Support for ESG-related shareholder resolutions has climbed steadily in recent years among asset managers, but several of the biggest managers vote against ESG resolutions more often than not, a report released Thursday from Morningstar found.
Over the past five years, average support for ESG-related resolutions across large fund families rose to 46% in 2019 from 27% in 2015, Morningstar said in its report, "Proxy Voting by 50 U.S. Fund Families." Funds offered by Allianz Global Investors, Blackstone Group, Eaton Vance Corp., and Pacific Investment Management Co. were the most likely to support shareholder-proposed ESG resolutions in 2019, voting for these resolutions more than 87% of the time, according to the report.
The report, which tracks asset manager disclosures, found that the ESG issues to garner the most support in 2019 included diversity and gender pay equity, with an average of 57% support, and political spending resolutions, which garnered 53% average support.
Of note, five of the 10 largest asset managers — Vanguard Group, BlackRock, Capital Group’s American Funds, T. Rowe Price Group, and DFA Funds offered by Dimensional Fund Advisors — voted against more than 88% of ESG-related shareholder resolutions, Morningstar found. Two of the firms couldn’t immediately be reached for comment. Vanguard and BlackRock voted for 7% of ESG proposals in 2019, according to the report.
Vanguard spokeswoman Alyssa Thornton said in an email that while proxy voting is an important component of Vanguard’s stewardship program, it’s only one part. In 2019, Vanguard participated in 868 meetings with portfolio companies, advocating on the importance of disclosing material risks and strategies, including transparency on ESG issues, that could have impact on a company’s long-term value, she said. “We do not believe in telling company leaders how to run their businesses, but rather focus on ensuring they take into account, and disclose, the risks associated with their businesses,” Ms. Thornton added.
Donna Anderson, head of corporate governance at T. Rowe Price, said in a statement that while the firm supports “effective, well-targeted proposals that reflect our concerns as investors, we believe it is debatable whether many shareholder resolutions represent a meaningful solution to various ESG-related challenges. In almost every instance, shareholder proposals are non-binding votes that are opposed by the company’s management and board. In our experience, one-on-one engagement with companies produces better outcomes than shareholder resolutions.”
In a footnote, Morningstar noted that the resolutions covered in its analysis focused exclusively on environmental and social resolutions. “We have not included in this analysis resolutions that address shareholder rights or corporate governance arrangements without reference to social and environmental risks,” Morningstar said.
Taylor Smith, spokesman for Dimensional, said in an email that good governance leads to good environmental and social practices. With respect to environmental and social proposals, many of which relate to requests for additional disclosure, “We often engage with management to understand what information is already publicly available and the potential costs to the company (which are ultimately borne by shareholders) to provide the requested information,” Mr. Smith said. “We balance these costs with potential benefits of disclosure. In cases where we believe the information in the requested disclosure is already available or where the costs of the requested disclosure may outweigh the potential benefits, we may vote against these shareholder proposals.”
Last month, BlackRock Chairman and CEO Laurence D. Fink said in his annual letter to corporate CEOs that sustainability now is the New York-based firm’s standard for investing, given the risk that global climate change poses to “economic growth and prosperity.” Morningstar noted the significance of Mr. Fink’s announcement in its report.
In its conclusion, Morningstar said, “As investment fiduciaries, asset managers are using their voting power and other stewardship strategies to advance sustainable business practices at investee companies. They are doing this to enhance long-term shareholder value while also responding to growing pressure from clients, peers, and regulators.”
As noted in the report, ESG-specific shareholder resolutions focus on topics like climate change; diversity; environmental stewardship; gender-pay equity; human rights; lobbying; political spending; reputational risks of products (opioids and guns); and workplace sexual harassment.