Asset owners defend ESG voting even as asset managers take backseat
Some asset owners such as NZ Super restated their commitment to active voting strategies, even as consultants and some global asset managers clash over whether pursuing ESG through shareholder votes aligns with their fiduciary duty.
“It is important that asset owners and managers acting on their behalf, support strong stewardship practices. This includes using engagement and voting to encourage companies to build climate resilience and a strong long-term brand and reputation,” Anne-Maree O’Connor, head of sustainable investment at NZ Super, told AsianInvestor.
“It is good governance for boards to promote good practice in managing employee, environmental and social issues. Shareholders should expect such good governance from boards.
"We believe environmental, social and governance considerations, including climate change, are fundamental to long-term shareholder returns.”
This year, NZ Super has voted against management in 19% of votes cast, with its voting heavily skewed to votes proposed by shareholders.
For shareholder proposals, it voted on 66 environmental, 155 social and 63 environmental and social blended votes. For those proposed by management, the figures were 8, 38 and 41 respectively.
However, BlackRock and Vanguard, the world’s two largest asset managers, have reduced backing for environmental and social shareholder proposals in recent years, amid US lawmakers’ criticism of “woke capitalism”, and concerns over clashing with fiduciary duties.
INDUSTRY DEBATE
As reported by AsianInvestor on September 16, Vanguard and BlackRock showed limited support for environmental and social shareholder proposals in Asia during the year ending June 30.
Vanguard supported none of the 400 environmental or social shareholder proposals that it considered in the 2024 US proxy season, according to its latest US stewardship brief published on August 29. In 2021, it supported 46% of such proposals.
According to BlackRock's investment stewardship voting report published in August, the firm backed management on all 58 environmental and social shareholder proposals across Asia Pacific in the year to June 30, with only two proposals relating to environmental issues.
Many institutional investors in Asia were following suit, according to one leading consultant in the region, who asked not to be named.
“It is naïve to expect corporations to spend vast sums of money without any financial benefit. That is the real tension and that is starting to play out with some fiduciaries,” the consultant told AsianInvestor.
“They are seeing that if they push companies to re-engineer their businesses without producing financial benefits, then they fail in their ultimate duty to their pensioners or [other stakeholders] investors.
“It is not the responsibility of investors to change the world; that is the responsibility of governments, using regulation,” they said, questioning the extent to which ESG strategies forged in the Davos “echo chamber” served investors in carrying out their fiduciary duties in Asia.
Snorre Gjerde, lead investment stewardship manager at Norges Bank Investment Management (NBIM), which is responsible for managing Norway’s $1.5 trillion sovereign assets, acknowledged the challenges posed to investee companies and investors by the “alphabet soup” of acronyms, which signify current climate and nature-based reporting standards.
Effective reporting guidelines were an important resource for the fund to better understand the opportunities and risks relating to nature and biodiversity, Gjerde said during an event on September 4.
SEGREGATED SHIFT
Control over voting has been an important factor driving some of the world’s largest investors towards segregated accounts for passive and other allocations, alongside other factors such as decisions over securities lending, noted Deborah Fuhr, managing partner and co-founder of ETFGI, a global ETF research company in London.
“Since they are the underlying owner of securities, asset owners want to decide when they will vote and how they will vote. That is part of the reason that many large investors choose segregated accounts,” she told AsianInvestor.
Kathryn Saklatvala, head of investment content at London’s investment consultancy bfinance, highlighted how the recent shift in returns away from ESG-oriented stocks has intensified the fiduciary duty debate.
“While 2020 saw a strong performance of passive sustainability strategies, 2021 and 2022 were problematic - with under-exposure to energy punished in 2022,” Saklatvala told AsianInvestor.
Many of bfinance’s asset owners and institutional clients are based in Asia.
“The underperformance of climate-aligned indices continued into 2023, with ESG strategies over-exposed to clean-tech and underweight in the runaway big tech stocks,” she said.