ShareAction recently published its fifth annual “Voting Matters” report. It contains a detailed analytical breakdown of the voting performance of 69 of the world’s largest asset managers, ranking them across 257 environmental and social-centric shareholder resolutions.
Investment decisions across the asset management sector frequently focus on short-term profit maximisation and often fail to consider external impacts that affect our planet’s future. ShareAction works with investors, policymakers and officials to “define the highest standards for responsible investment” and “drive change until these standards are adopted worldwide.”
Large asset managers control enormous wealth and, therefore, have an unparalleled private influence over global corporate behaviour. The 69 asset managers that ShareAction identified within this report control wealth that equates to approximately 60% of the world’s economy.
A compelling finding from the “Voting Matters” report is that the support for environmental and social shareholder resolutions across these asset managers has hit a new low. Having peaked in 2021 when 21% of these resolutions passed, ShareAction announced that a meagre 3% of resolutions were met in their 2023 report, just eight of the 257 assessed indicators.
It is well documented that urgent action is required to tackle the ongoing climate crisis and global socio-economic inequality. This makes the low percentage of overall support for these shareholder resolutions from some of the most influential international corporations especially concerning.
Even more worrying is that the world’s four largest asset managers are amongst the most guilty. BlackRock, Vanguard Group, Fidelity Investments, and State Street Global Advisors hold 39% of the assets under management of all managers in this report. All four exhibited a consistent decline in their support for ESG-focused shareholder resolutions between 2021 and 2023.
BlackRock is the largest asset manager globally and only supported 8% of these resolutions in 2023, down from 40% in 2021. Vanguard Group performed the worst of the “big four,” supporting just 3% of such resolutions last year.
These four asset managers control roughly the same amount of wealth as the GDP of the US economy ($25.2tn). Their influence is highlighted by the fact that 69 additional resolutions would have passed had they been supported by this elite group, including resolutions that cover crucial environmental and social topics across some of the world’s largest firms, such as Apple, Amazon, Dow, Pfizer and The Coca Cola Company.
The “big four” were not the only US-based asset managers who performed poorly throughout ShareAction’s assessments. 13 asset managers with headquarters in the US have been included in all three “Voting Matters” reports since 2021. Their support for environmental and social resolutions had hovered around 40% over the last two publications but fell drastically to an average of 25% in 2023.
The root of the problem: Republican “ESG backlash”
Regression seen across US-based asset managers comes from the recent political “ESG backlash.” There have been a growing number of Republican state officials threatening to withdraw their investments or use various legal levers in an attempt to impede asset managers from allocating capital to companies based on their environmental or social interests.
In the past year, billions of dollars have already been withdrawn from BlackRock funds on anti-ESG grounds. CEO Larry Fink was quoted at the Aspen Ideas Festival saying he refuses to use the word “ESG” now as “it’s been misused by the far left and far right” and has become “totally weaponised.”
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Some state legislators have also passed laws that prevent government pension funds from investing with asset managers that recognise ESG factors, with other states indicating that they will follow suit in the near future.
The past year’s rise in pass-through voting may prove significant in the long term, allowing clients to vote directly on shareholder proposals for their holdings. This is possible in two ways: by specifying decisions on a case-by-case basis or following the recommendation of an external advisor. Roughly 10% of BlackRock’s index equity clients use this feature, and nearly half are now eligible. Vanguard has also introduced pass-through voting for some specific funds.
There is concern that the increased prevalence of pass-through voting indicates a fall in asset managers’ ambition to fulfill their environmental and social responsibilities. While it allows the retention of ESG-focused investors who can vote for their assets directly, most funds can be invested to appease their anti-ESG clientele.
On the other side of the pond: Europe’s ESG stand
This sharp fall in environmental and social resolution support across the US asset management sphere illustrates a stark regional disparity in ESG commitments compared to their European counterparts. On average, European asset managers included in this year’s “Voting Matters” report supported 88% of shareholder proposals, the highest proportion ever recorded by ShareAction.
Robust ESG regulations that stimulate sustainable investment have been paramount to this progress across Europe.
In particular, the launch of the EU Action Plan regulatory initiative in 2018 has propelled Europe to the forefront of the sustainable growth frontier. The action plan targets reform across three key areas: the reorientation of capital flows towards sustainable investment, mainstreaming sustainability into risk management and fostering transparency and long-termism in financial and economic activity.
The EU Shareholder Rights Directive, implemented in 2020, now also ensures that asset managers disclose their shareholder engagement policy, including descriptions of voting trends and their methods for monitoring investor companies’ environmental and social impacts.
Despite some pockets of progress within Europe, the overall performance of asset managers in the report raises serious questions about responsible investment across the sector. The 249 rejected opportunities for environmental and social accountability included dismissing decarbonisation targets, opposing unions and decreasing access to medicines, amongst other pressing contemporary environmental and social issues.
Stronger EU legislation is providing regional promise when compared to the US. Despite this, the 2030 SDG goals are looming in the not-too-distant future, and a complete overhaul in corporate sector regulation is required globally if these targets are to be met.
Until asset managers view the importance of their investments’ environmental and societal impact on par with their financial activity, the sector will continue to fail in achieving truly responsible investment practices.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Featured Photo Credit: Wikimedia Commons.