Change In Proxy Voting As Major Asset Owners Accept Esg As Part Of Fiduciary Duty

Each year, investors file approximately 800 shareholder resolutions. In 2018, more than 450 proposals focused on environmental and social issues. For a significant portion of these resolutions, companies and proponents reached agreements and the proponents withdrew. But nearly 180 proposals went to a vote.

Shareholders have filed environmental and social proposals since the early 1970s, and resolutions on governance extend back to the 1950s. Early on, both companies and other investors treated environmental, social and governance (ESG) proposals with incredulity. These days, however, many recognize such proposals have strong business cases buttressing their requests and many vote thoughtfully.

The way investors vote their proxies has a significant effect on company policies and practices.” @waldenAM #ProxyPreview

While different investors have various mandates for voting proxies, major pension funds and investment firms are clear that their voting is a fiduciary duty and must be aligned with their commitment to long-term shareholder value.

That said, it is fascinating to see the range of voting positions taken by investors who are guided by the same fiduciary principles. Looking at one issue—climate change—provides a good case -in- point.  Research done annually by Ceres and Fund Votes illustrate that Allianz, Deutsche Bank, Eaton Vance, Nuveen and Wells Fargo all voted for over 80% of climate related shareholder resolution, while BlackRock, Fidelity, T. Rowe Price, and Vanguard voted for under 20% of these same resolutions in 2018.

Climate change is one of the most financially significant environmental issues currently facing investors. Huge institutional investors like BlackRock, State Street and Vanguard can collectively manage up to 20 percent of the voting rights at some companies, so their voting decisions are extremely significant. When large asset managers do not support climate proposals, companies get the impression that investors do not care about these issues.  This is unacceptable.  As Gretchen Morgenson of The New York Times says, BlackRock “wields its big stick like a wet noodle.”

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Along with our clients, Walden Asset Management filed shareholder proposals at BlackRock and JPMorgan Chase in 2017, requesting improvements in their climate proxy voting. We withdrew the resolutions when the companies announced important changes to their climate change and board diversity proxy voting and corporate engagement practices. In 2017, BlackRock and Vanguard gave their first ever support for two climate resolutions in 2017, and increased their support to include a handful of climate resolutions in 2018.  

While we are encouraged by these improvements, BlackRock and Vanguard’s voting record still badly lags others in their peer group. Clearly these asset managers understand the negative impact of climate change on the business community and the urgency of addressing climate change. Consequently, It is imperative that both translate this understanding into concrete proxy votes to influence how corporations address climate change.

The importance of governance, climate change, diversity and human rights are magnified as material issues for companies when huge global investors affirm that managing these issues is in line with their fiduciary duty to protect shareholder value.  The way investors vote their proxies have a significant effect on company policies and practices. With major asset managers finally recognizing the link between ESG and fiduciary duty, we are optimistic about investors continued ability to promote transformative impact in the years ahead. 

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Tim Smith
Director of Esg Shareowner Engagement 

Carly Greenberg, CFA
Manager of Esg Investing, Walden Asset Management