January 25, 2006
Eroding Support for Shareowner Resolutions on Climate Change Revealed by Unpublished Data
by Bill Baue
In part three of this multi-part article, SocialFunds.com examines unpublished data associated with
a recent report on mutual fund proxy voting from The Corporate Library, and finds decreasing
support for climate change resolutions.
The Corporate Library (TCL) report comparing
2004 and 2005 mutual fund proxy voting records is a bit of an enigma, as it delivers some
counterintuitive findings--such as decreasing support for corporate social responsibility (CSR)
shareowner resolutions. TCL Senior Research Associate Jackie Cook surmises aloud in the report she
researched and authored that the issue of climate change may hold the key to explaining the
apparent declining support for CSR resolutions.
(Read all four articles in the series here.)
"Lower support for
CSR-related resolutions in 2005 might have much to do with a high number of resolutions addressing
climate change and greenhouse gas emissions being withdrawn prior to coming to vote," Ms. Cook
states in the report. "Activist shareholders submitting climate change resolutions can
increasingly make a business case for their proposals and management might feel more compelled to
enter into dialogue with activist shareholder groups."
"ISS [Institutional Shareholder Services] notes that 26
of the 40 climate change resolutions filed during 2005 were withdrawn as management and activist
groups engaged in dialogue around these issues," she continues. "Furthermore, if this reflects a
change in the strategy of key shareholder activists, then the most compelling CSR cases might not
end up being voted on by shareholders, leaving those that remain on the proxies possibly less
appealing on average."
At the same time the opposite effect may be happening, with very
compelling climate change cases remaining on the proxies of companies that are intractable and
closed to compromise, lending extra merit and appeal to supporting these resolutions. Indeed, the
2005 crop of climate change resolutions included one at ExxonMobil (ticker: XOM) that received 35.5 percent
support on average from the fund families tracked by Ms. Cook, according to unpublished
data she provided to SocialFunds.com. (The
resolution, which asks the company to report on how the company will meet the greenhouse gas
reduction targets of those countries in which it operates that have adopted the Kyoto Protocol,
received 28.44 percent overall support at the 2005 annual general meeting.)
into the data
behind the report reveals other, even more perplexing trends on climate change resolutions, about a
dozen of which were voted on by funds each year.
"Climate change proposals were supported
much less in 2005 than in 2004--a very surprising finding in light of international adoption of the
Kyoto Protocol in early 2005 and a growing body of scientific evidence of global climate change,"
Ms. Cook told SocialFunds.com.
According to unpublished data
Ms. Cook provided to SocialFunds.com, support for climate change resolutions by the 45 mutual funds
analyzed fell from 25.5 percent in 2004 to 18.6 percent in 2005. The socially responsible
investing (SRI) funds all maintained full support for climate change resolutions (Calvert and Citizens), supported the proposals in 2004 and did not
face a climate change resolution in 2005 (Domini and Pax), or did not face the resolution either year (Ariel and Parnassus). Catholic Funds increased support from ten abstentions in
2004 to five abstentions and one "for" vote in 2005. TIAA-CREF (which is not categorized as SRI but offers SRI
options and often votes consistently with SRI funds) supported nine climate change resolutions and
opposed one both years, while abstaining on one additional resolution in 2004.
other end of the spectrum, 15 of the mainstream funds that faced climate change resolutions
(including mutual fund giants Fidelity and Vanguard) maintained consistency by voting "against" them both
years. Three mainstream fund families (Alliance, American Funds, and American Century) moved
from some support in 2004 to none in 2005.
In the middle of the spectrum are a number of
mainstream fund families that increased support for climate change resolutions from 2004 to 2005.
Several of these firms have recently enhanced their commitment to environmental sustainability.
For example, Merrill Lynch
published a report in early 2005 on
investment opportunities in the auto sector created by climate change, and the mutual fund side of
the business went from opposing eight climate change resolutions in 2004 to supporting one and
opposing three in 2005.
JPMorgan Chase adopted a new
environmental policy in 2005, and JP Morgan mutual funds voted against two climate change
resolutions both years, but added a vote of support for one climate change resolution in 2005.
Counterbalancing this trend were firms that have recently enhanced their commitment to
environmental sustainability whose support for climate change resolutions decreased from 2004 to
2005. Goldman Sachs, which adopted a
comprehensive environmental policy in 2005 and has issued research reports using SRI strategies,
decreased support for climate change resolutions by 16.7 percent, from supporting three resolutions
and opposing six in 2004 to supporting one and opposing five in 2005. Smith Barney, which
issued an SRI report in 2005, went from supporting two resolutions in 2004 to supporting one in
2005 (and opposing eight both years.)
Of course these decreases result from changes in
only one or two resolutions, but on an issue as vital (and increasingly supported by mainstream
institutional investors) as addressing climate change, erosion of support is a matter of concern.
It will raise greater concern if this trend continues in the 2006 proxy season, instead of simply
being an anomaly in first two proxy seasons subject to mutual fund disclosure of voting records.
one of this multi-part series discusses The Corporate Libary report findings on decreasing
mainstream fund support for CSR resolutions
Part two of this multi-part series
examines unpublished data to explain the apparent decrease in support for CSR resolutions by SRI
Part four of this multi-part
series steps back to consider the implications of the findings and how to harness them to push
mutual funds to support corporate social responsibility.
|SocialFunds.com thanks Jackie Cook for generously offering access to unpublished
research data and analysis for this and subsequent articles.|