Voting matters: Why are asset managers blocking key ESG resolutions?

The figures are a headline finding from a new ShareAction analysis. The NGO assessed the voting patterns of 69 of the world’s largest asset managers at annual general meetings in 2023, with a focus on resolutions intended to force businesses to improve ESG outcomes.

Resolutions included those intended to prompt more ambitious and credible climate targets; those forcing enhanced disclosures; those reshaping board and governance structures and those improving social protections for groups including workers and suppliers.

High-profile environmental resolutions in 2023 included a vote against Shell’s board of directors on climate grounds and a rebellion against BP’s weakening of targets to scale back fossil fuel production.

On the social side, a resolution at Amazon called for a re-assessment of workers’ rights to unionise, to give just one example. Similarly, there was an attempt to force a third-party assessment of union rights at Starbucks in the US.

ShareAction has tracked dwindling support for these kinds of resolutions since the highs observed in the early throes of the Covid-19 pandemic. In 2021, one-third of the resolutions it assessed passed. This fell to one-fifth in 2022 and a paltry 3% in 2023.

ShareAction’s head of financial sector research Claudia Gray called this trend “deeply concerning”, both due to the urgent need for accelerated action to create a sustainable future, and because many asset managers are running the gauntlet with greenwashing risk.

Gray said: “The findings from our report really question whether the majority of the world’s wealth is being managed effectively. Many asset managers promote their commitment to responsible investment. For their claims to have any credibility they need to vote in favour of more social and environmental resolutions. We are now seeing the complete opposite of this happening.”

‘Big Four’ blockers

ShareAction’s research highlights how the behemouths of the asset management world have led a trend towards abstaining from or voting against ESG-related resolutions. BlackRock, Fidelity, Vanguard and State Street are known as the ‘Big Four’ asset managers as they are the largest in the world.

In 2021, average support amongst the big four on environmental resolutions stood at 39%. By 2023, it had fallen to 14%.

ShareAction observed a similar trend relating to resolutions on social resolutions. Average support dwindled from 29% in 2021 to 13% in 2023.

The Big Four alone were responsible for dozens of union rights resolutions falling through at corporates including Amazon, as well as the failure of resolutions on human rights in supply chains at firms including retail giant TJX Companies.

BlackRock supported 40% of ESG-related resolutions in 2021 but just 8% in 2023. The drop at Vanguard Group in these two years was from 27% to 3%. The fall off at State Street and Fidelity was less steep but significant nonetheless.

Transatlantic trends

All of the Big Four are headquartered out of the USA. ShareAction’s research indicates that they are not the only players in the USA to shy away from ESG voting, with smaller peers including Nuveen, Capital Group and American Century Investment Management all significantly pulling back on progressive voting year-on-year.

This is doubtless partly due to the anti-ESG movement being pushed by Republican lawmakers. Policymakers filed a total of 99 bills in 2023 intended to prevent businesses from enhancing ESG-related disclosures and discourage investors from skewing portfolios towards activities with good ESG performance. This is up from 39 bills in 2022.

In contrast, ShareAction found that Europe-based asset managers supported more proposals than ever. This is partially attributed to improvements in regulations and legislation relating to environmental and corporate social responsibility in the EU over the past year, with asset managers keen to ensure that clients are prepared and do not fall foul of new requirements including reporting mandates on the near horizon.

This is not to say that all European asset managemers are progressive when it comes to proxy voting. ShareAction warned UK-based Baillie Gifford that it may be contradicting its net-zero commitments unless it steps up on climate-related resolutions, for example.

Other European firms faring badly in ShareAction’s rankings include Vontobel of Switzerland and British firma Janus Henderson and Ninety One Wellington.

There are more global challenges – perceived and actual – to ESG beyond the pushback concentrated in the US. Most are linked to the enduring economic downturn, with more and more businesses seeing ESG initiatives as an additional expense or a bolt-on that can be sidelined. These pressures are felt in Europe as much as anywhere else, with the fallout from the Russia-Ukraine war and Brexit amplified in this region.

That said, there is a growing body of evidence that EU and UK-based asset managers are generally more progressive than US-based peers on ESG-related voting even in the face of macro-economic challenges.

A separate analysis from Morningstar this week, covering 15 fund managers in Europe and 20 in the US, puts average resolution support in the US at 50% compared to 99% in the EU.

Like ShareAction, MorningStar found a sharp drop in support for key resolutions at American Century, BlackRock, Capital Group and Goldman Sachs. In contrast, the likes of Amindi, Credit Suisse and Nordea maintained support at 100% in 2021, 2022 and 2023.

Morningstar’s director of investment stewardship research Lindsey Stewart elaborated: “Sustainability-focused investors are increasingly questioning whether their manager’s voting policy is well-aligned with their own environmental and social objectives. In Europe, where expectations of proxy-voting support are higher, and several of the US firms have large market share, those questions are being asked with greater intensity.”