An open letter “urgently” calling for increased adoption of pass-through voting by asset managers has been issued by London CIV LGPS, alongside a group of pension providers, endowments and wealth managers overseeing over £250bn in assets.
Signatories of the letter, including EQ Investors, Scottish Widows, London CIV and Guy’s & St Thomas’ Foundation, are aiming to empower investors to directly influence proxy votes in proportion to the AUM they have invested.
“Asset managers wield significant influence over how public companies are run, and their actions impact corporate governance profoundly,” the latter states.
“Globally, the data shows the three largest fund managers currently cast approximately 23% of the votes at companies in the S&P 500, a percentage projected to rise to 40% by the mid-2030’s if current trends continue.”
The letter also points to a troubling misalignment between the voting practices of these managers and the investment principles of their clients.
“Regrettably, we have continued to evidence a divergence between the voting behaviour of appointed asset managers, when compared with our investment principles and the expectations of our beneficiaries. This disconnect is especially noticeable regarding ESG issues, where some asset managers are regressing rather than progressing on their expectations of portfolio companies.”
According to the group, this gap is widening despite the urgent need for action on climate change, as emphasised by global bodies like the United Nations and IPCC.
The letter stressed the 2023 voting season represents “an inflection point”; the trend of declining support for shareholder proposals on critical issues like climate change is at odds with the global mandate for more decisive environmental action. The signatories argued the growing anti-ESG sentiment among some asset managers is hindering their ability to represent diverse investor views effectively.
Louisiana Salge, head of sustainability at EQ Investors, said their portfolios are underscored by an expectation that asset managers use the voting rights entrusted in them to drive for sustainable change.
“Based on our own voting record analysis of socially and environmentally progressive resolutions, we are not at a point where consistency in supporting these is the norm among asset managers,” Salge continued. “This year we are not only working to increase transparency of voting records (the starting point to enable comparison and engagement with asset managers) but are also exploring ways to get closer to the ultimate voting right – through expression of wish for example, as well as by the EQ team attending AGMs in person.”
Other asset managers have also begun to offer more voting flexibility to their clients. Technologies like Tumelo’s pass-through-voting system and initiatives by BlackRock and State Street Global Advisors are cited as examples of how client-directed voting can be integrated into asset management, offering investors a voice in both segregated and non-segregated mandates.
The coalition views pass-through voting as a necessity, not just a best practice, for asset owners to fulfil their fiduciary responsibilities. This approach, they argue, aligns with the efforts of UK regulatory bodies like the FCA, DWP and FRC, aiming to bolster robust stewardship. The letter concludes with a call for wider industry adoption of pass-through voting, enabling investors to steward their assets more effectively and address systemic risks.