Five Investor Voting Trends on Environmental, Social and Governance Proposals

January 17, 2019


Environmental, social and governance (ESG) issues are on the top of executives’ and boards’ minds and continue to capture the attention of the world’s largest institutional investors. Larry Fink, CEO of BlackRock, in his 2017 letter to CEOs stated, “Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce?” and encourages companies to be transparent about the environmental and social risks and opportunities they face and adopt robust policies and processes to manage such issues. Vanguard and Fidelity Investments have made similar public statements as well.

Declaring a potentially controversial position may create headlines – but how have these statements translated into actual votes on ESG proxy items sponsored by shareholders? Taking into account proxies from the S&P 500, that’s the question we explore in our first Farient Brief of 2019.

Environmental, social and governance findings that surprised us:

  • Only four environmental proposals received majority support in each of the last two years
  • Institutional investors with Assets under Management (AUM) greater than $100B are much more likely to support environmental and social proposals than the four largest with AUM greater than $2T
  • Largest institutional investors vary significantly in the types of shareholder proxy items they support
  • Despite rhetoric, BlackRock is very unlikely to support any type of Environmental or Social shareholder proposal and often engages with companies behind the scenes
  • Political Activity proposals have the second highest median support, 27.7%, behind only Environmental proposals with 29.2%

Thank you to Proxy Insight Ltd which provided data for this Farient Brief.

Proxy Initiatives: What hot and what’s not

Just last month, we were surprised to find that the number of ESG proposals had actually fallen between 2017 and 2018. Despite that decline, the most frequent proposals in 2018 continued to be in the environment, social and political activity areas. The environmental and political activities received relatively high median support – 20 percent – relative to other types of proposals.

“We have been surprised by the small number of ESG shareholder proposals that actually pass. Last month, Royal Dutch Shell announced it will set carbon emissions targets that would be weighted toward the CEO and executive team’s annual bonus. As the political tide shifts, it will be interesting to see if this accountability is a “one-off” or the beginning of a larger trend.” – Dayna Harris, Farient Advisors, Partner

Despite the attention they receive and the relative urgency expressed by scientists, environmental proposals have not received a great deal of support. In 2017, a 2-degree scenario report proposal at Exxon passed with the support of BlackRock and Vanguard. It was one of four environmental proposals that passed in 2017. Four environmental proposals passed in 2018 as well, two of which, like the 2017 Exxon proposal, had to do with reporting on the impact of a 2-degree scenario. All four that passed targeted energy companies: Ameren, Kinder-Morgan (two proxy items) and Anardarko Petroleum.  Outside of the proxy process, investors in Royal Dutch Shell pressured the board to set carbon emission reduction targets and tie them to executive pay.

Large Institutional Investors: Where are the votes?

Activist pressure is increasing on corporations and investors alike. A campaign launched in September is putting pressure directly on BlackRock, the world’s largest asset manager. The campaign, supported by over a dozen environmental organizations including Amazon Watch and the Sierra Club, accuses the biggest owner of fossil fuel companies of putting the earth on an unsustainable path of climate change.

Proxy advisor ISS updated its 2018 voting guidelines to generally recommend resolutions that seek greater disclosure around how companies identify, measure and manage climate risk. These guidelines move beyond general risk identification and towards disclosure of how companies are actually managing such climate risks. ISS has strongly signaled that it now expects management to be more active on the issue.

How has this pressure from organizations and proxy advisors influenced the voting of institutional investors, particularly the largest investors that have the most votes and can influence the most measurable change? There are 141 asset managers with AUM of least $100B. Collectively these 141 managers control $75.2T in assets with the largest four – BlackRock, Vanguard, State Street and Fidelity controlling assets of $16.6T.

Proxy Proposal Support 2018

As indicated in the chart above, the largest four investors support environmental and social proposals at a relatively low rate, supporting only 24 percent of Environmental and 14 percent of Social ones. In addition, they also support these proxy items at a much lower rate than do the next 137 investors. Perhaps these largest investors, with their relative influence, choose to engage with management directly rather than through the proxy ballots while the smaller ones have to resort to expressing their opinions through their votes.

Interestingly, voting support on these initiatives vary among these top four investors. Examining proxy ballot items where at least three of the top four investors voted, Fidelity and Vanguard reject political activity initiatives out of hand and did not support any in 2018. BlackRock only supported 10 percent of environmental items (3 of 30) whereas State Street supported 43 percent (13 of 30).

Proxy Proposal Support by Four Largest Investors 2018


Shareholder-led environmental and social proxy items have been impossible to pass without the support of the largest shareholders. Records for supporting shareholder-initiated change through the shareholder proposal process are mixed at best. Unfortunately, the largest institutional investors are uneven in their support, supporting some proxy items, but even then, at a relatively low rate. Shareholders and other activists are coming together to create change through other mechanisms outside of the corporate governance process.

As the evidence for global warming and other environmental changes becomes increasingly accepted, companies – and investors – will be asked, both how they will adapt to the change as well as how they have contributed to it. Boards will be well-served to deal with both questions proactively.

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