Proxy Voting: Asset Managers Lose Appetite for ESG Resolutions

Sustainability-focused investors cannot fail to have noticed a change in market sentiment when it comes to sustainability-focused shareholder resolutions. Our latest research shows that asset managers’ backing for these proposals hit a five-year low in 2024.

And for investors who want their sustainability ambitions reflected in proxy-voting decisions, that means it may be time to re-examine whether their fund and manager choices still match their own preferences.

As we’ve reported, there are more shareholder proposals than ever targeting environmental and social issues at US companies. And the increase in the volume of those resolutions has brought with it a growing number of questions about their quality. Complaints from fund managers that too many of them address matters not central to a company’s strategy and financial performance, or better dealt with by boards than shareholders, have increased.

Falling Support for Higher-Quality Shareholder Resolutions

But even if you strip out the resolutions the market perceives to be lower-quality, we still see a reduction in support for them over time, as shown on the chart below.

In each of the last five years, over 100 resolutions addressing E&S themes have gained substantial support from targeted companies’ independent shareholders. (In the chart, we call this “adjusted support.”) The chart above shows the progress of these resolutions, which the market perceives as being higher-quality because they have gained at least 30% support from shareholders that aren’t company insiders.

We see that the number of these significant E&S resolutions peaked in 2022 at over 150 despite the overall number of resolutions continuing to grow right through to 2024. And we also see that average support for significant E&S resolutions peaked back in 2021.

US Asset Managers Retreat While Others Hold Steady

Our analysis of 35 large asset managers’ fund voting decisions (20 in the US and 15 in Europe) indicates fundamental, and widening, differences of perception when it comes to voting on significant E&S resolutions. As the chart below shows, the US firms have consistently reduced their support for these proposals in the last three years. Some 54% of the firms’ fund votes in the 2021 proxy year supported these resolutions, falling to just 31% in 2024. (A proxy year ends on June 30, as most shareholder meetings are held in the spring.)

The picture is very different in Europe, where more space is given to investment fiduciaries to incorporate sustainability considerations into their decision-making. Average support for significant E&S resolutions by Europe’s largest asset managers is consistently very close to 100%.

We see US sustainable funds treading a path between those two extremes. As the chart above shows, average support by over 300 sustainable funds is substantially higher than for US firms overall. But the US sustainable funds still largely follow the same overall declining trend since 2021.

Yet, last year, things started to look a little different. Although US asset managers generally continued to cut their support for significant E&S resolutions in the 2024 proxy year, the sustainable funds held their support steady at just over 60%, widening the gap between them to over 30 percentage points. So, in the US, a sustainable fund is now around twice as likely to support a high-quality environmental or social shareholder resolution than average.

Against the backdrop of rising political criticism on support for ESG-focused resolutions, all the top eight US fund managers by market share have substantially withdrawn their backing for significant E&S proposals in the last three years. Five of the eight supported more than half these resolutions in 2021. Now, all support no more than one third, as shown on the chart below.

There are a few key messages here for investors who want their fund manager’s proxy-voting decisions to reflect higher sustainability ambitions. Firm choices have to be made—on manager selection, fund selection, or even selecting a specific voting policy. It is unlikely in the near future that any of the largest US asset managers will prioritize environmental or social goals by default in the way that many have done in recent years.

It’s all gotten a lot more complicated for sustainable investors.

To check out the full report, click here.