Large fund group votes stymying ESG resolutions

Some of the world’s largest fund groups voted against nearly 90 per cent of ESG-related shareholder resolutions in 2019, despite overall investor support for these proposals climbing in the past five years, a report by Morningstar reveals.

The report, titled ‘Proxy Voting by 50 US Fund Families’, examined the five-year record of the largest asset managers offering funds to US investors.
While support for ESG-related shareholder resolutions across the 50 fund groups has nearly doubled from 27 per cent in 2015 to 46 per cent in 2019, large asset managers are often keeping many ESG initiatives from coming to fruition.

Five of the 10 largest fund families - Vanguard, BlackRock, American Funds, T. Rowe Price, and DFA Funds offered by Dimensional Fund Advisors - voted against more than 88 per cent of ESG-related shareholder resolutions last year, according to the report.

The largest, Vanguard and BlackRock, each only supported 7 per cent of ESG resolutions that came to vote.

Morningstar’s paper follows BlackRock’s announcement earlier this year that sustainability would be its new standard for investing. The fund giant has also joined influential investor group Climate Action 100+, leaving many wondering if this will signal a sea change in BlackRock’s proxy voting approach.

“Votes by BlackRock in support of sustainability measures would amplify the impact of others’ votes and potentially cause more resolutions to pass,” Morningstar stated in the report.

“Other large asset managers who, in the past, have routinely sided with management may realize that the time has come to take a more active approach to proxy voting,” it said.

Meanwhile, Vanguard has come under increasing pressure to address its climate change stance. While the fund manager has asserted that it should not tell company bosses what to do, it has declared it will continue to address climate change risk and support transparent ESG disclosures.

Funds offered by Allianz Global Investors, Blackstone, Eaton Vance and PIMCO were the most likely to support shareholder proposed ESG resolutions in 2019, voting for these resolutions more than 87 per cent of the time, the report also revealed.

Over the last five years, DWS, Allianz Global Investors, Blackstone, Nuveen and AQR Funds supported ESG shareholder proposals most often, with DWS leading the way - supporting 89 per cent of all 998 items voted.
On the other side of the fence, DFA only supported nine out of 1,004 ESG resolutions voted over the five years.

Despite the growing and widespread asset-manager support for ESG resolutions, opposition by some of the largest asset managers keeps overall voted totals low; in some cases, holding resolution support below 50 per cent of shares voted.

In a significant number of cases, a vote by just one large asset manager would have tipped the vote outcome on a resolution to a majority vote for the motion, the report found.

Of the 23 ESG resolutions that achieved between 40 - 50 per cent support, 19 would have passed if supported by Vanguard, 15 would have passed if supported by BlackRock, four would have gone thorough if backed by T. Rowe Price, and one would have passed if supported by J.P. Morgan.

Had BlackRock and Vanguard voted their stakes in support of lobbying transparency at Exxon’s annual meeting in May 2019, that proposal, which earned 37 per cent support, would have passed, the report noted.