Sustainable investing is finally getting traction in the market place. This is possibly because the market has started to acknowledge that issues such as climate change and inequality can have a detrimental effect on economies and companies. In order to prevent these effects from happening, however, we need to start considering the outcomes of our investment strategies in financial, social and ecological terms. In the next series of columns, I would like to talk about outcomes – this time on voting on shareholder resolutions.
Shareholder resolutions can be used as a tool to aid engagement with companies, specifically if no or too-slow progress is made. They can act as a very powerful signal to companies. Because of the growing interest in sustainability that was displayed by large (passive) asset managers in 2018, we had expected to see large support for such shareholder proposals when the 2019 voting season started.
According to a recent article in the Financial Times, BlackRock, Vanguard and SSGA account for a quarter of votes cast at S&P 500 companies. This proportion is set to grow further, according to academics at Harvard Law School1. So, the voting behavior of these large investors can be extremely powerful in creating change for long-term value creation.
Unfortunately, as shown in a recent report by Majority Action2, these managers vote down shareholder resolutions in 90-100% of cases. The main reasons that are mentioned in the stewardship reports are ongoing engagement on these topics with these companies, and the fact that these shareholder proposals were not addressing material ESG issues.
It is true that not all shareholder proposals are created equal. Even on a financially material ESG topic like climate change, some proposals are too specific in prescribing a certain course of action, or they ask for information that has already substantially been addressed by corporate reporting. That does not contribute to long-term shareholder value. In the first half of this decade, most environmental shareholder resolutions fell into these categories. That explains why we at Robeco also only supported one-sixth of climate-related resolutions between 2012 and 2015.
For example, a proposal at Dominion Energy's 2012 AGM asked for a report on the implications of increasing renewables generation to 15% in a single American state. This resolution's narrow focus did not address the challenge of the energy transition with scalable outcomes in mind. It was rightfully brushed aside by shareholders, with only 5.5% support. But over time, we've seen smarter and more relevant resolutions which support concerted and urgent action on climate change, and retain the necessary flexibility for implementation. Therefore, this year we voted in favor of 88% of the climate-critical resolutions mentioned in Majority Action's report.
Where companies failed to respond appropriately to resolutions, ESG-minded investors rallied around proposals to improve board accountability. This was the case at ExxonMobil, which had succeeded in pulling an important climate resolution from the agenda at its May 2019 AGM. A proposal seeking an independent chairman instead was seen as an opportunity to bring long-term thinking to the boardroom, and to show shareholder discontent at the company's unwillingness to engage.
A support rate of over 40%3 made it clear that more and more shareholders see climate change as a real threat to their investments. If the largest asset managers did the same, many more climate-critical resolutions would have gained a majority vote in favor. What a strong signal that would have been – it could have created positive outcomes by contributing to real progress! However, as mentioned earlier, it turns out that this year was a missed opportunity, especially considering the pressing nature of the climate issue.
We understand that ESG for active managers is a way of distinguishing themselves from passive, and of course this goes for Robeco as well. We will do so by providing the best products, solutions and performance for our clients. However, in trying to create change, we have always worked together with our clients and our competitors since we started engaging with investee companies in 2005.
And we believe that as more and more asset managers start engaging on ESG, coordinated action is the only way forward, not only to bring change, but also to keep it manageable for companies. So, we invite and welcome the large investors (supported by their clients) to join us in supporting well-written, financially material ESG shareholder proposals to create the change that is needed to sustain economic, ecological and social assets.
This column was co-written by Cedric Hille, Active Ownership analyst at Robeco
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.