that support for such resolutions has
grown to 46% from 27%.
DWS, Allianz Global Investors,
Blackstone, Nuveen and AQR were
the five most ESG-supportive fund
companies over the five years from
July 1, 2015 through June 30, 2019;
Federated, Hartford Funds subadvised
by Wellington Management, J.P. Morgan
Asset Management, Pioneer Funds and
American Funds were the least supportive.
During the 2019 proxy season, Allianz
Global, Blackstone and DWS
placed in the top five fund
families in support of ESG-focused proxy votes along
with Eaton Vance and Pimco;
American Funds, Dimensional
Fund Advisors, Vanguard,
BlackRock’s iShares and T.
Rowe Price were among the
five least supportive of such
Early this year, BlackRock,
the world’s largest asset man-
ager, committed to placing
“sustainability at the center of [its] invest-
ment approach and disclosing its proxy
votes on a quarterly rather than annual
basis,” and its CEO Larry Fink announced
that the firm will be “increasingly dis-
posed to vote against management and
board directors when companies are not
making sufficient progress on sustainabil-
ity-related disclosures and the business
practices and plans underlying them.”
State Street Global Advisors CEO
Cyrus Taraporevala said his firm “will
take appropriate voting action against
board members” of companies includ-
ed in the leading global stock market
indexes that lag in addressing financial-
ly material ESG issues, based on State
Street’s proprietary measurement.
“Everyone will be watching their vot-
ing records; it will be interesting to see
how those records change,” says Jackie
Cook, director of manager research and
co-author of the Morningstar report.
There’s plenty of room for improvement.
According to Morningstar, BlackRock
voted in favor of ESG-related shareholder
proxies just 7% of the time, the same as
Vanguard. State Street’s approval rate was
27%. Of the remaining fund families in the
top 10 by assets, only DFA, at 1%; T. Rowe
Price and American Funds, at 11% each;
and Fidelity’s active funds, at 17%, scored
lower than State Street.
Vanguard, the second largest asset manager, has been “very loud in its silence” on
ESG-related proxy issues, says Cook.
Other asset managers substantially
increased their support of ESG shareholder proposals in 2019, including American
Century, Lazard, MFS and Geode Capital
Management, which manages Fidelity’s
index funds, according to Morningstar.
PASSIVE VS. ACTIVE
The Morningstar report poses a challenge
to the conventional view that passive asset
managers are less equipped to manage
assets that focus on sustainable assets
outside their ESG-focused funds because
they can’t influence corporate behavior by
selling shares. They have to own the index.
That condition, however, puts “more
responsibility on those funds to actively
vote” on ESG-related shareholder proposals, says Cook. “Their risk is systemic risk,
which can impact the market as a whole.
They have a real interest in watching out
for climate risk, for accountability and
more, and they are in a powerful position
to address those risks in proxy voting … to
consider the material risks that affect the
financial system related to ESG factors.“
SEC PROXY PROPOSALS
The growing interest in ESG-related
shareholder proxies among asset managers comes at a time when the Securities
and Exchange Commission has proposed
new rules that essentially
will restrict the number
proxy votes, including those
related to ESG issues.
One proposal raises the
stock ownership threshold
to sponsor a first-time proxy
proposal, while another
would require proxy advisor firms, which advise asset
managers on votes, to include
a company’s response to a
proposal in the recommendations they distribute to clients.
“These rules would stop
some proxy issues in their tracks,” says
Cook. “Some start at the margin and
become more central,” based on news
and developments. “Without shareholder resolutions allowed to enter at the
[lower level], you don’t end up with
the same level of debate later on and
the market could be taken by surprise”
when material investment issues develop that could affect stock prices, such as
the opioid crisis on drug stocks and mass
shootings on gun manufacturers. “The
groundwork has been laid,” Cook adds.
Morningstar opposes the SEC proposal that would limit proxy resubmissions, noting in its comment to the
agency that the proposed rule “would
stifle investors’ voices” when it comes to
Bernice Napach is ThinkAdvisor.com’s senior
writer and can be reached at firstname.lastname@example.org.
Sustainable equity funds did even
better, with 41% ranking in the
top quartile of their respective
categories and 68% placing in the
top half. Fixed income sustainable
funds, in contrast, clustered in the
middle two quartiles, performing in
line with the averages of traditional
funds in the same categories.