Support for ESG votes from BlackRock, State Street moderate at best: Morningstar

The three big asset managers targeted by the anti-ESG movement don’t have standout records when it comes to their support — or lack thereof — for shareholder resolutions.

Over the past two years, the median level of support for proxy votes among the 20 biggest U.S. fund firms was 59%, according to a report Tuesday from Morningstar. But the numbers through March for BlackRock, State Street and Vanguard were 55%, 60% and 23%, respectively, for 100 ESG-related shareholder votes that the ratings and research firm identified as particularly notable.

“Scrutiny on voting decisions by the Big Three has been especially high, given their outsize position in U.S. equity markets,” the report stated. Those firms "represented 43% of the U.S. funds market, with $10.3 trillion of assets as of April 30, 2023. Most of this investor capital is held in $8.9 trillion of passive funds.”

So while they might not be outliers in ESG-related proxy votes, except perhaps for Vanguard’s low level of support, the companies’ footprint in the market has made them targets.

Politicians in Congress and in numerous states with anti-ESG initiatives have pointed to the three firms’ influence on portfolio companies as as argument for reforms that would prevent assets in public pensions from considering ESG factors.

Notably, BlackRock has seen the brunt of attacks, in part because of CEO Larry Fink's past comments on stakeholder capitalism and corporate responsibility. However, all three firms have started initiatives that could give fund investors some say in how the shares they hold vote in proxies. And Vanguard last year pulled its membership in the Net Zero Asset Managers initiative, a decision that led it to face pushback from climate-conscious investors and activist groups.

THE BREAKDOWN

All of the 100 shareholder resolutions Morningstar studied involved S&P 100 companies, occurring at a total of 39 such companies. The resolutions in the sample saw a range of support from 40% to 85% among independent shareholders, with the average vote among those shareholders being 54%.

Most of the proposals, 77%, involved social issues. Twenty-seven covered political influence, 26 were on workplace equity, 13 on human rights and the ethical use of technology, and 11 on civil rights or racial equity. Another 23 proposals addressed the environment, with 17 dealing specifically with climate change and the remainder covering deforestation, water risk and plastics.

The companies affected by those votes include Alphabet, Amazon, Apple, Microsoft, Meta, Chevron, ConocoPhillips, Duke Energy, Exxon Mobil, Berkshire Hathaway, JPMorgan Chase, Goldman Sachs, Altria Group, Home Depot, McDonald’s and Tesla.

Among the 100 proxy votes, BlackRock, State and Vanguard agreed 31 times, either for or against the proposals, Morningstar found.

“The headline finding from this analysis of the Big Three's voting records is that Vanguard's level of support for key resolutions is only half that of BlackRock and State Street,” the report stated.

SOCIAL VERSUS ENVIRONMENTAL

The companies’ support for resolutions was mostly consistent across social and environmental categories. On social issues, BlackRock voted in favor of 55% of the resolutions, State Street 60% and Vanguard 27%. On the environment, BlackRock supported 57%, State Street 61% and Vanguard 30%, according to the report.

Across issues, BlackRock was most likely to support civil rights and racial equity, showing only moderate levels of support for political influence, climate change, workplace equity and other environmental issues. It had low support for human rights and ethical use of tech.

Meanwhile, State Street supported most resolutions on human rights and ethical technology, with moderate support for most other issues. Vanguard voted against most issues except for workplace equity and climate change, for which it gave moderate support, according to Morningstar.

In terms of explaining their rationales, BlackRock was the most likely to do so, publishing explanations for 97 of the 100 shareholder resolutions studied. State Street did so for 45 votes, and Vanguard wrote about its decisions in 28, the report found.

“Voting rationales are essential to help investors assess the level of alignment between a manager's decisions and their own environmental and social objectives,” wrote Lindsey Stewart, director of investment stewardship research at Morningstar and author of the report.

Even as the firms roll out their pass-through voting initiatives, that could be increasingly important, as “millions of fund investors will continue to rely on their fund manager to make proxy-voting decisions on their behalf,” the report noted. “And whether those investors place their capital in a high-intention sustainable fund or a broad index tracker, investors' thirst for knowledge about how well aligned a manager's voting decisions are with their own environmental and social priorities will only continue to grow.”