UK pension funds have issued an urgent call for increased adoption of pass-through voting by asset managers, according to an open letter issued by asset owners to asset managers.
The move aims to empower investors to directly influence proxy votes in proportion to the assets under management they have invested.
The letter said that asset managers would wield “significant influence” over how public companies are run, and their actions impact corporate governance “profoundly”.
“Globally, the data shows that 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-2030s if current trends continue,” it continued.
The signatories of the open letter include Scottish Widows, London CIV, Merseyside Pension Fund, Environment Agency, Smart Pension, EQ Investors, Tribe Impact Capital and Superannuation Arrangements of the University of London (SAUL), and Guy’s & St Thomas’ Foundation.
The signatories pointed to a “troubling misalignment” between the voting practices of asset managers and the investment principles of their clients.
The letter read: “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 letter, this gap is widening despite the “urgent need” for action on climate change, as emphasised by global bodies like the United Nations and the Intergovernmental Panel on Climate Change (IPCC).
The letter also stressed that 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 that the growing anti-ESG sentiment among some asset managers is hindering their ability to represent diverse investor views effectively.
The letter also stated that some asset managers have begun to offer more voting flexibility to their clients. Technologies such as Tumelo’s pass-through-voting system and initiatives by BlackRock and State Street Global Advisors were cited as examples of how client-directed voting could be seamlessly integrated into asset management, offering investors a voice in both segregated and non-segregated mandates.
Signatories stressed that pass-through voting is a “necessity”, not just a best practice, for asset owners to fulfil their fiduciary responsibilities.
They said that this approach aligns with the efforts of UK regulatory bodies such as the Financial Conduct Authority, the Department for Work and Pensions and Financial Reporting Council, aiming to bolster robust stewardship.
The letter concluded: “We are responsible for the investments of millions of beneficiaries, it is therefore critical that we steward their assets by considering and endeavouring to reduce systemic, material risks.
“Selected asset managers have stepped up to offer this functionality to our co-signatories who now have incredible voting flexibility; together we are calling for greater access to pass-through voting across the industry.”
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