Asset managers signed up to initiatives such as Climate Action 100+ (CA100+) and the Net Zero Asset Managers Initiative (NZAMI) are not using their voting rights to back climate adaptations at listed firms with members opposing a third of environmental resolutions this year, according to research.
NGO ShareAction analysed voting resolutions for environmental and social considerations from listed companies for the report Voting Matters 2021, and found the gap between CA100+ members and non-members on voting for climate resolutions is closing. Specifically, ShareAction found CA100+ and NZAMI members voted against almost one third of climate resolutions.
Members of CA100+ have pledged to engage with companies on improving governance, curbing emissions and strengthening climate-related financial disclosures, while NZAMI signatories commit to support the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5°C.
The report said members of NZAMI who are not also members of CA100+ do not outperform those who are members of neither coalition.
ShareAction said this “raises questions over the value of the NZAM initiative when it comes to voting”.
Key findings
The Voting Matters 2021 report assessed how 65 asset managers voted on 146 shareholder proposals from January to August 2021 covering:
- Environment: climate change, climate-related lobbying, environmental impacts;
- Social: human and labour rights, decent work, diversity, public health;
- Governance: Linking sustainability to executive pay.
Overall, ShareAction found out of the 146 ESG resolutions passed during the voting season, only 30 were majority backed by shareholders.
This means only 21% of ESG resolutions this voting season had majority support, indicating the asset management industry is largely failing to use its voting power to drive better environmental and social considerations.
‘Big three’
The report also found that while some asset managers have stepped up their game in terms of shareholder voting, some of the ‘big three’ are still voting conservatively and holding back industry progress.
On average, the 51 asset managers assessed in both 2020 and 2021 increased their proportion of votes in favour by just 4 percentage points, according to ShareAction.
However, Blackrock, Vanguard Group and State Street Global Advisors, which account for $20trn (£14.7trn) in assets under management and are the three largest asset managers in the world, could be blamed in part for the stagnation.
ShareAction highlighted research that found resolutions which pass the 50% threshold are implemented by the company in 94% of cases. Therefore, looking at votes from the ‘big three’ 18 resolutions on ESG issues could have passed the 50% threshold if one or more of Blackrock, Vanguard or State Street had voted differently.
For example, US energy infrastructure company, Sempra Energy, has been widely criticised for lobbying against energy efficiency standards. A shareholder resolution requested the board of directors issue a report describing how the company’s lobbying activities align with the goals of the Paris Agreement and how Sempra plans to mitigate risks presented by any misalignment.
Both ISS and Glass Lewis recommended that shareholders vote in favour of the resolution, but the ‘big three’ all voted against. As a result, the resolution secured just 37.5% support.
The report added Blackrock has shown improvement: it supported 40% of the assessed resolutions this year, compared to 12% last year, but it also still voted against:
- 100% (6 out of 6) resolutions on executive pay disparity;
- 72% (8 out of 11) resolutions on gender pay disparity;
- 100% (8 out of 8) resolutions on employee representation at board level;
- 100% of resolutions on public health and tobacco (7 out of 7);
- 100% (2 out of 2) of resolutions on weapons companies.
Social resolutions
Only 15% (13 out of 89) of social resolutions received majority support during the voting season although disclosure-related resolutions on diversity were more likely to be backed by shareholders than other social issues.
Movements to influence corporate behaviour struggled to achieve more than 30% of shareholder support, and 11 assessed asset managers voted against human rights-related shareholder proposals at companies supplying weapons to states engaged in conflict with a record of alleged human rights violations.
Recommendations
ShareAction issued a number of recommendations to asset managers highlighting the report has identified a number of areas that need improvement.
It said companies should strengthen their voting policies, improve transparency on proxy voting and commit to voting at all AGMs.
For asset owners, ShareAction said: “As stewards of capital for millions of beneficiaries, asset owners have a duty to monitor the engagement activities and proxy voting records of their asset managers.”
The NGO recommended that asset owners:
1. Use this research to inform their selection, monitoring and review of asset managers;
2. Engage with asset managers where they are falling short of expectations;
3. Engage with asset managers more generally to strengthen voting priorities and expectations.
For more on ESG investing, please visit esgclarity.com
