Stockholm (NordSIP) – Significant weaknesses in the current stewardship of institutional portfolios have been exposed in the latest Voting Matters 2023 report from ShareAction. The discrepancy between asset owners’ sustainability goals and their managers’ voting patterns echoes the findings of a November 2023 study commissioned by the UK Asset Owner Roundtable.
The ShareAction report examined the voting behaviour of 69 of the world’s largest asset managers that are active in the European institutional market. The peer group has enormous potential influence, with combined assets under management roughly equivalent to 60% of global GDP. They have been ranked according to their support of 257 environmental and social shareholder resolutions over the past year.
Managers’ ESG support peaked in 2021
The overall trend uncovered in ShareAction’s report is negative, with just 3% of the resolutions being passed last year. Support for such environmental and social resolutions had been steadily growing until 2021, when it appears to have peaked. This coincides with the emerging political backlash against ESG investing in the United States, and the report found that US managers were significantly behind their European peers. ShareAction found the latter voted in favour of 88% of the resolutions in 2023, versus only 25% average support from US managers.
The overall negative trend was compounded by the so-called “Big Four” of BlackRock, Vanguard, Fidelity Investments, and State Street Global Advisors, who together only supported 12.5% of resolutions. The combined voting power of the Big Four is such that 69 additional resolutions would have passed in 2023 had they supported them, including important initiatives at Amazon, Coca Cola, and other major multinational firms. As it happened only 8 out of the 257 resolutions assessed in the report were passed.
A variety of behaviour patterns underpin the peer group’s overall retreat from supporting environmental and social resolutions. ShareAction is particularly critical of managers that persistently vote against flagged climate related resolutions despite being members of initiatives such as Climate Action 100+ (CA100+) or the Net Zero Asset Managers initiative (NZAMI). The NGO is also dismissive of the reasons given by many of the managers for their negative votes.
Managers complained of overly prescriptive resolutions, but ShareAction found that three quarters of the votes concerned relatively simple efforts to increase corporate disclosure on sustainability matters. The remainder called for actions in line with global climate targets to which most of the managers were publicly committed. The largest managers also tended to claim that their largely passive investment products prevented them from pursuing active voting strategies. However, ShareAction points to the presence of Legal & General Investment Management (LGIM) in the top third of the rankings, with a 92% favourable voting record, as a counterpoint to this argument.
European managers and regulators lead the way
Despite the downward trend, ShareAction highlight some bright spots, mainly focused on Europe where managers are adapting to regulatory changes such as the EU Shareholder Rights Directive. A leading group of 22 managers voted for more than 90% of environmental and social resolutions in 2023, a significant jump form 2022 when only a dozen did so. Sitting in 8th position, Nordea Asset Management is the only Nordic presence in the upper echelons of the ranking.
ShareAction’s report also takes aim at the managers’ performance in the context of human rights and other social issues. There were numerous instances of managers voting against resolutions on increasing workers’ access to union membership and collective bargaining. 11 US managers also voted against human rights related resolutions at weapons manufacturers General Dynamics, Northrop Grumman, and Lockheed Martin. ShareAction was also concerned at the low instance of biodiversity-related shareholder resolutions, with the few that were proposed gleaning little support from managers.
The downward trend evident in ShareAction’s Voting Matters 2023 report shows that despite public commitments and published voting policies, many managers are back-pedalling on environmental and social issues. According to the NGO, the asset management industry appears unable to self-regulate, with the larger US managers particularly guilty of ducking their duties under climate and social initiatives. ShareAction accuses many of these managers of greenwashing, and institutional asset owners should be scrutinising these voting records more closely to gauge whether their own sustainability goals are being properly supported.
