There is no denying that companies have a huge impact on our world, and our way of life.
As witnessed by the scores of companies who have lined up to pull out of Russia in the wake of the Ukraine invasion, they can make a powerful stand in a time of crisis.
But it is not just when crises hit they have a role to play.
Each day companies make choices that shape the world around us. From climate change and biodiversity to workers and human rights, they can choose to have a positive impact. Or a negative one.
Sadly - as exposed by the Covid-19 pandemic and a deepening climate crisis - too often they still choose the latter.
But these companies don’t operate alone.
Investors in these companies have a huge role to play to drive positive action – and nowhere better does this play out than how they vote at a company AGM (annual general meeting).
Voting: A powerful tool for change
One of the most powerful tools investors have at their disposal to hold companies to account is through their proxy voting.
We know proxy voting works.
Last year the world’s largest asset manager – BlackRock - published research confirming that when shareholder proposals receive majority support by investors, they are implemented by companies 94 per cent of the time.
But our research on the voting performance of the world’s largest asset managers on environmental and social shareholder proposals reveals that the potential of proxy voting is being underleveraged.
Too many asset managers continue to vote against, abstain or withhold votes on these important resolutions.
This is a missed opportunity at a pivotal moment in the sustainability revolution.
A time for change – how asset managers can use voting to drive positive action
It’s time for a new standard of proxy voting that’s fit for the challenges of the 21st Century.
Voting-related standards are beginning to emerge from the cauldron of net-zero finance coalitions such as the Net-Zero Asset Owner Alliance and Net-Zero Asset Managers Initiative.
But investors are still missing a clear framework, or requirements, on what fit for purpose voting on ESG (environmental, social and governance) topics should look like in 2022.
We aim to change this.
Today, we’ve laid out clear expectations on asset managers on how they can use their voting power effectively.
It is grounded on asset managers setting and communicating crystal clear and sufficiently demanding ESG-related company expectations backed up by impactful voting consequences.
From here, the standard proposes a suite of voting-related behaviour we expect from any asset manager serious about mitigating or avoiding the negative impacts of their investments on people and planet.
A clear framework for proxy voting
We expect asset managers to set ambitious – and importantly, public – expectations of companies. And then to vote in line with these expectations.
Imagine the impact on companies if asset managers began supporting environmental and social shareholder resolutions as a default position, instead of on an ad-hoc basis. This would result in a far higher number of quality worded and positively impactful resolutions receiving majority support.
Support should be the default position. And where it is not, we expect asset managers to publicly explain their rationale for why.
Imagine also the impact if more asset managers started purposefully voting against standing item resolutions – such as director re-elections or renumeration packages - on account of poor ESG-related performance.
We know from our own engagements with asset managers that this tactic really helps sharpen and focus the attention of company senior managers and directors on environmental and social topics.
For example, in 2021, a coalition of investors representing US$4.5 trillion in assets under management wrote to the world’s top four auditors warning that they would vote to prevent the firms from working for the companies they invest in that until audited accounts integrated climate risk.
Our standard also reflects on the emergence of Climate Transition Action Plans, where investors are beginning to be asked to vote on ‘say on climate’ plans.
This is a relatively new field for investors. But the urgency of the climate crisis demands bold action. Voting against insufficient plans must be matched by votes against standing item resolutions, such as director re-elections.
How investors vote is important. But how they publicly communicate their voting intentions can also have an impact. That’s why we are urging them to pre-declare their voting intentions on ESG-related resolutions.
In doing so they will further highlight the urgency of the challenge among the companies in which they invest.
Extending beyond voting – how asset managers can increase their impact
Alongside our clear expectations on asset managers’ voting practices, we’ve also laid out clear guidelines on how they extend this impact.
We expect asset managers to actively participate in the investor coalitions they belong to, promoting better voting practices, and leading by example.
We also welcome them opening up decisions on voting practices to their asset owner clients, though asset managers should always ensure their own in-house voting policies and practices are fit for purpose.
Finally, we expect asset managers to be transparent to stakeholders about their voting policies, including setting out their expectations of companies, making their voting records public, sharing their voting rationale on environmental and social resolutions, and publishing their voting intentions well ahead of company AGMs.
Proxy voting in 2022 and beyond
We’re facing a perfect storm of environmental and social crises. The climate crisis looms, rising global energy prices – further exacerbated and the Ukraine invasion – and an increasing cost of living could throw millions more into poverty, and economic and health inequalities to further widen.
It has never been more important for companies – and those they invest in – to ensure they not only do not negatively impact people and the planet but are having a positive impact on our world and our society.
In 2022, we expect to see asset managers increase their ambition, and set clear expectations for the companies in which they are invested by supporting ambitious environmental and social resolutions.
Our new framework offers a vital guide for them doing so.
As a starting point, we have pulled together a shortlist of impactful and high-profile resolutions that investors should be supporting this year.
While not exhaustive, this should provide a useful starting point for asset managers, as well as their asset owners and consultants, who we challenge to apply both these resources in holding their asset managers to account in this critical area.
