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The Surprising Firms Leading the Way on ESG Votes
Mutual funds that have nothing to do with ESG have voted for E&S resolutions in record numbers this year, according to a Morningstar analysis.
Asset managers are getting more active than ever when it comes to climate change and other social issues — but not necessarily the firms you might think.
In 2019, American Century mutual funds and exchange-traded funds supported an average of 56 percent of environmental and social shareholder resolutions of companies that they held in their portfolios. American Century supported an average of only 6 percent of similar resolutions the year before, according to data pulled from public filings and analyzed by Morningstar for Institutional Investor.
Morningstar only analyzed the proxy voting records of U.S.-domiciled equity funds without specific mandates to invest according to environmental, social and governance goals. In addition, Morningstar counted votes on all shareholder-sponsored resolutions addressing environmental and social issues that came to vote each year. It did not include generic governance proposals, such as ensuring that a company has an independent chairman of the board.
Legg Mason, MFS, Nuveen, and TIAA funds also significantly increased the number of environmental and social shareholder proposals that they supported in 2019.
Evaluating the proxy voting records of 54 large asset managers, Morningstar found on average that the firms’ mutual funds and ETFs supported 44 percent of environmental and social proposals in 2019, up from 38 percent in 2018 and 31 percent in 2017. In 2015, the average was 26 percent.
“If you look even longer, over seven years, you can see that there is strengthening of concern around E&S issues. It’s gathering momentum,” said Jackie Cook, director of sustainable stewardship research at Morningstar. “Large asset managers in particular want to be more active stewards. The votes reflect their concerns, and the growing interest in how asset managers are using their votes.”
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American Century’s support for E&S resolutions exploded this year as a result of the manager’s move to integrate its proxy voting process into its fundamental research process across investment strategies. The firm wants to vote all proxies consistently, regardless of the type of fund that holds a particular security.
“If we identify investment opportunities flowing from ESG factors, we want to roll that all the way down to how we vote,” said Guillaume Mascotto, who heads American Century’s ESG efforts. “If climate change is financially material for an energy company we own but we don’t support a proposal that calls for greater transparency, then there is a disconnect. We’ve identified climate as a risk, but we don’t vote accordingly. It’s important to have consistency and to allow the portfolio managers to be part of the entire research effort.”
Morningstar’s findings are “in line with the fact that there are more proposals now that are better structured than they were a few years ago,” said Michael Cantara, co-chair of MFS' Sustainability Group and senior managing director.
But Cantara stressed that an eight-person MFS proxy committee — including the chief investment officer, senior portfolio managers, and analysts — evaluates shareholder proposals on a case-by-case basis.
“Our responsibility is to identify the economic value in the proposals as well, and how does that fit into what the company’s strategy is,” said Cantara. “It has to have an economic reality. We’re not managing ESG-labelled portfolios.”
According to Morningstar, American Funds went from supporting an average of 5 percent in 2018 to an average of 11 percent of environmental and social shareholder proposals in 2019. In 2016, American supported only 1 percent of these proposals. Between 2018 and 2019, Legg Mason went from 56 percent to 66 percent, Nuveen went from 69 percent to 76 percent, TIAA funds went from 42 percent to 56 percent, and Invesco went from 30 percent to 46 percent.
Passive managers also increased their support of E&S proposals. Geode, which manages Fidelity’s index funds, went from supporting an average of 30 percent of resolutions last year to 53 percent in 2019.