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Climate Change Blog

How Leading Institutional Investors Vote on Environmental Shareholder Proposals

Leading U.S. asset managers are increasingly eager to explore the proposition that environmentally conscious policies drive shareholder value, but many of the same asset managers have not frequently voted for environment-related shareholder proposals on the proxy statements of U.S. public companies. The 2017 proxy season will test the readiness of major institutional investors to back environmental shareholder proposals and will reveal whether their past reluctance to do so has eased since 2016.

Research and Policy Statements by Leading Investors

State Street Corporation, BlackRock, Inc. and J.P. Morgan Asset Management, Inc. — three of the world’s top asset managers by value of assets under management — published reports after the 2016 proxy season that examined connections between shareholder value and sustainability and encouraged investors to consider sustainability factors in their investments and engagement. BlackRock’s white paper Adapting Portfolios to Climate Change urged investors to consider incorporating climate change awareness into their investment processes and emphasized a need for companies to adopt more thorough environmental disclosure practices. J.P. Morgan Asset Management issued a special report to clients in Q2 2017 discussing its “commitment to sustainable investing.”1 In April 2017, State Street sponsored the release of a report entitled The Investing Enlightenment that sought to debunk the “three most commonly perceived barriers” to environmental, social, and governance (ESG) investing: the idea that ESG integration means sacrificing financial returns; the idea that fiduciary duties of fund trustees preclude such trustees from pursuing ESG-influenced investment because of the risks posed by ESG-influenced investment to financial returns; and the idea that investors’ performance expectations are too short-term to fully obtain the positive effects of ESG performance.

State Street, BlackRock and J.P. Morgan’s research reports do not supplant the formal policy statements that these asset managers have separately provided to their clients regarding how the firms will vote on ESG-related shareholder proposals. Those formal statements have, by contrast, been more cautious in their appreciation of the current wave of environmental shareholder proposals. BlackRock’s March 2017 Proxy Voting and Engagement Guidelines is non-committal about environmental shareholder proposals: “Consistent with our long-term value focus and ‘engagement first’ process, where shareholder proposals on climate risk clearly address a gap in investment-decision and stewardship relevant disclosure, that we believe will lead to material economic disadvantage to the company and its shareholders if not addressed, and management’s response to our prior engagement has been inadequate, we will consider voting in favor of proposals that would address our concern.”

J.P. Morgan’s North American U.S. Proxy Voting Guidelines Relating to Climate Change Proposals Effective April 1 states a voting policy in qualified terms: “We believe that a company’s environmental policies may have a long-term impact on the company’s financial performance.” J.P. Morgan further indicates that it reviews ESG shareholder proposals on a case-by-case basis: “We generally encourage a level of reporting that is not unduly costly or burdensome, and does not place the company at a competitive disadvantage, but provides meaningful information to enable shareholders to evaluate the impact of the company’s environmental policies and practices on its financial performance.”

State Street’s Global Proxy Voting and Engagement Principles released in March 2016 showed a marginally higher level of commitment to environmental shareholder proposals: “As a fiduciary, SSgA [State Street] considers the financial and economic implications of environmental and social issues first and foremost. Environmental and social factors may not only have an impact on the reputation of companies but may also represent significant operational risks and costs to business. Well-developed environmental and social management systems can generate efficiencies and enhance productivity, both of which impact shareholder value in the long-term. . . . In their public reporting, we expect companies to disclose information on relevant management tools, material environmental and social performance metrics.”

Voting Records

From 2012 through the 2016 proxy season, State Street, BlackRock and J.P. Morgan were reluctant to vote for environmental shareholder proposals. The table below presents a summary of the voting records of these asset managers from July 1, 2012 through August 31, 2016 on four popular environmental shareholder proposals: (1) proposals for companies to report on how the company will be affected by measures limiting the global increase in temperature to 2 degrees Celsius pursuant to the 2015 Paris accord, and proposals for companies to create reports on (2) fracking activities, (3) sustainability policies, and (4) climate change related policies. The voting history of the California Public Employees’ Retirement System (CalPERS), a well-known supporter of environmental shareholder proposals, is included for comparative purposes.

CC Blog_04_27_17

Numbers in parentheses reflect number of times the proposal was voted on by the asset manager and its managed funds at a shareholder meeting of a public company domiciled in a U.S. state. “Split Votes” indicates that at least one fund under management voted its shares “for” the resolution. Data is compiled from Proxy Insight.

Since 2012 BlackRock has not voted “for” any of the four proposals and ultimately voted against these proposals 107 times. J.P. Morgan and State Street have shown marginally greater support for environmental shareholder proposals in the same period. CalPERS has generally voted for these proposals with few exceptions.

One of the open questions regarding the future of environmental shareholder activism is whether larger investors will eventually supplant the role currently played by the smaller shareholders who most commonly bring ESG-related shareholder proposals to annual meetings of public companies. In recent years most environmental shareholder proposals have not been brought by major investors but rather by smaller, niche investors that have far less capital to manage and hold comparatively miniscule stakes in the companies where they are making proposals. At Fortune 250 companies, the vast majority of shareholder proposals relating to the environment since 2006 have been sponsored by shareholder institutions with a social, religious, or environmental purpose: social-investing funds, religious-affiliated funds, and investment vehicles affiliated with public policy organizations. (Prominent exceptions have included New York State Common Retirement Fund and the New York City Pension Funds, holding approximately $178.6 billion and $175.12 billion under management respectively.) Certain major investors may determine in the future that they would prefer to make their own shareholder proposals that will be more narrowly tailored to their own specific engagement priorities and concerns, rather than rely on smaller shareholders to bring these proposals. Proposals that originate with major institutional investors as opposed to comparatively obscure investors could prove to be more compelling for any company’s shareholders at the annual ballot box.

Monitoring the Changing Landscape of Investor Enthusiasm for ESG Factors

Voting results of the 2017 proxy season should be closely watched given that companies and shareholders alike will want to know if institutional investors voted more often for environmental shareholder proposals than they did in 2016. The major asset managers are eager to float the thesis that shareholder value and environmentally protective policies are linked, but many institutional investors seem to be not yet convinced by this thesis. If and when they become more comfortable with it, the question will turn to whether these asset managers will consider the current form and substance of present-day shareholder proposals to be sufficient to advance their value-focused agendas. If leading asset managers show more support for environmental shareholder proposals in the coming proxy seasons, then companies will want to be studying the changing preferences of their institutional investor base as well as the developing viewpoints of the leading proxy advisory services, ISS and Glass Lewis. Companies will also need to monitor how peer companies revise their policies and disclosure practices to address concerns of their investors, particularly when those concerns are being measured at the annual ballot box.

1 J.P. Morgan Asset Management, Sustainable Investing. Investment Perspectives on Corporate Engagement & Proxy Voting. 2Q 2017. 

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Margaret E. Peloso

Margaret E. Peloso Partner