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August 17, 2021updated 21 Feb 2022 11:27am

Shareholder resolutions surge, but impact in doubt

The year to date has seen record-breaking support for shareholder resolutions, with asset managers such as BlackRock and Vanguard stepping up their stewardship. However, a lack of data on the real-world impact means the jury is still out on their efficacy.

By Polly Bindman


Get out and vote. The number of shareholder proposals passed this year has already exceeded that of the whole of 2020. (Photo by Sergey Tinyakov via Shutterstock)

  • Preliminary data shows record levels of shareholder support for climate resolutions following this year’s AGM season.
  • Investment giants BlackRock and Vanguard are among those increasing their support for climate-related proposals this year.
  • However, there’s little data proving a correlation between shareholder resolutions and emissions reduction.

The policy of divestment is under pressure to prove it is a credible strategy for reducing carbon emissions. Its critics argue that if fossil fuel assets are sold off to buyers that aren’t bound by the same regulations as institutional investors, they may continue production in a way that has a net negative effect on climate change.

Instead, a number of institutional investors advocate for engagement with high-emitting companies, arguing that through their role as stakeholders and stewards, they can wield influence over fossil fuel companies and support a cleaner and faster transition to net zero.

A principle means by which shareholders can influence portfolio companies is through voting on resolutions and showing their support for climate-related proposals, most of which occur during the AGM season.

Record-breaking year for ESG proposals

The positive news is that while the full voting data from this year’s AGMs has yet to be released, preliminary data shows a record level of investor support for environmental and social proposals.

According to Georgeson, a global provider of shareholder engagement, proxy solicitation and governance consulting services, the number of shareholder proposals that have passed this year has already surpassed that of the whole of 2020.

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Additionally, the average share of support for ESG proposals has also increased, meaning 2021 can safely be called a record-breaking year for ESG support at the AGMs.

A particularly significant change comes from the world’s two largest asset managers –  BlackRock and Vanguard – which have stepped up to the engagement plate. Last year ShareAction accused them of having a “​​very limited approach to ESG risks and opportunities”, ranking them 47th (BlackRock) and 69th (Vanguard) out of the world’s 75 largest asset managers for their support for shareholder proposals in 2020.

Voting data from the first quarter of 2021 reveals a large increase in support from these investors on environmental issues, according to Insightia, a data provider.

Are there enough resources?

While these voting figures point to a tangible shift in investor approaches to responsible investment, it’s important to establish the real-world impact of these votes.

For starters, BlackRock and Vanguard’s votes should be placed within the context of their size and influence over the world’s fossil fuel industry. According to Morningstar data, the ‘big three’ asset managers, which also includes State Street Global Advisors, have an average combined ownership of 12.7% of the top emitting companies.

A recent report by the Institute for Energy Economics and Financial Analysis (IEEFA) claims the stewardship teams of Vanguard and BlackRock are “under-resourced”, pointing out that BlackRock’s global stewardship team comprises at least 50 individuals who are responsible for voting on 153,000 proposals per year. Vanguard’s team of 43 stewardship personnel are responsible for voting on 168,000 proposals in 170 different countries.

It’s important to note the ratio of stewardship personnel to voting obligations may not be the best reflection for how well resourced a team is. It is common for investors to outsource their voting to proxy advisors like ISS or Glass Lewis.

Looking at the number of actual engagements that occurred can also provide a useful picture. In 2020, Vanguard reported ESG engagement with 655 companies out of the 13,000 it partially owns (5%), whereas BlackRock engaged with 3,500, or almost one in four.

For context, T. Rowe Price, which in 2020 had an AUM of $1.2trn compared with BlackRock’s $7.8trn, and UBS Asset Management ($1.2trn AUM) reported 1,002 and 429 engagements, respectively, according to each of the asset managers’ 2020 stewardship reports.

Real-world impact of stewardship

Of course, engagement is one thing, delivering change is quite another. Ellen Quigley, advisor to the chief financial officer of responsible investment at the University of Cambridge, recently argued that large institutional investors need to be doing “much more aggressive, forceful stewardship” to evince change. She compared softer resolutions, such as voting for increased disclosure of climate risk, with the much “spikier and evidence-based” strategy of voting against directors.

In a July podcast hosted by the Principles for Responsible Investment, Quigley says: “In terms of near-term results, which is what we need right now with climate change, shareholder resolutions don’t seem to be the best tool, in most cases”, as they tend to be “advisory”, or “very weak”.

Citing what she perceives as the best example of the inefficacy of shareholder resolutions, Quigley points out that oil major Exxon Mobil has had “probably more shareholder resolutions than any other single company, and yet its emissions have continued to rise”.

This issue is not confined to Exxon Mobil alone. Shell, Equinor, BP and Total have collectively seen a rise in shareholder support for climate disclosure resolutions, while emissions have risen over a similar time period. This suggests it’s unwise to associate shareholder resolutions with emissions reductions. In the short term, at least.

Stewardship jury is out

A report published in October last year by three authors from the University of Cambridge, including Quigley, concluded it is “difficult to deem shareholder engagement a success”.

Other studies have suggested there may even be a negative correlation between environmental performance and environmental reporting. This supports the notion raised by the Journal of Industrial Ecology last year that “poor environmental performers have higher motivations to increase their level of disclosure than strong performers”.

Consultancy EY recently pointed out that although the increasing level of shareholder activism is driving companies that operate in ‘high-risk’ sectors to pay closer attention to their disclosures, and to align with TCFD recommendations, the quality of disclosure is often poor.

According to the EY Global Climate Risk Disclosure Barometer, almost 50% of companies have 100% of ‘coverage’, meaning full disclosure of climate-risk according to TCFD standards, but only 3% received a top score for the quality of it.

In a separate article published in June, Quigley said there are a few, “rarely used... tactics that tend to be more effective” with regards to climate change. One of these is voting against the directors of companies, which “can prompt change more reliably” as it is “often viewed as embarrassing by the high-status individuals who tend to occupy such roles”.

While there doesn’t appear to be conclusive data supporting this point, one clear example is the historic defeat of Exxon Mobil CEO Darren Woods by shareholders, when activist investment firm Engine No. 1 secured three seats on Exxon’s board despite having only 0.02% in the company.

And while it’s too early to tell just how this ‘coup’ will impact emissions, having activists with climate change mitigation as a priority issue on the board of one of the world’s largest polluters is undoubtedly a step in the direction of stewardship change.

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