ESG engagement pressure on Asia asset owners builds as managers retreat
Engagement by the world’s leading investment managers with shareholder-led environment, social and governance (ESG) issues in the Asia-Pacific is waning, according to recent data published by BlackRock and Vanguard.
The shift is increasing pressure on asset owners themselves to decide on specific engagement policies regarding proxy voting, Deborah Fuhr, managing partner and co-founder of ETFGI, the global ETF research company, told AsianInvestor in London.
“Governance committees within many [asset owners] are deciding what types of things they’ll vote on during proxies and what they will not,” she said.
BlackRock's and Vanguard's behaviour could be a harbinger of how other managers could behave.
Vanguard supported none of the 48 environmental or social shareholder proposals that the asset manager considered in Japan for the year to June 30, and none of the 36 related to executive compensation, according to its Japan Investment Stewardship Report, published on 6 September.
Blackrock sided with management on all 58 shareholder environmental and social proposals (only two were environmental) in APAC, according to data for the year to June 30 published in its 2024 Investment Stewardship Voting Spotlight in August.
Of management proposals, Blackrock voted with management on 532 of 619 proposals and against management in 87 cases; on management proposals concerning the environment, BlackRock voted with management in all three instances.
INCREASING PRESSURE
Vanguard noted that, in Japan, most environmental and social shareholder proposals focussed on climate risk management in the utilities, materials, and financial sectors, including requests to phase out nuclear facilities and transition to renewable energy, the report noted.
“Generally, we found that Japanese companies had reasonable disclosures on climate risk management, likely driven in part by 2023 changes in regulation that mandated sustainability disclosures in a company’s annual securities report,” the Vanguard report noted.
On the topic of compensation-related shareholder proposals, the report noted: “we found that many of the shareholder proposals introduced overly prescriptive terms that would limit boards’ ability to retain flexibility and discretion.”
Pressure is now increasing on asset owners to intensify their engagement with investee companies - and figuring out the best ways to do that.
These decisions flow from how they define ESG as well as their views on the best way to implement it – whether to pursue a best-in-class approach or to focus on minimising the deviation from standard benchmark for.
“These are all things that many investors, and the organisations running funds for them, are trying to grapple with,” Fuhr said.
Large asset owners in APAC had increasing responsibilities to engage on ESG but were moving too slowly, Brett Morgan, superannuation funds analyst and campaigner, at Market Forces, which lobbies the Australian financial sector for better environmental engagement, in Sydney.
“Large asset owners such as pension funds must prioritise ending the coal, oil and gas expansion plans of investee companies as the need to reduce global emissions becomes more urgent by the day.
“Most Australian pension funds are failing to take effective action to manage climate risk and must undertake more forceful stewardship efforts, including withdrawing capital from companies flouting global climate goals,” he said.
FALLING SUPPORT
The results come amid falling support for shareholder proposals at annual general meetings from Vanguard, which peaked at 46% in 2021-2022, then fell to 2% last year and zero this year.
In the US, Vanguard supported none of the 400 environmental or social shareholder proposals that the asset manager considered during the spring/summer proxy voting system in the US, despite backing 382 of the 507 relating to governance and shareholder rights, according to its US Investment Stewardship report, published on August 29.
Of 187 proposals related to governance, Vanguard backed 51 related to shareholder rights.
BlackRock voted in 4% of environmental and social measures worldwide, compared to median market support for environmental and social measures was 13%, according to its 2024 Investment Stewardship Voting Spotlight report.
It voted on just 18 shareholder proposals in APAC compared to 661 in the US and 106 in Europe.
The number of environmental or social proposals from shareholders globally that BlackRock did not support because they were “too prescriptive” increased to 31% in 2023-2024 from 25% in 2021-2022.