Stockholm (NordSIP) – Over the last half-decade, the world has moved from careless denial about sustainability issues towards what appears to be a race to the top as governments, companies and investors compete to show-off their sustainability commitments. In finance, for example, European sustainable equity strategies have tripled to US$600 billion over the last decade and are expected to outpace regular strategies by 2025.
Sadly, a recent study suggests that much of this effort has not resulted in more engagement than a decade ago. According to research conducted by Robeco’s Wilma de Groot and Jan de Koning, and Sebastian van Winkel of the Erasmus School of Economics, asset managers continue to predominantly vote against social and environmental proposals. Even PRI signatories appear not to be supporting ESG proposals when the time comes to vote at companies’ AGMs.
The analysis covers a decade of US shareholder voting by the largest 50 asset managers. According to the study, the number of environmental and social proposals brought forward has consistently remained low below 1% of all submissions, which contradicts the increased interest in sustainable investing over the last decade.
Not only are shareholders not engaging more with ESG issues, when they do they are not particularly more supportive of these proposals. According to the authors, the problem is even more pronounced among large and passive players. At the same time, access to relatively larger voting teams did not correlate with more positive voting trends for large asset managers, while passive investors were hindered by cost pressures that led to standardization across engagement and voting operations in a bid to minimize expense ratios. The study is also an indictment of the UN Principles for Responsible Investment (UN PRI) initiative. According to an accompanying note by de Groot, signatories “have not made a tangible difference. These managers did not vote more in favour of sustainability-related proposals than those outside of the network. This is despite the ESG-focused guiding principles they ascribe to when they join the organization.”
“In order to ‘walk the walk’ instead of ‘talking the talk’, asset owners can encourage their managers to increase the number of proposals filed on environmental and social topics. This may be an important first step as the currently low figures could be sending a negative signal to directors about the importance of these issues. Asset owners can also make the assessment of sustainable voting practices an integral part of their manager selection, due diligence and monitoring,” de Groot adds.
She recommends that regulators make voting records disclosures mandatory for asset managers and owners, a practice already in place for funds domiciled in the US (N-PX database). “If voting records are disclosed, the beneficial owners (e.g., pensioners, etc.) will be able to see to if their asset managers are truly deploying their money in a sustainable manner,” she concludes.