Voting fintech argues FCA should mandate fund managers to disclose their position on clients voting on their shares as part of wider consultation on sustainable fund labels and greenwashing.
Investment funds should be forced to disclose to investors whether they permit them to vote on their shares, Tumelo, an investor voting fintech, has said in response to the UK’s Financial Conduct Authority (FCA) consultation on sustainable fund labels to tackle greenwashing.
The consultation closed this week with wide market input. One area highlighted for change by investment consultancy firm Redington was that the Sustainable Disclosure Requirement (SDR) proposals should also apply to products marketed for institutional investors, not just retail.
Tumelo is also arguing for a change to make sure asset managers are forced to disclose their policy on allowing clients to vote on their shares as part of pre-sale disclosure documents and fund managers’ annual reporting.
Explaining its reasoning, Georgia Stewart, CEO and co-founder of Tumelo, said: “It’s time that regulators like the FCA gave due focus to the second and arguably most important role that fund managers play – that of stewards.
“In my opinion, the FCA consultation is about demanding transparency over questions that investors don’t know to ask or can’t ask, and that includes voting.”
Stewart added that many fund managers did not offer the flexibility of voting, and if they did, most clients didn’t know that the option was available. “Because investors aren’t aware, they don’t ask; because investors don’t ask, fund managers assume there’s is no demand. This is a perfect case for greater transparency,” she said.
The FCA is already focused on asset managers’ voting behaviour, with plans to set up a Vote Reporting Group that will create a disclosure regime for firms covering their voting activity at the fund or mandate level.
ESG Investor reported last year that the vote reporting framework will include information on whether there was a vote against the board; on details of votes against and for resolutions put down by shareholders; on whether a vote was withheld; whether or not the vote was in line with the manager’s published policy, and the rationale for the vote.
Voting rights and transparency is rising up the agenda for asset managers, with the world’s largest funds moving to let some clients vote on their shares. BlackRock, Vanguard and State Street have all passed some voting rights to clients. DWS was the first asset manager to offer this type of option in 2021.
Some in the market see these moves reflecting the fact that influence is increasingly focused among the ‘Big Three’ fund managers, whilst their views on ESG are increasingly polarised and shareholder rights increasingly controversial.
A 2019 study found the three collectively cast an average of about 25% of votes at S&P 500 companies.
BlackRock’s CEO Larry Fink has been a vocal advocate for the moves, saying new shareholder democracy could have a “transformative power” for markets.
UK pension funds have also pushed for these moves on letting asset owners vote on their shares.
However, not everyone thinks this is the right direction to take. An investment consultant told ESG Investor that instead of dissipating influence between different asset owners on voting, “it would be much better for managers to step up and deliver more effectively and take decisions that are clearly in the interest of clients”.
A UK-based asset manager also said it is better for them to vote on their shares in one block, arguing that there could be up to 50,000 votes in year – “identifying which ones matter is a massive job.”