Mutual fund companies are showing stronger interest in climate change and its financial impacts on companies in their vast portfolios, according to new proxy voting data announced today by Ceres, a sustainability advocacy group.
During the 2013 proxy season, large mutual fund company support for climate-related shareholder resolutions reached an all-time high 29 percent, up from 27 percent in 2012 and roughly 50% higher than 2007's voting support levels (see Chart 1). Among the 42 U.S. mutual fund companies tracked by Ceres, DWS led the way by supporting 100 percent of the resolutions in 2013 (see Chart 2). Until 2011, DWS had never cast a single vote in support of climate-related resolutions tracked by Ceres.
Despite growing mutual fund support overall, nine mutual fund groups failed to support even a single climate-related resolution in 2013, including: BlackRock, BNY Melon, Columbia, Fidelity, ING, Lord Abbett, Pioneer, Putnam and Vanguard.
“Even as extreme weather losses, rising sea levels and carbon-reducing regulations are taking stronger hold, some of the nation’s largest mutual fund companies continue to signal a lack of awareness or understanding of climate change and its growing impacts on their portfolios,” said Rob Berridge, director of investor engagement at Ceres, which commissioned the analysis by Jackie Cook of FundVotes.com. “Still, growing overall support for resolutions seeking stronger corporate action on climate risks and opportunities is encouraging.”
A growing number of institutional investors, many of them members of the Ceres-coordinated Investor Network on Climate Risk (INCR), have publicly signaled that they view information about climate risks as material to their investment and proxy voting decisions, and have updated their proxy voting guidelines and voting practices accordingly.
Many of these same investors have filed more than 100 climate-related resolutions in each of the past two years with companies in the electric power, oil & gas, insurance, manufacturing and other sectors. The resolutions typically request that companies disclose climate-related risks they are facing and strategies for managing those risks, including greenhouse gas reduction plans, improved energy efficiency and boosting use of renewable energy.
In 2013, 50 climate-related resolutions were withdrawn before going to vote after the companies responded affirmatively to the shareholder requests. The Ceres mutual fund study tracked 39 climate resolutions that went to vote during the 2013 proxy season.
Fund groups that significantly improved their support for climate resolutions in 2013 are Schroder, Virtus, Allianz, Dimensional and State Street (SSgA). (Chart 2 has a full listing of 2013 support levels.)
Vanguard remains the only fund family to have never cast a single vote in support of a climate-related resolution in the 10 years covered by the Ceres survey - opposing 23 of the 38 resolutions that came to vote within its portfolio of funds in 2013 and abstaining on 15.
In 2010, at the request of INCR members, the U.S. Securities and Exchange Commission issued formal guidance on publicly traded companies' obligations to disclose material climate risks in their financial filings. However, a recent Ceres report, Cool Response: The SEC & Corporate Climate Change Reporting, shows continued inadequate disclosure practices among S&P 500 companies, even for those in high-risk industry groups.
While actual support for climate-related resolutions by large US mutual funds has increased over the 10-year survey period, the proxy voting guidelines of almost all of these asset managers still do not provide clear direction for how to vote on these issues in future proxy seasons, and many still routinely defer to corporate management on climate-related proposals.
For the most part, mutual fund companies/asset managers continue to address all social and environmental issues in a single paragraph, if at all. Therefore, the proxy voting guidelines of Deutsche Asset and Wealth Management (DWS), Goldman Sachs Asset Management and JP Morgan Asset Management stand out for the clear recognition they give to this increasingly important voting issue. Two examples of such language are:
“Sustainability, climate change reporting
Generally vote FOR proposals requesting the company to report on its policies, initiatives, and oversight mechanisms related to social, economic, and environmental sustainability, or how the company may be impacted by climate change. The following factors will be considered:
- The company’s current level of publicly-available disclosure including if the company already discloses similar information through existing reports or policies
- If the company has formally committed to the implementation of a reporting program based on Global Reporting Initiative (GRI) guidelines or a similar standard within a specified time frame;
- If the company’s current level of disclosure is comparable to that of its industry peers; and
- If there are significant controversies, fines, penalties, or litigation associated with the company’s environmental performance.”
“We believe that a company’s environmental policies may have a long-term impact on the company’s financial performance. We believe that good corporate governance policies should consider the impact of company operations on the environment and the cost of compliance with laws and regulations relating to environmental matters, physical damage to the environment (including the costs of clean-ups and repairs), consumer preferences and capital investments related to climate change. Furthermore, we believe that corporate shareholders have a legitimate need for information to enable them to evaluate the potential risks and opportunities that climate change and other environmental matters pose to the company’s operations, sales and capital investments. Therefore, we generally encourage a level of reporting that is not unduly costly or burdensome, but which provides sufficient information to enable shareholders to evaluate the company’s environmental policies and performance...”
“At the very least, the proxy voting guidelines of large mutual fund companies, widely invested as they are across the economy, need to support calls for better disclosure and management of material risks facing companies as a result of human-induced climate change - and signal this support with their votes,” Berridge concludes.
Ceres is a nonprofit organization mobilizing business and investor leadership on climate change, water scarcity and other sustainability challenges. Ceres directs the Investor Network on Climate Risk (INCR), a network of over 100 institutional investors with collective assets totaling more than $11 trillion. Ceres also directs Business for Innovative Climate & Energy Policy (BICEP), an advocacy coalition of nearly 30 businesses committed to working with policy makers to pass meaningful energy and climate legislation. For more information, visit www.ceres.org or follow on Twitter @CeresNews.
Chart 1. 10-Year Trend: Large US Mutual Fund Votes on Sustainability Resolutions
Chart 2. Average Support for Climate-Related Shareholder Resolutions in 2013 Proxy Season by Large US Mutual Fund Families