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February 20, 2020 at 11:15 AM
You don’t have to invest clients’ money in funds focused on environmental, social and governance concerns to address their preference for socially responsible assets. A traditional index fund may suffice if the fund management company has a record of voting in favor of ESG-related shareholder proposals, and more asset managers are doing just that, according to a new Morningstar report.
Morningstar studied how the 50 largest fund companies voted on 1,033 ESG-related shareholder resolutions over the past five years — excluding the votes of their ESG-themed funds — and found that support for such resolutions has grown from 27% to 46%.
DWS, Allianz Global Investors, Blackstone, Nuveen and AQR were the five most ESG-supportive fund companies over the five years from July 1, 2015 through June 30, 2019; Federated, Hartford Funds subadvised by Wellington Management, J.P. Morgan Asset Management, Pioneer Funds and American Funds were the least supportive.
During the 2019 proxy season, Allianz Global, Blackstone and DWS placed in the top five fund families in support of ESG-focused proxy votes along with Eaton Vance and Pimco; American Funds, Dimensional Fund Advisors, Vanguard, BlackRock’s iShares and T. Rowe Price were among the five least supportive of such resolutions.
But times are changing.
Looking Ahead
Early this year, BlackRock, the world’s largest asset manager, committed to placing “sustainability at the center of [its] investment approach and disclosing its proxy votes on a quarterly rather than annual basis,” and its CEO, Larry Fink, announced that the firm will be “increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
State Street Global Advisors CEO Cyrus Taraporevala said his firm “will take appropriate voting action against board members” of companies included in the leading global stock market indexes that lag in addressing financially material ESG issues, based on State Street’s proprietary measurement.
“Everyone will be watching their voting records; it will interesting to see how those records change,” says Jackie Cook, director of manager research and co-author of the Morningstar report.
There’s plenty of room for improvement. According to Morningstar, BlackRock voted in favor of ESG-related shareholder proxies just 7% of the time, the same as Vanguard, and State Street’s approval rate was 27%. Of the remaining fund families in the top 10 by assets, only DFA, at 1%; T. Rowe Price and American Funds, at 11% each; and Fidelity’s active funds, at 17%, scored lower than State Street.
Vanguard, the second largest asset manager, has been “very loud in its silence” on ESG-related proxy issues, says Cook.
