European asset managers have boosted their support for ESG proposals, while US and UK asset managers stagnate.
News this week that the world’s largest asset managers, including BlackRock and Vanguard, curtailed support in 2022 for ESG-focused resolutions should come as little surprise.
BlackRock has been vocal, since Q2 2022, on its intention to support less environmental and social proposals. Vanguard’s decision to leave the Net Zero Investment Managers initiative (NZAMi) in December signalled a more conservative approach to ESG. Additionally, managers in the US are more acutely affected by the country’s anti-ESG sentiment, with even Republican members of the US Banking Senate Committee slamming the Big Three asset managers for their ESG voting to “advance a liberal political agenda”.
Nevertheless, the hard numbers, revealed by responsible investment NGO ShareAction this week in its new report Voting Matters 2022, are still surprising in how far some leading asset managers have swung in such a short space of time.
Vanguard’s support for ESG proposals plummeted to 10% in 2022 from 26% the previous year. BlackRock dropped to 24% from 40% and Fidelity to 17% from 29%. State Street Global Advisors had a relatively modest drop to 28% from 32%.
The impact of these changes on decisions carried at AGMs is likely to have been significant, given the large influence on corporate behaviour these four hold through their voting power. The US$27 trillion in assets they collectively manage is equivalent to the market capitalisation of the 250 largest companies in the US, said ShareAction.
An analysis of 252 ESG-focused resolutions found that 19% of them would have received majority support if BlackRock, Vanguard and State Street Global Advisors had supported them. They covered topics from racial equity and lobbying transparency to climate action.
ESG Investor asked BlackRock, Fidelity and Vanguard for comment on their steep drop in support for ESG proposals. Fidelity and Vanguard did not respond to enquiries.
A BlackRock spokeswoman said it had observed a marked increase in more prescriptive environmental and social (E&S) shareholder proposals last proxy season. “Of the E&S shareholder proposals BIS [BlackRock Investment Stewardship] did not support, the majority were because the company had substantially implemented or was already making notable progress on the issue being addressed,” she said.
Dan Mikulskis, a Partner at UK-based investment consultancy LCP, does not buy this argument, telling ESG Investor, “It’s a bit of a cop out.”
Mikulskis said there are plenty of cases where a European asset manager has backed an ESG resolution which a US asset manager will not support. While acknowledging the lower hurdle in the US for filing resolutions than in other jurisdictions, he said the bifurcation between Europe and the US suggests the “too prescriptive” argument is just “cover” in some cases.
ShareAction found European asset managers, on average, backed 81% of ESG proposals in 2022 compared to 69% in 2021. This is in stark contrast to the US and UK where managers on average only showed a 1 percentage point increase.
Regulation, suggested ShareAction, has boosted European asset manager’s voting behaviour. Since 2020, rules under the EU Shareholder Rights Directive require managers to report on their shareholder engagement, voting behaviour and proxy advisor services to clients. The UK is mulling a similar move, with the country’s Financial Conduct Authority looking to set up a Vote Reporting Group to guide disclosure from asset managers.
But Mikulskis also attributed the drop in support from large asset managers with a change in the focus of ESG resolutions. In previous years, most ESG resolutions focused on disclosure, “which no-one is going to lose sleep over and doesn’t cost that much,” he says. The last proxy season saw much more ESG resolutions which were action-focused such as requesting companies adopt specific policies.
“Everyone can support disclosure. Once you move on from disclosure..that’s where it starts to get interesting and you see a difference,” he explained.
ShareAction found overall asset managers didn’t support action-orientated resolutions in 2022 – which it says are more impactful – as much as disclosure-orientated resolutions.
Felix Nagrawala, Research Manager, ShareAction, noted that the largest fall was in ESG proposals targeting the energy sector, particularly fossil fuels. He said the massive inflation in these stocks since Russia’s invasion of Ukraine had led to asset managers putting short-term profit above long-term environmental preservation.
Notably, BlackRock backed 72% of environmental resolutions at energy companies in 2021 compared to just 16% in 2022.
Paul Lee, Head of Stewardship and Sustainability at consultancy Redington, said shareholder voting, while important, can be given too much attention, as it is more visible and public. “The more important side of stewardship is engagement because that is where you can really be fully influential as an investor,” he said.
But he admitted that investor concerns could be heightened in instances where managers claim to be engaging in place of voting at companies. Lee suggested that in these cases a better voting record could help reinforce private conversations with companies.
Greater disclosure and visibility are needed, said Mikulskis, adding that analyses of voting records were “a must-read” for asset owners and consultants to get a handle objectively on the voting behaviour of asset managers.