New report from NGO ShareAction finds sharp fall in support for ESG proxy votes with a slip to 3% in 2023.
Asset managers persistently fail to support shareholder resolutions asking major banks and insurers to outline a plan for phasing out fossil fuel, ShareAction has revealed in its new Voting Matters report.
According to the report, 69 of the world’s largest asset managers – who manage wealth roughly equal to 60% of the global economy – voted on a total 257 shareholder resolutions focused on social and environmental issues last year. However, only eight of them were passed.
The findings also revealed an “enduring pattern of poor support” for climate resolutions regarding fossil fuel financing. Such resolutions averaged 22% of support in 2022, but dropped to 16% only last year – the lowest average support across the report. The resolutions were primarily action-orientated and largely concerned major banks and insurers, asking them to put forward a plan for phasing out fossil fuel development financing and fossil fuel projects underwriting.
The rationale given by many asset managers for not supporting more financing-related climate resolutions was that they were too prescriptive and interfered in, or distracted from, company strategy set by management. Yet, most of these resolutions merely asked companies to establish plans to phase out fossil fuels financing, in line with the Paris Agreement and international scientific consensus around limiting global temperature rises to 1.5C” – without dictating the details of their transition plans.
US / Europe split
The report revealed a sharp decrease in support for ESG shareholder resolutions, which fell from from 21% in 2021 to only 3% in 2023. The four largest asset managers of the 69 included in the study majorly contributed to the drop, according to ShareAction, having displayed a significant and consistent decline in support.
BlackRock, for instance, only supported 8% of the 257 environmental and social shareholder resolutions analysed by ShareAction in 2023, compared to 40% in 2021. State Street Global Advisors, for its part, supported 23% of them, while Fidelity Investments supported 16%, and Vanguard 3% only.
ShareAction also reported that the world’s largest asset managers, which are all based in the US, have an outsized influence on corporate behaviour through their ownership of the world’s largest companies. Together, they manage a combined US$23 trillion in assets – a figure roughly equivalent to the US’ GDP.
Across the pond, European asset managers seem much more supportive of such resolutions overall, having voted in favour of 88% ESG-related shareholder proposals in 2023. All European countries were on an upward trend last year – with the exception of the UK, where asset managers’ support hovered around 64% on average.
For ShareAction, this is an indication that EU regulation such as the EU Shareholder Rights Directive, which requires managers to report on their shareholder engagement policy, have had a positive impact.
A new report from Morningstar evidenced a similar gap between the US and Europe, having found an average support of 50% for ESG resolutions among 20 US asset managers in the US, compared to a skyrocketing 98% among 15 European counterparts.
Morningstar said it didn’t expect that trend to change next year, adding that sustainability-minded investors worldwide would likely continue to question whether their objectives are aligned with US managers’ shrinking support for ESG resolutions.
In its 2024 outlook for ESG, Moody’s also warned against a “substantial risk for further polarisation around ESG-related issues” in the context of the many nationwide elections due to take place in major economies across the world this year.
Biodiversity and human rights neglect
Another key finding in ShareAction’s report was that asset managers have continued to disregard particularly pressing social and environmental issues.
As a case in point, biodiversity was highly neglected last year, with only two resolutions having addressing biodiversity loss directly through the topics of sustainable materials procurement and deforestation. A further eight resolutions on plastic use and pollution mentioned the threats posed to wildlife or ecosystems in their rationale.
In addition, asset managers have continued to invest in the world’s largest weapons companies and to vote against human rights proposals.
“Ongoing conflicts in Ukraine and Palestine have resulted in surging share prices for weapons companies,” the report read. “Eleven asset managers which are profiting from these conflicts through continued investment voted against proposals asking companies to report on their human rights impact.”
These included resolutions filed at General Dynamics and Lockheed Martin asking them to produce a report assessing the human rights impacts of their operations, and another filed at Northrop Grumman to assess the alignment of its political lobbying activities with its human rights policy.
All three companies have experienced rises in their stock prices following the latest upsurge of violence in Israel and Palestine. “General Dynamics and Lockheed Martin weaponry has been linked to war crimes and other violations of international law committed by Saudi Arabia in Yemen – including a 2018 school bus bombing – and by Israel in Palestine,” the report read.
On a positive note, asset management firm EFG was ranked number one on support for ESG-related shareholder proposals, followed by Netherlands-based Achmea Investment Management and French group Amundi. In contrast, US-based firms Dimensional Fund Advisors, Goldman Sachs Asset Management and Vanguard ranked as the bottom three.