Our key takeaway: Investors: can you push for more doing and less saying? ShareAction finds, based on the 2022 proxy voting season, that investors are prioritising disclosure-oriented resolutions over action-oriented resolutions. However, action-oriented resolutions, which specifically request companies to adopt policies, processes, commitments and targets, are much more likely to drive change. It is only through action-oriented resolutions that investors will be able to play a role in the business transformation that is needed on environmental and social issues. ShareAction provides a number of recommendations to help investors push for action, including: set strong policies for default voting in favour of environmental and social resolutions; request and provide transparency on voting decisions; hold managers to account via a “comply or explain” approach when voting against environmental and social resolutions and work with others working with the same asset managers (for asset owners); and escalate and hold companies to account when ESG performance isn’t met (asset managers).
ShareAction published its annual Voting Matters (January 2022) report reviewing the year’s overall trends and voting performance of 68 large asset managers on 252 shareholder resolutions regarding social and environmental issues:
- Mixed performance across the sector: Overall, in 2022, more social and environmental issues received a ‘for’ vote compared to 2021: “On average, for the asset managers assessed, votes ‘for’ environmental and social shareholder resolutions on our list increased from 60% in 2021 to 66% in 2022.” At the same time, progress was regional: whereas US and UK managers tended to remain “stagnant” in their support of social and environmental proposals compared to last year, European asset managers “show a strong increase in voting performance.” And, significantly, this progress is somewhat hampered by the relative influence of different managers. The four largest asset managers (Vanguard, Fidelity, BlackRock and State Street) have a significant influence on corporate behaviors through their voting decisions. ShareAction found that these influential asset managers supported fewer environmental and social resolutions in 2022 compared to 2021. This trend was especially evident in resolutions filed in the energy sector; ShareAction indicates that "when put to the test, these asset managers’ voting performance is inconsistent with their public climate commitments. Moreover, these managers’ voting performance is inconsistent with the public climate commitments of many pension fund clients, which will be of concern to underlying members of those pension schemes.”
- Action-oriented resolutions lack traction: This was generally true across both social and environmental shareholder resolutions. For example, while resolutions on companies setting climate change targets—also the most common type of environmental resolution—received the most support from asset managers, overall “[t]he more action-oriented resolutions requesting companies develop their climate change strategy, for example aligning their business with the goals of the Paris Agreement, received just 15% support on average and none received majority support. None of the resolutions on biodiversity, environmental impact assessments or water risk received majority support.” In terms of social issues, civil and social rights resolutions were the most popular among social resolutions, receiving an average of 35% overall support from investors on topics including racial equity, gender equity, privacy, and reproductive rights. Yet “[t]he 24 social resolutions that received majority support were all disclosure-oriented. Overall support for the nine action-oriented social resolutions ranged from 1.5% to 33.8%.” While overall 2022 saw 117 social resolutions proposed, up from 89 in 2021, “[t]his strong interest in social issues from filers has not yet, however, been matched with investor support. Just 14% received majority support, compared to 18% of environmental resolutions.” Why the hesitancy? According to the report, some asset managers are hesitant to back action-oriented resolutions because it felt akin to “micro-managing” company performance. But ShareAction points out that, in fact, they have a key role to play: “asset managers have unique expertise in seeing whole economy, long term threats that require a company to urgently adapt. Supporting action-oriented resolutions can therefore represent clients’ best interests by managing systemic, long-term risks.”
- Recommendations for asset managers and asset owners: The report outlines the unique roles that asset managers and owners can play in moving the needle forward for more action within companies. For asset owners, some key recommendations include “develop[ing], strengthen[ing] and regularly updat[ing] voting policies…that are designed to appropriately mitigate impacts on people and planet”; committing to support environmental and social resolutions by “default,” and “provid[ing] a public explanation whenever this commitment is not met (i.e., ‘comply or explain’)”; improving overall transparency on proxy voting and “disclose data on follow-up engagement for all instances where they have opposed management on environmental and social resolutions”; “[e]scalating at companies failing to make sufficient progress on ESG issues, using tools such as co-filing resolutions, voting against directors and reducing investment”; and “where the asset manager is sympathetic to the aim but considers its phrasing problematic,” engaging with filers to improve wording. On the part of asset owners, ShareAction recommends that they “[I]ntegrate key asks (such as the publication of voting records) into tendering processes and review voting decisions as part of regular performance reviews”; seek additional transparency from asset managers on their voting records and on follow-up engagement where they have opposed management on social and environmental resolutions; consider working collectively with other asset owners under the same asset manager to amplify their influence; and expect asset managers to vote at all annual general meetings (AGMs).