Jackie Cook, a specialist in corporate environmental, social and governance (ESG) disclosure analysis and founder of FundVotes, which was acquired last year by Morningstar, said the “engagement first, voting later” rationale doesn’t add up, because there is no reason why these companies can’t do both. And the engagements suffer from a lack of transparency. “There is no standard disclosure structure,” Cook said. “No one shows any granularity to the engagement. … We want more transparency from the fund managers.”
A broad data set that Cook has compiled over the past three years — the Ceres report is based on her analysis but uses a more narrow definition for climate-related proposals — shows that in 2016 neither Vanguard nor BlackRock voted in favor of any climate change proposal. In 2017 they voted in favor of 4 percent. State Street Global Advisors, by contrast, voted for 38 percent of climate proposals in 2016 and 45 percent last year. Fidelity Investments went from voting in favor of no climate change proposals in 2016 to voting in favor of 45 percent last year.
The fund companies counter with what amounts to a catch-22: They can’t talk more openly about their engagement, because the nature of engagement precludes them from doing so.
“We believe that Vanguard and portfolio companies need to have candid, direct dialogue, so we don’t publicly disclose specific details about particular engagements,” the Vanguard spokeswoman said.
A report Cook published for Morningstar last Friday found something else disappointing. Socially responsible funds specifically created by these managers to target issues such as climate change don’t always vote in support of climate resolutions, either. The BlackRock Impact U.S. Equity (BIRAX) voted against three greenhouse-gas and climate change shareholder proposals in 2018, including two that called for greater greenhouse-gas disclosure from oil and gas companies Chevron and Range Resources.
The FundVotes’ analysis found that environmental, social and governance funds from Vanguard, Fidelity Investments and TIAA-CREF, among others, cast a number of votes that seemingly conflict with an ESG mandate, including funds specifically aimed at the environment.
“The main reason to have oil and gas companies in an ‘impact fund’ should be to improve the climate-related performance. … Proxy voting is an obvious, simple way to do that,” Berridge said.
Funds do need to go beyond proxy voting and engage with these companies as part of their impact investing mandate, but he said, “Voting in conflict with an ESG mandate should raise red flags, above and beyond the red flags associated with not voting for these resolutions in a non-ESG fund.”