Four of the top ten largest asset managers in the US voted in support of a climate change-related shareholder resolution for the first time ever during 2017 research by Fund Votes for the pressure group, Ceres has found.
The asset management firms that voted for the first time in favour of a climate-related proposal were BlackRock, Vanguard, Fidelity, and American Funds. Rob Berridge, director of shareholder engagement at Ceres, in his analysis of the research said that these large fund managers had been waking up to climate risk. As well as in their proxy voting, this could be seen in their engagement where they raise climate risk, and in their public statements and relevant background papers.
Climate risk is now truly recognised as a mainstream issue impacting financial risk and return, Berridge suggested. He said given this development it was remarkable that five fund management firms – American Century, Cohen & Steers, Lord Abbett, Pioneer, and Putnam – still failed to vote in favour of a single climate-related proposal.
As a consequence of the action of the large fund managers in 2017 Berridge said that higher votes, and even majority votes on climate-related proposals, were now much more likely because these four asset managers collectively owned around 10%-15% of many companies’ shares.
2017 produced the first majority votes ever on climate change shareholder proposals at oil and gas companies and electric utilities. The resolutions, dubbed ‘two-degree scenario’ (2DS) proposals, requested that the companies issue analyses of the business impact of a scenario in which global average temperatures are kept from rising more than 2 degrees Celsius above pre-industrial levels.
The majority votes in 2017 on 2DS proposals were: 62.1% at ExxonMobil, 67.3% at Occidental Petroleum, and 56.8% at electric utility PPL Corporation. While not legally binding, Berridge said majority votes put enormous pressure on companies to address the issues raised in the resolution. Even votes above around 25% apply significant pressure on companies to address the request made in the proposal he suggested.
In December 2017, Exxon agreed to issue the disclosure requested by the proposal that received the majority vote in May, which was backed by investors with over $10 trillion in assets under management. Berridge said ExxonMobil’s new disclosure will be issued in the context of a large and rapidly expanding pool of solid empirical evidence showing that environmental and social megatrends like climate change can affect financial performance.
However, while welcoming the positive momentum and excitement among investors created by these majority votes, Berridge added a note of caution. While around 90 climate-related shareholder proposals went to a vote at company annual meetings and 17 requested a 2DS analysis BlackRock and Vanguard each supported only two of the resolutions. Therefore Berridge said their clients and other investors should continue to urge these firms to speak out publicly and vote in support of other climate-related shareholder proposals where there is a strong business case.
In fact, Berridge said that pressure from their own shareholders and clients may have played an important role, along with the mainstreaming of climate risk in financial markets in convincing both BlackRock and Vanguard to begin to vote for climate resolutions. Both firms received shareholder resolutions in 2017 filed by Walden Asset Management requesting a review of proxy voting on climate change. Walden withdrew both proposals in return for commitments by the companies to address the request.
So far during the 2018 proxy season, Berridge said three resolutions had been filed with mutual fund companies requesting a review of proxy voting policies: Bank of New York Mellon (filed by Friends Fiduciary), Cohen & Steers (filed by Walden Asset Management), and T. Rowe Price (filed by Zevin Asset Management).
Tim Smith, director of ESG Shareowner Engagement at Walden Asset Management, said: ”We believe the recent voting changes by major mutual funds and investment firms signal an expansion of their climate change engagements with companies where they own shares. Meanwhile those mutual funds and investment managers that are just beginning to use their voice and vote will inevitably be pressed by their own investors and clients to be much more active leaders.”
Jackie Cook, founder of Fundvotes.com, concluded: “Large asset managers wield considerable power with their proxy votes. This should be trained on avoiding climate-induced catastrophe in capital markets by promoting climate-related financial disclosures and strong board-level climate competence.“Last Updated: 5 January 2018