Rising focus on ESG factors, risk mitigation, and client demand are driving calls for specific action
With the rise of responsible investing and ESG, there has been increased interest in constructing portfolios of companies that exhibit good values and behaviour. That’s achieved using a variety of strategies, which includes engagement and dialogue — something that active managers are doing more of.
According to a new survey of active managers reported by Cerulli Associates, 72% are using proxy voting and/or engagement with their invested portfolio companies to influence change. That’s compared to just 54% that reported doing so in 2017.
Delving deeper, Cerulli said that 90% of asset managers surveyed are at least voting proxies, while 78% engage in dialogue with management. Nearly half (46%) said they are leveraging their stock ownership to foster ESG-oriented change, while 40% engaged in shareholder resolutions on the issue.
“These proposals facilitate formal communication between shareholders and management, calling for the company to take a specific action,” Michele Giuditta, director of Institutional Research at Cerulli, said in a statement. “While most of these proposals are nonbinding, an industry rule of thumb suggests that a vote of greater than 20% sends a clear signal to management.”
Among those who reported using the practice, 89% said they believed in the merits of considering ESG factors. The desire to mitigate risk was cited by 75%, and an equal proportion of respondents cited client demand.
Focusing on the top priorities for action, 94% of survey participants referred to climate change, making it the top issue for 2018. Board issues/composition came in second with 90%, while bribery and corruption took third place with 82%.
The survey also discovered that 68% of asset managers have staff members devoted to active ownership functions, and 92% educate their clients on ESG issues. However, only 38% “educated clients on the opportunity cost of incorporating ESG into their portfolios.”
Cerulli’s findings may be reflective of an industry reversal from previous years. In a study released Monday, the Investment Company Institute (ICI) reported that the mutual fund industry voted with management 94% of the time during the 2017 proxy voting season. Shareholder proposals, on the other hand, got fund support only 35% of the time.
But ICI also found that fund companies are exerting more effort to study proposals, particularly in response to the groundswell in ESG investing. Fund votes on proposals related to climate change, the report noted, indicated “thoughtful, nuanced analysis.”