Environmental concerns are front and center for many investors.
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Fund companies are getting better at voicing their concerns about sustainability issues and acting on them against corporate management, a new survey shows.
Seventeen asset managers participated in the ETF stewardship survey conducted annually by Texas-based investment firm Sage Advisory to determine how well fund companies are acting on behalf of their investors on environmental, social, and corporate governance, or ESG, issues.
This year, Sage evaluated six areas: proxy voting, company engagement, climate initiatives, stewardship resources, disclosure practices, and diversity, equity, and inclusion.
Out of the 17 participants, 76% received an overall passing grade of C or higher, up from 57% in 2020, with the majority of the 12 repeat respondents improving their scores from last year.
This year’s respondents include large asset managers like BlackRock, State Street, and Invesco, as well as smaller shops like Global X and VanEck. Combined, the group manages $24 trillion in assets, of which $3.7 trillion are in ETFs, representing about 58% of the U.S. ETF market.
The respondents noted significant improvements in their disclosure of voting records and engagements with portfolio companies, as well as the resources allocated to a dedicated stewardship team.
Voting practices, particularly, have improved greatly year over year. In 2020, Sage found that asset managers’ voting records didn’t reflect how much they claimed to care about ESG issues. This year, many ETF sponsors have showcased much stronger commitment to supporting ESG proposals.
“ETF providers have been really feeling the external pressure from investors and surveys like ours to tighten up their voting processes,” said Emma Harper, ESG research analyst at Sage.
Today, investors are paying more attention to how fund companies handle ESG matters—and whether those decisions are in their best interest.
The 20 largest fund companies account for more than three-quarters of investor assets in U.S. funds, controlling around 20% of shares of a typical S&P 500 company.
Because of their large ownership, the fund companies have the shareholder rights to push companies for ESG changes through proxy voting, even though they have seldom done so.
Fund companies are becoming more assertive. Many have updated their proxy-voting guidelines to focus more on ESG issues and promised more transparency on their engagement with corporates.
Last month marked a turning point, the first successful challenge of a board’s makeup driven by ESG requests.
Upstart hedge fund Engine No. 1——with the backing of large asset managers like Vanguard, BlackRock, and State Street——took over three board seats at Exxon Mobil (XOM). The new board members have made clear that they want to push the oil giant into reducing its carbon emissions and moving toward cleaner energy.
We’ll likely see more of such events in the future.
Write to Evie Liu at [email protected]
