3 min read
ESG Voting Policies 2024: What Asset Managers Need to Know
An analysis of large US and EMEA manager voting policies.
Key Takeaways
Among 10 large US managers, the areas of broadest agreement on voting policies are on core climate-related disclosures, such as Scope 1 and 2 greenhouse gas emissions (GHG) and workforce-related disclosures. The SEC has decided not to mandate Scope 3 disclosures.
Use of neutral language in voting policies—implying case-by-case consideration instead of expressions of general support or opposition—is more prevalent on social issues compared with environmental ones.
Sustainability-focused managers take a more supportive line in their voting policies across environmental and social topics. European managers tend to have similar policies to the sustainability-focused ones.
The 2024 proxy season is kicking off in earnest. So what ESG voting policy trends do asset managers need to know?
When you understand how these policies shape the industry, it can be easier to guide sustainability-conscious investors in their decisions. While past voting records showed widening differences, our latest analysis suggests that divergence on environmental and social issues is still set to continue. Morningstar researchers analyzed the recent ESG voting policies of 10 of the largest US asset managers with consideration to policy language. We also examined similar policies from five large European managers and five sustainability-focused managers.
To read the full research report, download a copy here.
Environmental Policies
While both climate- and nature-related disclosures are frequently mentioned, we find disagreement over Scope 3 GHG emissions continues. Take a closer look at how asset managers are voting on climate change policies.
Climate
Most of the 10 US managers use supportive language regarding disclosures on Scope 1 and 2 greenhouse gas emissions (GHG) and Task Force on Climate-related Financial Disclosures (TCFD)-aligned reporting. That’s because it’s widely agreed that these “core” disclosures are material to shareholders and robust to use in investment decision-making.
However, Scope 3 GHG emissions—which are attributable to products and services that a company uses or produces and lie outside a company’s direct control—tend to be viewed differently. Considering this, it’s unsurprising to see that voting policy wording is either unsupportive or neutral on Scope 3. Among the European managers, only BNP Paribas’ voting policy explicitly mandates Scope 3 disclosures for companies in highly exposed sectors. The sustainability-focused managers also support such disclosures.
Nature and biodiversity
Along with climate, other environmental topics referenced by asset managers are nature and biodiversity. Generally, these policies request disclosure of risks and opportunities associated with companies’ exposure to nature.
The European managers and sustainability-focused managers all make some mention of this issue. We found specific references to this issue by four of the US managers: BlackRock, JPMorgan, State Street, and Vanguard. Plus, some sustainability-focused managers and large US managers support requests for disclosure of more specific nature-related issues like water usage and deforestation risk. Overall, we’re likely to see more resolutions addressing nature and biodiversity in 2024 following last year’s completion of the Taskforce on Nature-related Financial Disclosures reporting framework, which some managers reference.
Social Policies
Our Morningstar researchers discover supportive language around workforce issues, but less so on political and societal issues. Dive deeper into how asset managers are forming their votes on social policies.
Political issues
For US managers’ policies, most of the language addressing corporate political influence and activity takes a case-by-case approach to disclosure. However, a few use more supportive language toward issues including companies’ disclosure of political contributions or membership of lobbying and advocacy bodies.
In fact, we found such language in policies by BlackRock, Capital Group, and State Street among US managers, as well as DWS, LGIM, and UBS among the European managers. JPMorgan’s voting policy for conventional funds stands out, as it focuses on stating the firm’s intention to vote against certain kinds of politically focused proposals.
Workforce issues
Supportive language from asset managers can also be found in their approach to workforce issues. For example, policy language requesting detail from companies on fair treatment of workers appears to be the most common social issue for US managers—who also tend to see workforce issues as a key risk management area enabling companies to execute their strategies.
Unsurprisingly, eight of the 10 US managers we studied include such language in their voting policies. Among the European managers, policies by DWS, LGIM, and UBS all address disclosure of workforce issues in some form.
Meet the ESG Needs of Clients
Now more than ever, investors need guidance to align proxy-voting decisions with their own environmental and social priorities. By identifying the impact of different ESG voting policies, asset managers can help clients make more sustainability-conscious decisions and reach their unique goals.
Provide valuable ESG advice with Morningstar Direct. The comprehensive platform allows you to build sustainable products and propose investments that support client values—all backed by quality data.