Large asset managers evading ESG responsibilities

Sustainable funds from big groups can have proxy votes that conflict with ESG mandates, according to Morningstar


Jassmyn Goh

Traditional asset managers are not fulfilling their environmental, social, and governance (ESG) promises when it comes to proxy voting, according to Morningstar Direct.

The research house’s latest report on climate change proxy votes found that ESG funds from Blackrock, Vanguard, Fidelity Investments, and TIAA-CREF and others had a number of proxy votes that conflicted with their ESG mandates, including funds specifically aimed at the environment.

The research said in 2018, Blackrock Impact US Equity fund voted against resolutions calling for greater greenhouse gas disclosure from Chevron, Fluor, and Range Resources despite having greenhouse gas emissions as one of the fund’s societal-impact outcome.

“Sustainable funds offered by some of the larger ‘traditional’ asset managers were not uniformly supportive of climate-related resolutions,” the report said.

Source: Morningstar Direct

“One reason for the inconsistent voting pattern among funds offered by non-ESG-specialist firms relates to their proxy-voting practices.

“At some firms, proxy votes are consistent across the entire fund family irrespective of their mandate. At other firms, individual fund managers have more discretion.”

Morningstar’s director of sustainable stewardship research, Jackie Cook, told Expert Investor that while conventional asset managers added ESG funds to their suite, their ESG fund might not offer the same level of commitment that you would expect given their mandates due to these voting guidelines.

Engagement not a substitute for voting

Cook said when large asset managers were asked why their proxy votes were not in line with the ESG fund mandates they would point to the fact that they would engage with dialogue.

“While engagement has a lot of power, engagement reporting is not standardised. We don’t know which companies they’ve engaged with and in the case of BlackRock and Vanguard and we don’t know what issues have been engaged with specific companies – are they addressing climate risk with oil and gas companies? Are they addressing palm oil?

“We need to know the issues that are most relevant to the companies are being brought up and we also want to know whether the outcome leads to action. How long do you give companies to do something about these risks before you decide to vote against them?

“Proxy voting gives the stewardship and if you’re engaging with the company, the company needs to know you are serious about using your vote otherwise there is no real incentive to engaging in good faith.”

Cook noted that engagement should not be a replacement for proxy voting as it was a strong complement to voting.

Inconsistent voting

The report found that Blackrock’s sustainable funds’ voting practices are governed by a separate set of voting guidelines compared to their non-sustainable funds and showed more differentiation in voting patterns for other shareholder resolutions.

“Blackrock’s sustainable ETFs and iShares MSCI Global Impact ETF (SDG) supported the sustainability report request at Acuity, and Blackrock’s low-carbon-target ETF (CRBN) alone supported the greenhouse gas goals resolutions at Fluor,” the report said.

“Funds offered by Nuveen, which was acquired by TIAA-CREF in 2014, supported the methane disclosure resolution at Dominion, whereas the TIAA-CREF funds, including TIAA-CREF Social Choice Equity (TISCX), voted against the resolution.”

Source: Morningstar Direct

However, the report noted that over 2016 to 2018 voting patterns had changed a lot as votes cast in 2018 by the largest managers increased year-on-year in support for all climate resolutions voted in 2016.

Cook said that fund selectors that were serious about ESG needed to look at the asset managers’ proxy voting outcomes, what was in their engagement report, and stewardship disclosure.

  • This article first appeared on ESG Clarity‘s sister site Expert Investor.


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