Asset managers are avoiding ESG shareholder resolutions

The biggest shareholders need to lead on proxy voting and public engagement, a leading NGO says.

Some of the world’s largest asset managers are not using their proxy voting rights to support sustainable progress in their investee companies, despite publicly committing to responsible investment.

Responsible investment NGO ShareAction analysed the voting decisions of 60 of the world’s largest asset managers on 102 shareholder resolutions on climate change and social issues in its report Voting Matters 2020: Are asset managers using their proxy votes for action on climate and social issues?

The organisation found just 15 out of 102 shareholder resolutions on climate and social issues received majority support from asset managers during the past year.

A further 17 resolutions would have passed the 50% threshold but for a lack of support from the big three asset managers - BlackRock, Vanguard Group, and State Street Global Advisors.

The report cited a resolution from June 2020 calling for US supermarket chain Kroger to report on its human rights due diligence, which had 48% support from shareholders. This was despite the US Department of Labor having identified dozens of products stocked by Kroger that were produced with child or forced labour. The resolution would have passed if BlackRock, Vanguard and State Street had voted in favour and not against.

Smaller European fund managers topped the rankings, with the 17 best performers all based in Europe. Impax Asset Management, Aviva Investors and PGGM Investments all supported more than 95% of the resolutions analysed.

Despite the poor showing from US asset managers, some have managed to significantly improve their voting performance during 2020.

Northern Trust Investments, the best performing US asset manager at 18th, voted for 70% of resolutions overall and 79% of resolutions on climate change. In 2019, the manager voted for only 21.3% of climate change resolutions.

Meanwhile, JPMorgan Investment Management voted for 51% of all climate change resolutions this year, as opposed to 6.7% in 2019.

Many asset managers justified their refusal to support climate resolutions on the basis that they preferred to engage privately or that the company was already doing more than its peers.

For example, eight asset managers referred to Total’s positive engagement with Climate Action 100+ as a reason for voting against a resolution calling for the company to set greenhouse gas targets aligned with the goals of the Paris Agreement.

The report’s co-author Jeanne Martin, who is ShareAction’s senior manager for banking standards, described this trend as disappointing.

“Engagement through private meetings is important to gather information and build relationships but its effectiveness to enact change can be limited,” she said. “Given the scale of the climate crisis, it is concerning that some investors shy away from voting on critical resolutions at high carbon companies on the basis of engaging with them privately.

Proxy voting provides a key way for shareholders to exert influence over their investee companies.

“Regardless of the company’s progress compared to its peers, if its strategy remains inadequate, investors need to support resolutions pushing for greater ambition,” said Martin.

By exercising their voting rights, investors can ensure investee companies operate in the best interests of shareholders and are governed in the appropriate manner.

The report concluded that if stewardship is to be effective, resolutions need to pass more easily. This means the likes of BlackRock, Vanguard Group, and State Street Global Advisors need to improve their voting practices.

“Resolutions themselves also need to become more ambitious if they are to have an impact,” the report said.

“Disclosure will always be a focus of stewardship, but it needs to be combined with resolutions which encourage positive real-world impact,” the report added. “The next step for the leaders is to not only support these resolutions but to file them too.”

The report recommends asset managers strengthen voting policies by explicitly committing to support shareholder resolutions related to ESG issues on a ‘comply or explain’ basis.

It also suggests asset managers improve transparency on proxy voting by publishing voting policies and voting rationales in a manner that is timely and user friendly and commit to voting at all AGMs.