Executive Summary

The system-level risks posed by climate change, inequality, and unaccountable technology are more salient than ever. Global temperatures are projected to consistently exceed 1.5°C within the next decade, corporations are reneging on their climate commitments, and billion-dollar extreme weather disasters are occurring with increasing frequency. There is broad consensus among economists that the pandemic recovery has disproportionately benefited the top 1% of the income distribution, while affordability has emerged as a key concern for working and middle-class Americans who face rising costs, a weak labor market, and steep cuts to social safety net programs. Despite broad public support for oversight and guardrails, AI development—now a primary driver of U.S. economic growth amid flagging consumer confidence and purchasing power—is proceeding at a breakneck pace with little attention to its impacts on workers, climate, or democratic institutions.

The negative externalities generated by corporations in the form of carbon-intensive business strategies, harmful labor practices, exploitative technologies, and political rent-seeking aggregate into system-level risks that threaten to destroy economic value, hamper economic performance, and destabilize the political, legal, and social systems needed for functional economic and capital markets. If unmitigated, climate change, inequality, and unaccountable technology will not only continue to harm our societies, our livelihoods, and our planet, but also erode long-term investment performance.

System-level risks fall most heavily on long-term, diversified investors, including broad-based equity index funds. By design, these funds track capitalization-weighted indices that capture vast segments of—or nearly the entirety of—the investable equity market. Their low-turnover, buy-and-hold posture effectively locks them into the market portfolio, rendering climate change, inequality, and unaccountable technology unhedgeable risks that are internalized across their portfolios. As a result, broad-based index funds are among the most exposed investors to system-level risks and therefore represent a natural and necessary entry point for system-level investing. Furthermore, these funds are substantially financed by workers’ savings through IRAs and 401(k), 403(b), and 529 plans. When the broad-based index fund managers that are most responsible for stewarding retirement capital fail to mitigate system-level risks, they are betraying millions of American workers—undermining not only their portfolio returns, but also the very future they are investing to protect. 

Accountability in the Boardroom

Accountability in the Boardroom analyzes the 2025 proxy voting records of large, diversified equity index mutual funds and ETFs that track capitalization-weighted, broad market indices and have low turnover ratios. The report examines 67 funds managed by 31 asset managers, representing  $7.4 trillion in assets under management.

The analysis evaluates fund-level voting across three core stewardship mechanisms:

• Shareholder proposals addressing system-level risks related to climate change, inequality, and unaccountable technology

• Director elections at carbon-intensive companies with poor climate performance

• Say-on-pay votes at S&P 500 companies with extreme levels of intra-firm inequality, as measured by a CEO pay ratio

To contextualize the voting behavior of index funds, the report compares these proxy voting records to those of 22 of the largest US public pension funds—quintessential stewards of workers’ capital and universal owners with long investment horizons—that, like index funds, have substantial exposure to long-lived system-level risks.

Key Findings

• Stewardship failures are concentrated where voting power is greatest. Voting power in broad-based equity index funds is highly concentrated among managers of mega-funds that have  more than $100 billion in net assets. These funds—managed by Vanguard, BlackRock, Fidelity, and Charles Schwab—are uniquely positioned to curb externality-generating corporate behavior and shape industry standards at scale. Yet across all three core stewardship mechanisms—shareholder proposals, climate-related director elections, and say-on-pay votes—these managers were the least likely to support measures that mitigate system-level risks related to climate change, inequality, and unaccountable technology.

• Mid-sized funds emerged as the strongest performers on system stewardship, but their ability to mitigate system-level risks is constrained by scale. Across all three core stewardship mechanisms—shareholder proposals, climate-related director elections, and say-on-pay votes—mid-sized index funds ($1-10 billion in net assets) consistently outperformed large ($10-100 billion in net assets) and mega funds. Funds managed by New York Life (NYLI), SEI, Empower, Dimensional, BNY Mellon, Columbia Threadneedle, Voya, and Franklin Templeton demonstrated a greater willingness to support risk-mitigating reforms and hold boards and executives accountable. Despite the leadership of certain mid-size funds, their ability to change corporate standards and mitigate risks at scale is ultimately limited by virtue of their size and limited voting power.

• European managers significantly outperformed US-based managers.  European-managed funds outperformed US-based funds across shareholder proposals, climate director accountability, and say-on-pay votes, including in cases where funds track the same benchmark indices and have near-identical exposure to system-level risks—demonstrating that weak stewardship is not an inevitable feature of index investing.

• Governance of AI and social media-related risks is gaining traction. Eleven US-based funds supported on average 40% or more of unaccountable technology proposals, indicating an openness to implementing guardrails on technological development and a desire to limit the excesses wrought by today's tech monopolies.

• Public pension funds consistently applied higher stewardship standards than index funds of comparable size. The largest public pension funds were more willing than mega and large funds to support shareholder proposals, oppose directors for inadequate board oversight, and vote against say-on-pay proposals. Notably, pension funds in states subject to intense anti-ESG political pressure—including Florida, Ohio, Texas, and North Carolina—still voted against excessive executive compensation at companies with extreme CEO pay ratios, underscoring the salience of inequality-related issues in contexts where stewardship possibilities are otherwise constrained.  

• Many ETFs vote in ways that directly contradict the stewardship priorities of the public pension funds that hold them. For example, CalPERS holds over $15.9 billion in Vanguard’s S&P 500 ETF, which has long voted against all shareholder resolutions and consistently rubber-stamps management proposals.