Asset managers used proxy voting more than ever last year amid increased calls for transparency and a focus on stewardship, a report from ShareAction has found.
However, the impact from industry coalitions and large asset managers remains to be seen.
The fourth edition of ShareAction’s Voting Matters report analysed how 68 of the world’s largest asset managers voted on 252 shareholder resolutions tabled to address environmental and social crises last year.
It found overall votes for environmental and social resolutions increased from 60% in 2021 to 66% in 2022, as well as fewer ‘did not votes’ across the board.
In Europe in particular, asset managers are upping their voting game, with three asset managers – SEB Investment Management, PGGM Investments, and Eurizon Asset Management – improving their voting performance by 30%.
See also: – The top asset managers voting in favour of climate change resolutions
Eurizon Asset Management’s progress follows an update to their voting policy. Meanwhile, SEB Investment Management recently launched a public voting dashboard. Increased transparency on how they voted may have pushed them to vote more progressively, the report noted.
European asset managers backed on average 81% of proposals in 2022 compared with 69% in 2021. US and UK asset managers on average showed only a 1% increase.
The report noted this improved performance coincides with the strengthening of EU legislation on ESG reporting, with the EU Shareholder Rights Directive having come into force in September 2020, requiring managers to report on their shareholder engagement and investment strategies. Currently no such mandatory reporting legislation around ESG exists in the US. A widening gap in client expectations on climate may also be driving the divergence between European and American voting trends, it said.
“Policymakers must step up in legislating to enhance proxy voting transparency and improve accountability for asset managers whose track record on voting is at odds with their sustainability claims,” commented Claudia Gray, head of financial sector research at ShareAction.
Three factors limiting improvement
Despite this progress, the impact of voting may be prevented by a number of factors. First, ShareAction found asset managers are much more likely to support disclosure-based resolutions, rather than ones focused on taking action.
Resolutions for action
Action-oriented resolutions request companies to adopt policies and set targets rather than solely disclose information. As a result, they are more likely to drive change that improves a company’s impact on people and planet.
ShareAction compared asset managers’ voting on action-oriented resolutions with their overall voting and found only three – Wellington Management, Generali Insurance Asset Management and Man Group – voted on action-oriented resolutions in line or more than other ESG resolutions.
Some asset managers mentioned they were unwilling to support action-oriented resolutions because the wording was too prescriptive and they did not want to micro-manage the company. “However, asset managers have unique expertise in seeing whole economy, long term threats that require a company to urgently adapt,” ShareAction said. “Supporting action-oriented resolutions can therefore represent clients’ best interests by managing systemic, long-term risks.”
The big four
The second factor blocking progress on ESG resolutions is the fact the four largest asset managers in the world voted for significantly fewer climate and social resolutions than they did in 2021.
On average, Vanguard, Fidelity Investments, BlackRock and State Street supported 20% of resolutions in 2022, compared with 32% in 2021, and tended to vote more conservatively than their proxy advisers recommended.
“Because of the size of their holdings, these asset managers have a particularly large influence on corporate behaviour through their voting decisions. The $27trn in assets they manage is equivalent to the market capitalisation of the 250 largest companies in the US,” the report said.
The support of BlackRock, Vanguard and State Street would have resulted in successful resolutions to secure paid sick leave for all 270,000 global employees at TJX department stores, owner of TK Maxx in the UK, a company with a net income of $3.3bn, ShareAction added.
It would also have secured disclosures from Amazon around how the company is protecting the freedom of association of its employees, including their right to unionise. With majority support, energy companies such as Chevron, ConocoPhilips and Valero would have been encouraged to set targets for reducing their greenhouse gas emissions in alignment with the net-zero goals of the Paris Agreement.
Some large asset managers cited the increased number and lower quality of resolutions in 2022 as the reason for the decline. “It is also notable that the reduction coincided with the high-profile ‘ESG backlash’ in the US as well as the evolution of resolutions on climate from disclosure and governance to addressing transition planning and execution,” the report noted.
Impact of coalitions
The final limiting factor the report found was the impact of coalitions such as Climate Action 100+ (CA100+) and the Net Zero Asset Managers (NZAM) initiative.
Asset managers in the world’s largest investor initiative on climate change, CA100+, tended to vote more favourably for climate resolutions than non-members, supporting 67% versus 51%, though still failed to support a third of climate resolutions in the sample. NZAM members supported 63% of climate resolutions by comparison with 61% backed by non-members. These findings were in line with last year’s Voting Matters report.
“This throws into question whether either initiative is meaningfully ensuring members are using their voting rights to drive action on climate change,” the report said.
Gray commented: “Asset managers must strengthen their voting policies, ideally through a commitment to ‘comply or explain’, meaning default support for resolutions with positive environmental and social impacts, and issuing a public explanation when votes are not cast in favour.”
