more than deciding which companies to own or avoid.
It is about gathering additional information to make better-informed investment decisions.
Understanding how a company treats its employees, manages natural resources, and interacts with its community can help us identify risks and opportunities that might not be apparent from its financial statements.
But that raises another question.
What happens when we discover a problem at a company we already own?
Do we sell the stock? Ignore the problem? Or use our position as shareholders to encourage the company to address it?
That is where shareholder advocacy enters the picture.
Being a Shareholder Means Being an Owner
When we purchase stock, we become part owners of a company.
We generally have the right to vote on directors and certain corporate matters. Depending on applicable rules, we may also have opportunities to raise concerns directly with management or submit proposals for other shareholders to consider.
Of course, owning 100 shares of Microsoft does not give me much influence over how the company operates.
But what happens when thousands of investors collectively own millions of shares through mutual funds?
Their investment managers may have considerably more influence.
And some managers are using that influence to address risks they believe could affect the long-term value of their investments.
What Does Shareholder Advocacy Actually Accomplish?
I recently reviewed stewardship reports from Parnassus Investments, Calvert Research and Management, and As You Sow.
These organizations describe how they engage corporate management on issues ranging from environmental risks and employee treatment to human rights and corporate governance.
One example particularly caught my attention.
Parnassus participated in a group of investors engaging NVIDIA, the semiconductor company whose technology helps power artificial intelligence.
The investors raised concerns about the potential human rights implications of AI, including surveillance, discrimination, and the unintended consequences of automated decision-making.
Following that engagement, NVIDIA committed to an independent human rights assessment.
The company subsequently identified five significant risk areas and established additional executive-level oversight.
That is a tangible development.
Does it mean Parnassus single-handedly caused NVIDIA to change its practices? No. The engagement involved multiple investors. Would these changes have happened otherwise?
And does it mean NVIDIA has eliminated those risks? Certainly not.
But the company took identifiable steps to examine risks that could have consequences for its business and the people affected by its technology.
What About Industries Beyond Technology?
Calvert's July 2026 stewardship report describes engagement with General Motors concerning the Thacker Pass lithium project in Nevada.
Lithium is an important component in electric vehicle batteries. Yet developing a lithium mine can raise concerns involving water resources, land use, and Indigenous communities.
Calvert encouraged stronger oversight and consultation with affected communities.
According to Calvert, General Motors agreed to strengthen its policies and oversight.
The underlying concerns have not necessarily been resolved, but the engagement illustrates something important.
A company can be developing technology intended to reduce carbon emissions while simultaneously facing environmental and social risks associated with obtaining the materials it needs.
Those risks deserve attention.
Calvert also describes continuing engagement with PNC concerning climate-related lending policies.
The work remains unfinished.
I appreciate that distinction because shareholder advocacy should not be measured simply by the number of meetings held or promises made.
We should be asking what actually changed.
Does Shareholder Advocacy Improve Investment Performance?
This is where the research becomes particularly interesting.
A 2015 study by Elroy Dimson, Oğuzhan Karakaş, and Xi Li, published in The Review of Financial Studies, examined environmental, social, and governance engagements with U.S. public companies.
The researchers found that successful engagements were followed by positive abnormal stock returns and improvements in certain measures of corporate performance and governance.
Unsuccessful engagements did not produce comparable results.
A subsequent study by Tamas Barko, Martijn Cremers, and Luc Renneboog, published in the Journal of Business Ethicsin 2022, examined 847 engagements involving 660 companies.
The researchers reported that successful engagements were associated with better subsequent stock performance than unsuccessful engagements, particularly over shorter periods.
These findings are encouraging.
But they do not establish that shareholder advocacy always improves investment returns, or that engagement alone caused the differences. Past performance is no guarantee of future results.
Companies willing to respond constructively to investors may already have management teams better positioned to address business risks.
Nevertheless, the research suggests that shareholder engagement deserves consideration as part of the investment management process.
What Does This Mean for 401(k) Plans?
Most of the employers we serve do not have retirement plans with hundreds of millions of dollars in assets.
Many have considerably less, I dare say, but should their voices be diminished? Hardly.
Their employees are saving for retirement, often through mutual funds that own shares in hundreds or thousands of companies.
Those employees generally are not personally meeting with corporate executives or submitting shareholder proposals.
But the investment managers overseeing their mutual funds may be doing exactly that.
When evaluating an investment manager, shouldn't we understand how that manager exercises the rights associated with owning those securities?
Does the manager engage corporate leadership when it identifies material risks?
Does it vote thoughtfully on shareholder proposals?
Does it follow up on commitments?
And perhaps most importantly, can it demonstrate that its activities serve the financial interests of investors?
I am not suggesting that every investment manager needs to pursue the same environmental or social objectives.
Nor am I suggesting that shareholder advocacy automatically makes one fund preferable to another.
Investment performance, fees, risk, and the manager's investment process remain essential considerations.
But how a manager exercises its ownership responsibilities is another piece of information worth evaluating.
Shareholder Rights Are Also Under Review
There is an additional development that deserves attention.
In September 2026, the Securities and Exchange Commission proposed rescinding Rule 14a-8 (comment deadline November 20, 2026), which establishes the federal process through which eligible shareholders can submit proposals for inclusion in corporate proxy materials.
The existing rule generally permits qualifying shareholders to submit proposals after meeting specified investment-value and holding-period requirements.
The SEC proposes leaving these matters primarily to state corporate law and individual companies' governing documents.
The SEC argues that shareholder proposal procedures should be governed by state corporate law rather than federal regulation.
Supporters of the existing rule argue that it provides shareholders with an established mechanism to raise concerns and seek accountability.
The proposal has not been adopted.
But it raises an important question.
If shareholders identify a material business risk, what opportunities should they have to bring that concern before the company's other owners?
That question matters whether the issue involves executive compensation, financial oversight, cybersecurity, employee safety, or environmental risks.
The Parting Glass
In my previous article, I argued that ESG investing is about gathering more information to make better-informed decisions.
Shareholder advocacy takes that idea one step further.
Once we understand the risks facing a company, what should we do with that knowledge?
Sometimes the appropriate decision may be to sell the investment.
Sometimes it may be to continue holding the stock because the risks are adequately reflected in its valuation.
And sometimes it may be to remain invested while encouraging management to address those risks.
I do not believe shareholder advocacy should be judged by how many companies an investment manager contacts, how many proposals it files, or how many sustainability reports it publishes.
I want to know what the manager was trying to accomplish, what actually changed, and how those actions relate to the interests of the investors whose money it manages.
For those of us responsible for helping employers oversee retirement plans, those are reasonable questions to ask.
After all, ownership is more than deciding what to buy. It also involves deciding what responsibilities come with owning it.
Sources and further reading
- Parnassus Investments, 2025 Stewardship Report and Responsible AI Examples and Investment Stewardship, August 2026.
- Calvert Research and Management, 2025 Stewardship Report, July 2026.
- As You Sow, 2026 Shareholder Impact Review.
- Dimson, Karakaş, and Li, Active Ownership, The Review of Financial Studies, 2015.
- Barko, Cremers, and Renneboog, Shareholder Engagement on Environmental, Social, and Governance Performance, Journal of Business Ethics, 2022.
- U.S. Securities and Exchange Commission, proposed rescission of Rule 14a-8, September 2026.
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