ShareAction analysis of proxy voting records reveals wide variations in support for sustainability measures among investee companies.
Twice as many shareholder resolutions on social and climate-related policies would have passed over the past 12 months if they had been backed by one of the three largest asset management firms, according to a new study of proxy voting records from ShareAction.
An analysis of 102 shareholder resolutions on social and climate policies in the most recent AGM cycle (September 2019 to August 2020) found that only 15 passed the required 50% threshold. But a further 17 would have been successful if they had gained the backing of one or more of BlackRock, State Street Global Advisors or Vanguard Group.
Although two thirds of the 60 asset managers under scrutiny are signatories of the Climate Action 100+ campaign group, the study found huge differences in voting records on climate-related resolutions, as well as significant changes from previous years.
AEGON Investment Management and Man Group supported 100% of climate resolutions, while Impax Asset Management, Aviva Investors and PGGM Investments all supported more than 95% of the resolutions analysed.
A number of US-based asset managers increased their support for climate resolutions, with JP Morgan Asset Management backing 51% compared with 7% in 2018/19 and Northern Trust voting for 79%, versus 21% twelve months ago.
Elsewhere, there was less change, with BlackRock (12%) and Vanguard (14%) supporting fewer than 15% of climate and social resolutions. Lyxor Asset Management, a leading provider of exchange-traded funds, backed only 2% of climate-related resolutions.
Colin Baines, Investment Engagement Manager at Friends Provident Foundation, said asset managers needed to be prepared to oppose management when required, to avoid suspicions of greenwashing among asset owners.
“Asset manager claims to ESG integration and engagement need to be evidenced by more than just signing up to third party initiatives, ‘ESG for beginners’ requires you to actually vote for ESG resolutions,” said Baines. “How can any asset manager claim to support the Paris climate agreement and be engaging high risk sectors like oil and gas to align and then vote against what they are engaging for? It is simply not credible.”
Engagement needs to show “greater ambition”
All three of the world’s largest asset managers have committed to improving their stewardship and engagement capabilities, pledging to place greater emphasis on scrutiny of the ESG-related policies of their investee companies. Notably, BlackRock CEO Larry Fink told clients in March that sustainability should be “the new standard in investing”.
In October, BlackRock published its latest quarterly stewardship report, which reported a 21% annual increase in engagement activity with companies on ESG issues. The ShareAction report highlighted several instances in which managers had engaged privately rather than show their opposition in public, especially if the company was performing better than peers.
In particular, eight asset managers cited Total’s positive engagement with ClimateAction 100+ as a reason not to back a resolution calling for the French energy firm to set greenhouse gas targets aligned with the goals of the Paris Agreement. Report co-author Jeanne Martin said engagement was an important but limited tool.
“Given the scale of the climate crisis, it is concerning that some investors shy away from voting on critical resolutions at high carbon companies on the basis of engaging with them privately,” she said.
“Regardless of the company’s progress compared to its peers, if its strategy remains inadequate, investors need to support resolutions pushing for greater ambition.”
Despite many expressions that the Covid-19 pandemic had increased awareness of social issues, the ShareAction report found mixed levels of support for related resolutions, including an apparent reluctance to back motions calling for disclosure of pay gaps.
Further, investors were more likely to support gender-based disclosures than ethnicity-related reporting. On average 46% of investors supported gender disclosures, compared with just 28% who voted in favour of resolutions asking companies to disclose both gender and racial pay gaps.
Greater voting vigilance by asset owners
Earlier this month, the UK’s HM Treasury-led Asset Management Taskforce published a 20-point blueprint to improve stewardship standards among institutional investors, backed by the Investment Association and ShareAction. The initiative follows increasing evidence that the policies of asset owners are not reflected in the client voting records of pooled investment vehicles, including on ESG-related issues.
In Asia, a survey by the CFA Institute recently found a low level of awareness of stewardship codes among institutional investors in the Asia-Pacific region, with four in ten (42%) investment professionals rating themselves as having little or no understanding of stewardship codes in the markets in which they invest.
Separately, a survey of asset owners conducted by Institutional Shareholder Services suggested that investors are increasingly considering bringing ESG-related assessments and related activities in-house.
ShareAction described voting as “a key method of implementation” and called for asset owners to increase their vigilance of asset managers’ proxy voting records, particularly on ESG-related themes and to include monitoring of their engagement activities in their manager selection processes.
“The list of resolutions is not conclusive but it is a great place to start when it comes to asking why asset managers voted a certain way and how their other engagement fits with their voting record,” the report said. “Voting should be seen as part of the engagement process and not only for the stocks with the very worst ESG performance.”
The report also recommended asset owners ask managers to explain their use of abstentions and/or special exemptions during the last 12 months and to disclose both their voting instructions and the rationale behind their votes on controversial resolutions.
The ShareAction survey selected the 60 asset managers analysed based on assets under management and examined their voting records on shareholder resolutions on climate change, climate-related lobbying, and social issues including human rights due diligence, pay, and diversity, during the period September 2019 to August 2020.
The resolutions were drawn from databases of shareholder resolutions held by ShareAction, ProxyInsight, Ceres and the Australasian Centre for Corporate Responsibility. When calculating the percentage of votes ‘For’, only votes in favour were counted. Votes ‘Against’, ‘Abstentions’ and Do Not Vote were not given any marks.