The UK Asset Owner Roundtable has published the academic research it commissioned to investigate whether asset owners and asset managers are aligned in their proxy voting.
The question was raised by the UK group following this year’s annual general meeting (AGM) voting season, with Faith Ward, chief responsible investment officer at Brunel Pension Partnership and chair of the Roundtable, playing a key role in the instigation of the project.
Carried out by Andreas Hoepner, a professor at University College Dublin and head of the data science hub for the European Commission’s sustainable finance advisory body, the research already provided the basis for in-person discussions between asset owners and asset managers at the London Stock Exchange last month.
That roundtable, and the underlying research, reviewed investor voting activities in the oil and gas sector, with Hoepner confirming that a gap had developed between asset owners’ expectations and asset managers’ voting activity.
All those present at last month’s event are said to have expressed their commitment to improve communication and transparency, with asset owners emphasising their stewardship expectations and aims, and asset managers better articulating their stewardship approach, decisions and rationale behind voting.
The final research report discusses the varying degrees of misalignment found, with stronger discrepancies noted for US oil and gas issuers, and indicates that some asset managers perceive voting and engagement on environmental, social and governance matters as mutually exclusive.
“Urgent action is needed from the entire stewardship chain to address the misalignment issue identified in this research”
Leanne Clements, head of responsible investment for the provider of The People’s Pension
The roundtable event in October explored potential explanations for the identified misalignment as well as next steps to narrow the gap between asset managers and asset owners.
Next steps discussed included exploring the potential for extending Hoepner’s research to US asset owners; one-on-one meetings between UK Asset Owner Roundtable members and their investment managers to discuss the latter’s voting decisions at oil and gas company AGMs; and a set of stewardship expectations for asset managers that will be developed by the UK asset owner group.
Cultural misalignment?
The idea of extending the reseach to US asset owners is to examine whether some degree of cultural/political misalignment could explain the discrepancies, with all the asset owners participating in the research being UK-based and the majority of participating asset managers being multinational and often not UK-based.
According to Hoepner, another possible explanation for the misalignment that could be investigated is “a potential misunderstanding of the importance of stewardship and voting, leading to insufficient resource allocation”.
Brunel Pension Partnership’s Ward said: “This research provided the evidence required to initiate the proactive and constructive dialogue that was begun at the roundtable on 12 October.
“I am optimistic about the practical steps discussed, and the willingness of participants in the process to address the perceived gap verified by this report.”
Leanne Clements, head of responsible investment for the provider of The People’s Pension, said an “impasse” had been reached with respect to net-zero stewardship and that this would seriously undermine the financial sector’s ability to deliver on its commitments.
“Urgent action is needed from the entire stewardship chain to address the misalignment issue identified in this research,” she said. “A complete dismantling of failed status quo approaches to stewardship is needed by the fund management industry, with voting escalation not seen as a ’last resort’ approach used on an exceptions basis, but rather a powerful signal to companies of what investors expect of them.”
Industry backing
Several pension investors provided information for Hoepner’s analysis: Border to Coast Pensions Partnership, Brunel Pension Partnership, Church of England Pensions Board, LGPS Central, LPPI, Merseyside, NEST, Pension Protection Fund, Scottish Widows and Universities Superannuation Scheme.
Several asset managers are said to have constructively participated in the discussions: Amundi, Blackrock, Calvert, Federated Hermes, JP Morgan Asset Management, Lazard, Legal & General Investment Management, Royal London Asset Management, Schroders, State Street Global Advisors, UBS and Vanguard.
According to NGO analysis of asset manager voting on climate-related resolutions in the 2023 AGM season, the four largest asset managers – BlackRock, Fidelity, State Street and Vanguard, provided overwhelming support to the directors of US-based companies with operations and business models that were most misaligned with 1.5°C pathways.
Amundi, Franklin Templeton and LGIM stood out for how they used proxy voting to hold directors of companies to account, according to Majority Action.
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