Stockholm (NordSIP) – ShareAction published a new report analysing the climate change voting record of asset managers at companies’ AGMs. According to the report, “US asset managers are clear laggards in terms of proxy voting on climate, whilst European asset managers lead the way.” The report examines how 57 of the world’s largest asset managers voted on 65 shareholder resolutions linked to climate change during 2019.
Leaders
Starting with the positive, UBS AM (Switzerland), Allianz Global Investors (Germany), Aviva Investors (UK), HSBC AM (UK) and LGIM (UK) all supported over 80% of climate change shareholder resolutions.
Other asset managers that were top supporters of initiatives to fight climate change include France’s Axa IM (78.7%), Canada’s Manulife AM (73.8%), Germany’s DWS (73.8%) and the UK’s Aberdeen SI (73.8%). From Japan, Nikko AM (75.4%) and Asset Management One International (73.8%) also reached the top of the list.
US fund managers were nowhere to be seen among the top supporters. The report suggests several plausible explanations driving Europe’s leadership. Sustainable investments are more developed in Europe (48.8% of AUM) than in the USA (25.7% of AUM). Corporate engagement is also more developed in Europe, where such efforts cover 56% of the AUM of sustainable investments. In the USA, the figure is 18%.
Cultural issues, as they inform and permeate the societies where investors operate, also plays a role. USA citizens are twice as likely to doubt or deny climate change as their European neighbours according to statistics cited by ShareAction.
Another issue is the level of concentration of the USA’s asset management industry which leaves three managers holdings 25% of the SP500 index. While they may benefit the most from sustainability improvements, ShareAction reminds us that the flip-side of that argument the three managers may focus on the free-rider problem, that these benefits have to be shared with other investors. Finally, all these factors conspire to make European legislation much more supportive and even demanding of asset managers and companies taking action against climate change than their USA counterparts. However, yet other issues may be at play.
Laggards
The bottom 10 asset managers not supporting climate measures were all from the USA. The asset managers least supportive of climate change shareholder resolutions was Capital Group, which only supported 4.9% of these measures. Next in line were T. Rowe Price (5.3%), BlackRock (6.7%), JP Morgan (6.7%), Vanguard AM (8.3%), Fidelity Management & Research Co. (9.3%), Wellington MI (9.8%), Franklin Templeton (18%), Northern Trust (21.3%), SSGA (26.2%) and MetLife IM (31.6%).
The report did not go unanswered by the American asset managers we reached out to. “Our focus is on building long-term value on behalf of our clients, through engagement and informed proxy voting. We have the largest investment stewardship team in the industry and engage with companies even in the absence of shareholder proposals,” commented a BlackRock spokesperson.
BlackRock manages $68 billion in renewables, green bonds and other solutions that support the low carbon economy. By virtue of its size, BlackRock is the largest manager of Sustainable ETFs. Another issue is that over 90% of clients’ equity investments managed by BlackRock are held through index funds and ETFs. That means BlackRock is not able to simply or selectively divest from companies if its clients want to invest in an index that includes these companies. The asset manager has also engaged with 370 companies globally on the topic of climate risk in the past two years.
The use of proxy voting for stewardship purposes is nuanced and complex and must be understood in the context of other efforts such as dialogue and engagement, the BlackRock spokesperson argues. “We support shareholder proposals that we believe will enhance the value of our clients’ investments, but it would be wrong to measure the effectiveness of BlackRock’s investment stewardship efforts solely by our proxy voting record,” the spokesperson added. “We engaged 370 companies globally on the topic of climate risk in the past two years, more than five times the number of climate-related shareholder proposals that came to a vote over the same period. As the numbers demonstrate, we put a priority on understanding how a company is addressing climate-related issues even in the absence of shareholder proposals.”
T. Rowe Price took a similar nuanced stance. “It is T. Rowe Price’s policy to analyse every shareholder proposal of a social or environmental nature on a case by case basis,” a spokesperson for the asset manager explained. “Generally speaking, we support well-targeted proposals addressing concerns that are particularly relevant for a company’s business that have not yet been adequately addressed by management.”
“It is not our objective to use our vote to increase the level of conflict with the companies where our clients hold investments,” the spokesperson added. “Instead, our objective is to use our influence through the various stewardship activities to increase the probability that the company will outperform its peers, enabling our clients to achieve their investment goals. A proxy vote is an important shareholder right, but its power is limited to the one day per year when a company convenes its annual meeting. Influence—earned over time and applied thoughtfully—is a tool we use every day.”
“While there is encouraging improvement when it comes to voting for climate change resolutions, many still shy away from holding companies account,” the report concludes. “Investors voting power is the most powerful tool they have, it is vital that all investors use it.”
These results, as well as the managers’ responses, show that, in the US, the notion of fiduciary duty has not yet entirely shifted away from focusing on the pure risk/return trade-off, without regards to the notion of long-termism, as much as it has in Europe. However, the comparative nature of the study does suggest that some asset managers are leading the way in terms of what we could call “soft climate activitism”. Perhaps it is time for US managers (especially for the bottom quartile) to realize that after all, supporting “shareholder proposals that will enhance the value of clients’ investments” may imply taking into account that climate change needs to be counteracted rapidly.
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