Support in some proxy votes falls amid record season

It's not just BlackRock that is less supportive of shareholder proposals, Morningstar finds

U.S. asset managers are increasingly spelling out their ESG proxy voting policies, and many have become less likely to back shareholder resolutions that rock the boat.

That, according to a new Morningstar analysis of the most recent proxy season, indicates that it isn’t just BlackRock that is more often voting against proposals that have exploded in number and are wider ranging than they have been in prior years.

Of a record of more than 250 ESG-themed shareholder resolutions that went to a vote this season, 13% received less than 5% support — well over double the rate of about 5% of resolutions that received such low support in 2021 and 2020, according to Morningstar.

There were 33 such resolutions in the 2022 season, up from fewer than 10 in each of the past two years.

“BlackRock generated news headlines in May when it announced it was ‘likely to support proportionately fewer [shareholder resolutions] this proxy season than in 2021’ due to an increase in the number of proposals perceived as inappropriately prescriptive,” the Morningstar report read. “The data for the 2022 proxy year suggest this trend covers more than just one asset manager.”

The number of shareholder proposals going to ballot has indeed grown, largely thanks to a change in the Securities and Exchange Commission’s stance on ESG resolutions. The SEC has indicated in no-action letters to public companies that they usually do not have legal footing to omit such proposals from their proxy ballots, as ESG does not necessarily fall into the category of normal company business.

Compared to the more than 250 proposals in the U.S. this year, there were 145 in the 2021 season, Morningstar noted.

But even with the rise in the percentage of resolutions lacking support, there was an increase in the number with substantial votes in their favor. While 27 resolutions received majority support, another 30 received at least 40% but less than 50%, and 83% saw between 20% and 39% approval, according to the report.

ASSET MANAGER PROXY TRENDS

Although the recent proxy season shows powerful growth in shareholder engagement, large U.S. asset managers generally are not on the same page as the smaller entities that tend to file proposals. Of 12 domestically based asset management firms, 11 indicated “medium or low focus” on environmental or social issues in proxy voting, according to Morningstar’s analysis of those companies’ policies. Just one company — AllianceBernstein — indicated a high level of focus on those topics.

Asset managers with high or very high focus on those issues “tend to include detailed and specific policies on several aspects of climate policy and often cover other environmental themes such as biodiversity, natural capital, deforestation and water usage,” the report noted. “They also outline in detail their rationale, targets and voting intentions for DEI and human capital management issues —advocating for greater female and racial/ethnic representation on boards — and often also have detailed policies for human rights and labor rights.”

Meanwhile, European asset managers indicated that they have much more focus on environmental and social issues that appear on proxy ballots, with nine of 13 that Morningstar examined having a “high or very high E&S focus.” The firms in the very-high category include Allianz, BNP Paribas, Fidelity International and LGIM.

The big index fund providers — BlackRock, State Street and Vanguard — have a “medium focus” on environmental and social issues on proxy ballots, according to the report.

A key differentiator between a high and medium focus on ESG issues is whether firms have broad policies on voting intentions around biodiversity and natural capital, as both categories often have policies on greenhouse gas emissions and targets.

The firms whose policies or statements put them in the low-focus category are Dodge & Cox, Fidelity Investments, Franklin Templeton, Invesco and Natixis. The latter firm is the only U.S. fund provider with a target-date mutual fund series with at least a five-year track record— something that all but certainly gives it an edge as the Department of Labor prepares a final regulation to promote sustainable investments in 401(k) plans.

Firms in the low-focus category tend to give the management of their portfolio companies leeway in addressing sustainability issues, with their voting policies usually lacking specific themes, according to Morningstar’s report.

This story was originally published on ESG Clarity.