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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Eroding Support for Shareowner Resolutions on Climate Change Revealed by Unpublished Data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In part three of this multi-part article, examines unpublished data associated with a recent report on mutual fund proxy voting from The Corporate Library, and finds decreasing support for climate change resolutions.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might have much to do with a high number of resolutions addressing climate change and greenhouse gas emissions being withdrawn prior to coming to vote," Ms.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"ISS [Institutional Shareholder Services] notes that 26 of the 40 climate change resolutions filed during 2005 were withdrawn as management and activist groups engaged in dialogue around these issues," she continues.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 Cook, according to unpublished data she provided to (The resolution, which asks the company to report on how the company will meet the greenhouse gas reduction targets of those countries in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.)

Delving deeper 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

According to unpublished data Ms. Cook provided to, 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.

On the 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.

Part 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 funds.

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.

Editor's Note: thanks Jackie Cook for generously offering access to unpublished research data and analysis for this and subsequent articles.


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