Industry

Asset Managers Called Out on ESG Voting Records

Many managers failing to back resolutions as asset owners look to improve stewardship of investee companies in the transition to net zero.

Some of the world’s largest asset managers are continuing to block efforts to improve performance at listed companies on environmental and social issues, according to responsible investment NGO ShareAction. A number of these firms are members of the Net Zero Asset Managers (NZAM) initiative and Climate Action 100+ (CA100+), a US$54 trillion investor engagement initiative working with global corporates to drive faster corporate climate action.

In its 2021 ‘Voting Matters’ report, ShareAction examined how 65 global asset managers voted across 146 social and environmental shareholder resolutions during the annual general meeting (AGM) season. Asset owners have been encouraged to use the findings to inform their future asset manager selection, monitoring and reviewing processes.

CA100+ and NZAM initiative members voted against almost a third of environmental resolutions. Asset manager members of CA100+ supported 72% of climate resolutions compared to 53% for non-members, whereas NZAM signatories supported 70% versus 61% for non-members.

Both groups contained “significant laggards”, ShareAction said, with Swedbank Robur and Santander Asset Management supporting fewer than 20% of climate resolutions, despite being members of both initiatives. Seven asset managers voted on fewer than 60% of corporate resolutions, yet five of these are CA100+ members. NZAM signatory MEAG didn’t support a single climate resolution, the report added.

Since the NZAM initiative was launched in December last year, it has grown to 220 signatories with US$57 trillion in AUM. They have commited to setting interim decarbonisation targets for 2030 and reporting progress annually against the Task Force for Climate-related Financial Disclosures recommendations.  Members are also required to implement a stewardship and engagement strategy “with a clear escalation and voting policy”, consistent with 2050 net zero ambitions.

In the run-up to COP26, NZAM published a progress update, including details on the targets set by 43 early joiners of the initiative. Of these, eleven committed to targets covering 100% of AUM.

Low levels of support for social resolutions

ShareAction found that asset managers supported social-focused resolutions at “considerably lower levels” compared to environmental resolutions. Only 15% of assessed social resolutions received majority support, with disclosure-related resolutions on diversity receiving the highest level of support.

By not voting, asset managers are sending a signal to these companies that “their behaviour on environmental and social issues is not of interest to their shareholders”, the report said.

With a combined US$6 trillion in assets under management, the six largest asset managers in the world – BlackRock, Vanguard, Fidelity Investments, State Street Global Advisors, Capital Group and JP Morgan Asset Management – backed fewer shareholder proposals than their proxy advisors recommended. Institutional Shareholder Services recommended that investors support 75% of assessed shareholder resolutions and Glass Lewis recommended that investors should support 44%. Each of the six asset managers supported fewer than 40% of the resolutions they voted on, the report said.

“The very largest asset managers’ voting records provide particular cause for concern,” ShareAction added. “Eighteen additional resolutions would have received majority support if one or more of the world’s three largest asset managers had switched to vote in favour of them.”

Last year, ShareAction noted that twice as many shareholder resolutions on social and climate-related policies would have passed over the course of the year if they had been backed by the largest asset managers. BlackRock and Vanguard supported fewer than 15% of climate and social resolutions, at 12% and 14% respectively in 2020.

This year’s report found that the top five performing asset managers – Impax Asset Management, BNP Paribas Asset Management, Achmea Investment Management, Robeco and Amundi – voted in favour of over 95% of assessed resolutions where they had holdings.

Asset owners getting tough on stewardship

Poor voting records on ESG-related issues are increasingly unacceptable in the eyes of responsible asset owners as they increase their focus on stewardship and ensuring asset managers are adhering to their voting policies.

According to UK pension scheme Railpen’s 2022 voting policy, it will be exercising caution when endorsing investee company climate transition plans through voting. “We will vote in line with our assessment as to whether the plan meets our minimum quality standards for net zero alignment,” the report said. Railpen will also consider voting against the corporate director deemed responsible for the transition plan if minimum standards are not met.

From next year, Railpen will also be intensifying its company- and policymaker-focused engagement for equal voting rights at well-established companies, to ensure that “long-term investors can fulfil their roles as effective stewards”. Its updated policy reflects the asset owner’s increased focus on ESG-related issues, such as executive remuneration, the climate transition and workplace representation.

“We expect our external managers to consider our views and priority issues in their own voting policies and activities,” Railpen said. The UK pension fund has £37 billion in assets as of the end of November 2021.

Railpen is also a member of the UK’s Occupational Pensions Stewardship Council, which recently wrote to asset managers demanding a greater say for asset owners on climate and other ESG-related issues during 2022’s AGM season. UK Pensions Minister Guy Opperman, who also wrote to managers, said that “the days of trustees leaving everything to asset managers without scrutiny must come to an end”.

The council was set up by the UK Department for Work and Pensions to promote and facilitate high standards of stewardship of pension assets.

At COP26, UK-based asset owners spanning the education and charity sectors set out minimum expectations for asset managers’ climate policies, including active stewardship and voting practices. This will help signatories assess the credentials of their asset managers, ensuring that they maintain a baseline standard across sustainability-related practices.

ShareAction called on asset managers to use its analysis to closely assess their performance compared to their peers and identify areas for improvement. Asset managers should further look to update their voting policies, it said, explicitly committing to supporting shareholder resolutions on ESG issues on a ‘comply or explain’ basis and improve overall voting transparency.

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