Asset Owners Should Vote with Their Feet on Climate

Engagement is “cosmetic at best” and managers are failing to follow through on tackling fossil fuel firms in AGM voting, Reclaim Finance says. 

Asset owners must hold asset managers more accountable for their failure to engage meaningfully with fossil fuel firms, said NGO Reclaim Finance, in an assessment of climate votes at 2023 AGMs. 

In the report, Reclaim Finance assessed the policies and practices of 30 asset managers at the 2023 AGMs of 75 fossil fuel firms. This included votes on Say on Climate, climate-related shareholder resolutions, re-election of board members, and remuneration and financial statements, as well as proxy voting policies. 

The France-based NGO made several recommendations for asset owners to tackle the problem, including actively engaging with asset managers in adopting robust climate-related voting policies and practices. 

As well as requiring votes by asset managers to align with their own climate voting policies, asset owners should require managers to have “clear and consistent” climate voting practices that “promote a rapid transition away from fossil fuels”.  

“Ultimately, asset owners should take their business elsewhere if their current managers fail to introduce this,” the report recommended.  

Reclaim Finance said the report’s findings need to serve as a “wake-up call” for asset owners which should act to ensure their long-term interests are not being “eclipsed” by asset managers’ short-term considerations. 

The assessment follows the publication of the UK Asset Owner Roundtable-instigated UK Asset Owner Stewardship Review 2023 last month. The review’s objective was to explain how asset owners’ long-term interests have been served by their asset managers when exercising their stewardship and proxy voting at major oil and gas firms.  

The review found that some asset managers view voting and ESG engagement as “mutually exclusive” and appear to “fear the loss of access” to management at firms.  

Another key finding was a “substantial divergence” between asset managers’ interpretation of shareholders’ and society’s interests. Some were aligned with asset owners, while others had “fundamentally different” views that “may be consistent with short-term commercial interest but do not reflect scientific evidence”. 

Asset manager approach overhaul 

Reclaim Finance’s analysis found that asset managers had made “very limited” efforts to engage fossil fuel companies on climate issues at 2023 AGMs which were “cosmetic at best”.  

Agathe Masson, Stewardship Campaigner at Reclaim Finance, said asset managers “talk a good game” on climate engagement but appear to have “forgotten the aim of the game” when the time comes to take action. 

“[Managers] have weak expectations for companies, prioritising disclosure indicators over concrete climate action in their proxy voting policies,” the report noted, adding that managers failed to “look beyond specific climate votes” which were only held at 15% of analysed firms. 

In total, 85% of the 75 fossil fuel companies did not have a specific climate-related vote on the agenda of their respective AGMs. In 2023, only 22 climate-related shareholder resolutions were filed at 11 of the companies assessed in this report and just two – at TotalEnergies and Shell – were eventually approved. 

Despite almost all of the assessed asset managers having joined investor coalition Climate Action 100+, Reclaim Finance found their voting policies and practices in 2023 showed all had supported companies’ fossil fuel expansion plans. 

“At first glance, asset managers seem to be willing to exert significant efforts to help companies transition,” the report said. “However, when assessing the effectiveness of climate stewardship activities, it becomes evident that promises are not followed by sufficient actions to align investee companies with a credible 1.5°C pathway.”  

Reclaim Finance said the 2024 AGM season will be crucial for aligning high-emitting companies with a 1.5°C pathway and that asset managers need to “radically change” their approach to “clearly condemn climate-hostile companies”.  

The report suggested this can be done through the introduction of “robust” voting policies and setting clear standards for companies in their portfolios.  

The NGO said fossil fuel expansion should be a red line for not supporting a company’s strategy in all routine management- proposed votes and not just those that are specifically climate-related votes. 

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