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World’s biggest asset managers reduce support for ESG proposals, report finds

By Jessica Tasman-Jones

This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards

The world’s four largest asset managers reduced their support for shareholder proposals related to environmental and social issues in 2022, bucking the overall voting trend, according to data from responsible investment charity ShareAction.

Vanguard, Fidelity Investments, BlackRock and State Street Global Advisors supported 20 per cent of environmental and social resolutions last year, down from 32 per cent in 2021, the report found.

Overall the study – which analysed how 68 of the biggest asset managers globally voted on 252 shareholder proposals focused on tackling climate or social challenges – found that support for such resolutions rose from 60 per cent in 2021 to 66 per cent last year.

But there was “a clear regional divide”, according to the report. Support for environmental and social proposals among asset managers increased by 12 percentage points in Europe, whereas in the US and UK it remained almost stable, notching up just one percentage point increase.

The drop at Vanguard, Fidelity, BlackRock and State Street, which are based in the US, was largely driven by voting patterns in energy companies, which have enjoyed bumper profits due to the war in Ukraine.

BlackRock, for example, supported just 16 per cent of climate-related resolutions at energy businesses last year – a huge drop from 2021 when it backed 72 per cent of such proposals.

The political backlash against ESG by some Republicans in the US is affecting how asset managers vote, says Lindsey Stewart, director of investment stewardship research at financial services firm Morningstar Europe.

"It has become slightly more risky for them [asset managers] to be seen supporting shareholder resolutions demanding specific actions from management versus those merely requiring increased disclosure," Stewart says.

Indeed, the report found that asset managers were more likely to vote for resolutions about disclosure as opposed to those that required action, such as setting net-zero targets.

On average asset managers voted in favour of just 54 per cent of action-based resolutions, compared with an overall average of supporting 65 per cent of environmental and social proposals.

Some asset managers argue that they must remain strategic. In a review of its voting record for the 2021 and 2022 proxy voting seasons, BlackRock said it has not “supported certain climate shareholder proposals that are overly prescriptive or micromanage how companies should decarbonise.”

State Street said it generally opposes proposals that require companies to make "specific operational changes such as a transition to renewable energy within a defined timeframe".

The tendency to favour disclosure over action was also seen in Europe. SEB, Liontrust, M&G and Mondrian Investment Partners were singled out in the ShareAction report for backing a smaller proportion of action-based resolutions compared with their overall support for environmental and social proposals.

A lot of M&G's stewardship is through engagement rather than voting, a spokesperson said.

But this is not seen across all asset managers. Generali Asset & Wealth Management supported more action-based resolutions. It expects issuers to put in place measures to mitigate risks, particularly related to the environment, says its head of governance implementation and sustainability Santo Borsellino.

This includes detailed plans for decarbonisation targets, with consideration for the social impacts these might have. It also looks for remediation where environmental or social controversies have occurred and mitigation to prevent them happening again. Shareholder resolutions are an effective instrument to demand change, argues Borsellino.

Europe’s race ahead of the US and UK in support for ESG resolutions coincides with the EU strengthening legislation. The Sustainable Finance Disclosure Regulation mandates and standardises disclosures to help investors evaluate asset managers' sustainability claims.

The EU Shareholder Rights Directive also requires asset managers to report on engagement with shareholders and investment strategies, increasing transparency in the sector.

The Financial Conduct Authority plans to introduce its Sustainability Disclosure Requirements, a new labelling regime for the UK, in the first half of this year. To qualify, asset managers will need a sustainability objective against which progress can be measured.

This is likely to lead to more social and environmental resolutions being tabled and voted for as investor stewardship is the main way managers show progress on sustainability, says Claudia Gray, head of financial sector research at ShareAction.

The voting patterns of asset managers represent minimum expectations, adds Stewart. Most prefer to engage with companies and only escalate matters further at the ballot box if that fails, he says.

This article is based on a story written for Agenda by Neandra Salvaterra

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