ShareAction CEO Signals Stewardship Recession
Industry pundits called for more “courage” and a universal ownership approach during ESG Investor’s Stewardship Summit 2024.
Stewardship efforts globally have been weakened by the anti-ESG backlash in the US, threatening sustainability-related progress, experts have said. As such, asset owners are now being urged to embrace their role as universal owners and implement macro stewardship.
Speaking during ESG Investor’s 2024 Stewardship Summit, Catherine Howarth, CEO of NGO ShareAction, shared her disappointment concerning the current state of stewardship in the UK and beyond.
“As they say: when America sneezes, the rest of the world catches a cold,” she said. “The UK is in a stewardship recession [fuelled by] a more profound stewardship depression in the US, due to some highly orchestrated and well-resourced attacks on US investors’ stewardship activities.”
Every year, ShareAction publishes an analysis of how the world’s large asset managers have voted across a selection of environmental and social shareholder resolutions during the most recent proxy season. In 2021, 21% of the assessed resolutions received 50% or more of the votes. However, assessed resolutions that received more than 50% of support subsequently fell to 14% in 2022 and 3% in 2023.
While voting is not the be-all and end-all of stewardship, it is a critical tool in its toolbox, Howarth argued. “Voting is something everyone can do even when they don’t have vast teams of stewardship professionals,” she added.
ShareAction’s latest report showed the downward trend had largely been driven by US-based managers, who supported just 25% of resolutions last year. In comparison, European asset managers voted in favour of 88% of shareholder proposals on average, with UK-based managers hovering around 64%.
“It’s hard not to conclude that companies will think shareholders aren’t as bothered about their sustainability performance,” said Howarth.
Playing chicken
In recent months, examples have emerged of companies prepared to push back against shareholder pressure on sustainability-related issues.
Oil and gas major ExxonMobil recently went to court to challenge a proposal filed by Arjuna Capital and Follow This, which focused on Scope 3 emissions target-setting and disclosures.
“Exxon decided to challenge [these shareholders] for having the temerity to make use of long-established shareholder rights that are core to stewardship,” said Howarth. “Even after the resolution was withdrawn, the legal case is being pursued in what looks to me like a vindictive but likely very effective effort to deter investors [from challenging on climate] in the future.”
Nicolai Tangen, CEO of Norges Bank, has publicly criticised Exxon’s move, telling the Financial Times that it was “very aggressive and [that] we are concerned about the implications for shareholder rights”.
Although Howarth commended Tangen for making a public statement, she noted that there had otherwise been “very little fuss or commentary” among the stewardship and wider investor community.
“Should that be the end of the matter?” she wondered. “Because it seems to me that, if investors value their shareholder rights and consider them important for the execution of their fiduciary duty, there is a very good case this year for voting against the chair and CEO of Exxon, who will have both signed off on the legal strategy and expense required to pursue Arjuna Capital and Follow This.”
Exxon’s annual general meeting will be taking place on 29 May.
More broadly, such challenges against investor stewardship could be the catalyst the investment industry needs to dig deeper into what makes stewardship effective in serving clients’ and pension savers’ interests, Howarth suggested.
Universal lens
As more asset owners identify themselves as universal owners, the need to take on a broader, multi-level approach to stewardship has increased.
“Stewardship has evolved over the years, moving away from its origins in shaping the governance and performance of individual companies to increasingly thinking about the operating environments of those companies by influencing and shaping policy and regulation and the functioning of financial markets,” said Mark Manning, ex-Financial Conduct Authority (FCA) and Founder of New Paradigm Advisory, during the ESG Investor summit.
“If we think about the mother of all market failures – the climate crisis – climate transition is absolutely the sort of area in which a macro stewardship orientation is absolutely essential,” he added.
Manning has been supporting the work of the UK’s Transition Plan Taskforce (TPT), which published its final sector-specific guidance this week. The importance of systemic ownership has been highlighted in the guidance, he said, with a recognition that the way asset managers and owners pursue their climate strategy depends on broader societal and political support for key government policies.
In addition, the TPT’s guidance explicitly recommended disclosing the way asset owners and managers leverage their engagement with policymakers and regulators – including on macro stewardship.
However, universal owners cannot engage effectively on every ESG-related theme across their portfolios, which often hold thousands of companies.
“You cannot do it all in a well-diversified portfolio,” said ShareAction’s Howarth. “You have to be selective to be effective.”
Asset owners could, for instance, consider their largest holdings and exposures – though tapping into the sentiment and preferences of end-users and beneficiaries is ultimately key, said Howarth.
“Good stewardship takes conviction, compassion and – at the moment – courage, because we’re in a tricky chapter of the bigger story,” Howarth continued. “The backlash against stewardship is flushing out people that were never very serious. That leaves the rest of us to be savvier than we have been in the past. Investors need to back each other up, collaborate, and show some solidarity.”
The post ShareAction CEO Signals Stewardship Recession appeared first on ESG Investor.