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The ‘Missed Opportunity’ in Asset Management

Robeco says money management firms aren’t doing enough to effect positive change at companies — and they need to band together to push through shareholder proposals.

Active managers have been fighting for their lives in recent years as index funds have gobbled up their market share. But they may want to start working closely with their index rivals when it comes to shareholder proposals.

That’s the conclusion of Rotterdam-based Robeco, which is calling for asset managers to coordinate on shareholder proposals when it comes to environmental, social, and governance issues facing public companies. The asset manager argues that only coordinated action will bring about meaningful changes in ESG. 

In a white paper to be released later this week, Robeco acknowledges that the increased attention that the big passive managers — including BlackRock, Vanguard, and State Street — have paid to voting proxies has made a difference in corporate behavior toward climate and other issues.

Still, recent research showed that index funds vote against shareholder proposals more than 90 percent of the time, according to the paper. That means asset managers need to use the leverage they could potentially get with companies they own by acting in tandem.  

[II Deep Dive: Vanguard Tackled Bad Governance During the 2018 Proxy Season]

“We believe that as more and more asset managers start engaging on ESG, coordinated action is the only way forward, not only to bring change, but also to keep it manageable for companies,” wrote Masja Zandbergen, head of ESG integration for Robeco, and Cedric Hille, active ownership analyst at Robeco, in the paper. 

BlackRock, Vanguard, and State Street Global Advisors now represent about one-quarter of voted proxies at companies in the Standard & Poor’s 500 index. Still, “Because of the growing interest in sustainability that was displayed by large (passive) asset managers in 2018, we had expected to see large support for such shareholder proposals when the 2019 voting season started,” Zandbergen and Hille wrote.

Robeco found that proposals are voted down for a number of reasons, including index funds’ favoring ongoing engagement with companies on issues like climate. Companies also claim that many shareholder proposals aren’t directly addressing material ESG issues.

“Even on a financially material ESG topic like climate change, some proposals are too specific in prescribing a certain course of action, or they ask for information that has already substantially been addressed by corporate reporting,” the authors wrote. “That does not contribute to long-term shareholder value. In the first half of this decade, most environmental shareholder resolutions fell into these categories.”  

Between 2012 and 2015, for example, Robeco supported just one-sixth of climate-related resolutions. But shareholder resolutions have improved, and are now being written in a more flexible and relevant way for corporations, the authors observed. 

Asset managers can pull together to make changes, just as shareholders did with ExxonMobil, the authors noted. After being disappointed in the company’s ESG actions, shareholders got behind a proposal seeking an independent chairman of the board.

“If the largest asset managers did the same, many more climate-critical resolutions would have gained a majority vote in favor. What a strong signal that would have been — it could have created positive outcomes by contributing to real progress!” the authors wrote. Instead, they concluded, “it turns out that this year was a missed opportunity, especially considering the pressing nature of the climate issue.”

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