united kingdomen
Let’s talk about outcomes: voting on shareholder proposals

Let’s talk about outcomes: voting on shareholder proposals

16-10-2019 | Column

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.

  • Masja Zandbergen - Albers
    Masja
    Zandbergen - Albers
    Head of sustainability integration
  • Cedric Hille
    Cedric
    Hille
    Active ownership Analyst

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.

Powerful voices

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.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

Not all proposals work

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.

Rallying around proposals

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.

Distinguishing from passive

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.

1https://www.ft.com/content/046ec082-d713-3015-beaf-c7fa42f3484a
2https://static1.squarespace.com/static/5d4df99c531b6d0001b48264/t/5d8006692e5b035cf0d2b17f/1568674165939/assetmanagerreport2019.pdf
3https://www.sec.gov/Archives/edgar/data/34088/000003408819000025/r8k052919.htm

This column was co-written by Cedric Hille, Active Ownership analyst at Robeco

Logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree