A ‘catastrophic’ decline in support for shareholder activism

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Good morning. Asset managers’ enthusiasm for shareholder activism on environmental and social themes was frosty at best last year, as I explore below.

And there’s every sign that this broader wariness about being publicly linked to the movement for “cleaner capitalism” is set to continue, at least in the US. Launches of funds claiming environmental, social or governmental attributes all but dried up in the past six months. Just six funds citing ESG factors launched in the second half of 2023 compared with 55 in the first half, my colleague Will Schmidt reports. — Kenza Bryan

Money managers pull back support on climate and social shareholder proposals

What is really driving asset managers’ reluctance to put their heads above the parapet on the issue of cleaner and greener investments?

Big money managers who have made vocal pledges to hit net zero emissions risk looking like hypocrites amid a “catastrophic” decline in support for shareholder resolutions on climate change and social issues, according to advocacy group ShareAction.

Just 3 per cent of the 257 resolutions on environmental and social issues it examined last year won majority support, driven in part by a drop-off in backing from US asset managers. This was down from 14 per cent in 2022 and 21 per cent in 2021. The total number of proposals that focus on social and environmental themes and that ShareAction deemed credible, however, has increased each year with 146 in 2021 and 252 in 2022.

Claudia Gray, head of financial sector research at ShareAction, said it was the “worst result we’ve seen from asset managers in recent years”, and “deeply concerning”. 

BlackRock, Fidelity, Vanguard and State Street — the sector’s four largest players by assets managed — were among the most reluctant to back proposals. The US-based giants supported just 14 per cent of environmental resolutions compared with 39 per cent two years ago, and just 13 per cent of proposals focused on social issues, against 29 per cent two years ago. 

At least 69 more resolutions last year would have passed had these four asset managers supported them, according to ShareAction.

These include a resolution at Amazon calling for an assessment of workers’ rights and another asking US bank Citigroup to report on how it considered indigenous peoples’ rights in its financing. 

ShareAction points out that few proposals were particularly demanding last year: three-quarters of the resolutions covered in the report asked for more data disclosures, rather than changes in the way a business operates.

But asset managers argue that activist shareholders’ demands, even around disclosure, are becoming more strident, and could hurt shareholder value. One of the few proposals that did pass called for Starbucks to conduct an independent assessment of its commitment to workers’ rights, putting pressure on the company to provide proof that it does not have an “anti-union playbook.”

“In 2023, because so many proposals were overreaching, lacking economic merit, or simply redundant, they were unlikely to help promote long-term shareholder value and received less support from shareholders, including BlackRock, than in years past,” the asset manager said in a statement. 

A geographical gulf in voting patterns also suggests each region’s political climate may have played a role in influencing asset managers to support or step back from proposals.

In Europe and the UK, financial institutions are increasingly expected to disclose the environmental and social impacts of their investments, while on the contrary in the US, Republican politicians have criticised financial institutions for being too vocal on ESG issues. 

For global asset managers’ environmental and social claims to have credibility, “they need to vote in favour of more social and environmental resolutions”, Gray said. “We are now seeing the complete opposite of this happening.” (Kenza Bryan)

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