The Proxy Voting Landscape is Changing
There was a time when the three-legged stool of socially responsible investing (the now ancient definition of “SRI”) was thought of as screening, proxy voting and community investing. Over the last 20 years, these concepts and labels have evolved. We now talk about “ESG” (environmental, social and governance) rather than SRI; we talk about “materiality” instead of “values”; we talk about “impact”; and we scoff at exclusions as “old school.”
But through this evolution, the importance of proxy voting has reemerged. Formerly the purview of religious institutions and SRI mutual funds, disclosure of proxy voting by mutual funds was first required in 2004. This transparency provides a better view of how mutual fund managers view various issues within their investment portfolios. Increased transparency also has fueled some advocacy seeking different proxy voting policies by large mutual funds.
Recently, major mutual fund managers have spoken publicly of the responsibility of companies and investors and, in many cases, implying a new era in their approaches to voting proxies. Larry Fink, CEO at BlackRock, wrote in late 2017: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders.”
While some may be skeptical of the commitment articulated in such a letter, the fact that Fink felt compelled to speak publicly on these issues, and used phrases often found among the true believers in the responsible/sustainable investment community (“license to operate”), is evidence of the marketplace’s higher level of interest in these concepts.
Certainly, many people have seen the Fearless Girl statue facing down Wall Street’s bull statue. What most observers may have missed was the announcement State Street made at the time it unveiled the statue—that it was changing its proxy voting policy: specifically, if necessary, it would withhold its proxy votes from the chair of nominating or governance committees where no women serve on the board of directors.
Whether these statements by big firms represent beliefs of the converted or attempts to greenwash, they indicate a sea change. The new emphasis on the importance of proxy voting provides a significant prompt to any firm not taking its voting rights seriously. When big players like Vanguard and BlackRock vote in favor of climate change disclosure resolutions at ExxonMobil, it becomes more difficult for small firms to defer to management.
It also becomes more difficult for the same large firms to generally oppose other social and environmental resolutions. Critics have pointed out the inconsistent proxy voting behavior on climate change issues by firms like BlackRock and other big funds—supporting a resolution at ExxonMobil while still opposing resolutions at other fossil fuel companies. One recent headline summarized the rate of change—“BlackRock and Vanguard’s climate change efforts are glacial.”
But remember, glaciers change landscapes.
Mark E. Bateman
Director of ESG/SRI Research, Aperio Group