Europeans Can Fill Stewardship Gap Left by US Managers
BlackRock and its US peers may be pulling back from ESG voting and engagement, but European managers still have clout.
European asset managers should not lose heart at their US counterparts’ retreat from ESG-related engagement, according to Michael D. Goldhaber, a Senior Research Scholar at the NYU Stern Center for Business & Human Rights.
Instead, they should deepen collaboration with global asset owners to push companies even harder on ESG issues, argued Goldhaber, who has just published a report outlining how investors can reverse the trend of falling support for sustainability-related shareholder resolutions.
On Wednesday BlackRock, the world’s biggest asset manager and until recently one of the most outspoken supporters of ESG-related issues, revealed it had supported just 4% of shareholder proposals on environmental and social issues in this year’s proxy season.
“Like last year, investors found the majority of these proposals to be overly prescriptive, lacking economic merit, or asking companies to address material risks they are already managing,” BlackRock said.
It was a dramatic reversal from 2021, when BlackRock supported 40% of proposals, which commentators linked to the vociferous anti-ESG movement in the US. It was also well down on last year, when it supported 8%. It’s a path other US giants like Vanguard, State Street and Fidelity – which with BlackRock make up the four biggest global asset managers – have also followed.
“Ignominious retreat”
Goldhaber argued BlackRock’s shift was not, as it claimed, due to a drop in the quality of proposals, but was a response to political pressure and threats of legal action from the US anti-ESG movement.
“It’s incontrovertibly obvious that the giant trillion-dollar asset managers are retreating ignominiously,” he said, adding legal risk was probably the biggest factor motivating this pull-back.
Goldhaber conceded the retreat of the huge US managers would be a blow to the pro-ESG movement, as they are so big “they’re almost like regulators”, though he added the current anti-ESG mood in the US could change.
“But in the meantime you have an extremely impressive coalition that sometimes can carry the day, which includes asset owners worldwide, and the European and British asset managers,” he said.
Without the likes of BlackRock and Vanguard, it may be tough to reach the 50% threshold required to pass a resolution. But this was not a “magical threshold” as corporations could still ignore it, he said.
“But if you just start getting up close to 25%, 30%, 35% – which absolutely can be done in the absence of the giant US asset managers – then you can get the attention of corporations of good will,” he said.
“Then you can engage with them over time, and show them that there is a tremendous segment of the investor population that is very upset with the role of corporations of degrading the environment and the lives of workers, especially outsourced workers in the most vulnerable areas of the world.”
“Gaping gap”
Overall support for resolutions among US asset managers has steadily declined over the last few years, falling from 40% at the peak in 2021, to 25% last year, according to ShareAction’s Voting Matters 2023 report.
European asset managers have followed the opposite path, rising from 68% support in 2021 to 88% in 2023 – which ShareAction in part linked to the EU Shareholder Rights Directive, a law designed to promote the exercise of shareholder rights at annual meeting.
In the UK, which is not subject to EU law, asset managers’ support for resolutions has been flat at around 64% over the same period.
These figures were a stark demonstration of the gulf between US and European managers, Goldhaber said.
“I could have written a separate report on the giant, widening, gaping gap between ESG culture in Europe and ESG culture in the US,” he said.
Resolutions need more teeth
Goldhaber’s report, published this month by NYU Stern, argued shareholder proposals have often been unambitious, focusing too much on disclosure and reporting, and too little on demanding real-world action.
“Academic evaluations of stewardship now define success as a steward getting what it asks for,” Goldhaber wrote. “Yet all too often, what it asks for is a dust-gathering report, an empty pledge, or an insignificant policy tweak.”
The report, entitled ‘Reimagining Shareholder Advocacy on Environmental and Social Issues: The promise and pitfalls of ‘E&S stewardship’’, urged investors to file more resolutions on social issues – particularly on labour rights in global supply chains – which had been neglected as investors focused on climate-related issues.
“The climate crisis poses an existential threat and deserves priority attention,” Goldhaber wrote. “But this does not preclude greater attention also being paid to social issues.”
Along with supply chain labour conditions, the report called for investors to focus on increasing racial diversity on boards, and on human rights challenges related to information technology, such as privacy and misinformation.
“Above all, we would like investors to prioritise the treatment of outsourced workers throughout global supply chains,” the report said. “Though shareholders have played an important role in supporting the rights of workers to organise in the US, for example at Starbucks, there have been very few instances where conditions for workers in developing economies have improved as a result of stewardship initiatives.
“Investors need to heed the call of advocates in this arena, with the goal being the actual improvement of worker conditions in the supply chains of global brands and retailers,” it said.
Other recommendations included calling on investors to conduct more careful assessment of what does and doesn’t count as effective stewardship; to set a higher bar for future engagement; to play an active role in supporting newly enacted social and environmental laws and regulations; where there are gaps in regulations, to fill those with voluntary actions; and to build ESG funds around a specific stewardship strategy.
The report also called on the US Securities and Exchange Commission to “stop undermining shareholder activism” by too readily allowing companies to remove proposals from the proxy ballot.
The post Europeans Can Fill Stewardship Gap Left by US Managers appeared first on ESG Investor.