June 09, 2012
Proxy Voting on Climate Change by Mutual Funds Fails to Account for Materiality
by Robert Kropp
An analysis by Ceres and Fund Votes of 2011 proxy voting reveals that the three largest mutual
funds failed to vote in favor of a single climate-related resolution.
The Rio+20 Conference on
sustainable development is fast approaching, and a recently leaked draft text suggests that
negotiators remain unwilling to come to meaningful agreement.
Absent the regulatory
certainty that a meaningful agreement would provide, voluntary corporate disclosures on
environmental and social risks and opportunities are unlikely to deter the impacts of climate
change or reverse persistent global patterns of overconsumption. "The incremental progress of such
initiatives poses environmental and societal risks," the Dialogue on a Convention on Corporate Social Responsibility
and Accountability (CSRA) recently stated.
Perhaps such "voluntary initiatives" might
have gone further in addressing sustainability if more mainstream institutional investors
acknowledged the financial relevance of climate change and incorporated that knowledge into their
proxy voting and engagement policies. But as a recent analysis of 2011 proxy voting patterns
indicates, mutual funds—with almost $12 trillion in assets under management, 35% of which is
invested domestically—are failing to do so.
In fact, the analysis reveals, the three
largest mutual fund companies—American Funds, Fidelity, and Vanguard, which manage a total of $1.6
trillion in US securities—did not vote in favor of a single resolution addressing climate change in
2011. American Funds voted against every climate-related resolution, while Fidelity and Vanguard
each abstained nearly 90% of the time.
"The movement over the last few years by Fidelity
and Vanguard from voting against all shareholder resolutions related to climate change to
abstaining on most is a very small step in the right direction," Mindy Lubber, president of Ceres, said. "But it also a very passive strategy
that simply defers responsibility to management."
The proxy voting policies of the three
largest mutual funds do little more than note that economic factors associated with environmental
issues will be considered. "These decisions should be the province of company management unless
they have a significant, tangible impact on the value of a fund's investment and management is not
responsive to the matter," the policy of Vanguard states.
The analysis of the proxy voting
patterns by mutual funds was provided for Ceres by Fund Votes. SocialFunds.com spoke with Jackie Cook, founder of
Fund Votes, about the findings of the analysis.
"Even now, surprisingly few proxy voting
guidelines mention hydraulic fracturing," Cook said, although resolutions addressing the issue
gained an average of 40% of shareowner support in 2011. "If we see a massive increase in voting in
favor of environmental and social resolutions, I'd be surprised, because their proxy voting
guidelines haven't changed at all."
"With so many environmental and social resolutions
being voted on now, it's amazing that their guidelines aren't more specific," Cook continued.
The survey further reveals that even some mutual funds with publicly stated positions on
climate change and sustainability are lagging in their support for climate-related resolutions.
BlackRock and AllianceBernstein, for example, are signatories to the United Nations' Principles for Responsible Investment (PRI)—and
have therefore agreed to " incorporate environmental, social and governance (ESG) issues in our
ownership policies and practice"—but each fund supported fewer than five percent of the climate
resolutions on which they voted in 2011.
By ignoring the financial impacts of climate
change, mutual funds "are not accountable to their financial stakeholders, particularly their
beneficiaries," Cook observed. "A lot of the beneficiaries of mutual funds' assets are 401K plan
holders. But mutual funds seem more accountable to managers of corporations than 401K plan
The economic case for corporate management of climate-related risks was given
additional credence, Cook pointed out, when the Securities and Exchange Commission (SEC) issued
guidelines "intended to remind companies of their obligations under existing federal securities
laws and regulations to consider climate change and its consequences as they prepare disclosure
documents to be filed with us and provided to investors," the Commission stated.
this is what it takes for the mutual funds," Cook said. "A clear regulatory signal that emissions
are going to cost more in the future." And when the voting policies of the 30 largest mutual fund
companies are considered, there is a discernable increase in support for environmental resolutions.
In 2011, overall support exceeded 21%.
The analysis confirms that a small number of large
mutual funds are indeed voting in favor of environmental resolutions in a majority of cases. The Teachers Insurance and Annuity Association -
College Retirement Equities Fund (TIAA-CREF), for example, voted in support of environmental
resolutions 65% of the time. Wells Fargo, Fifth Third, Credit Suisse, Oppenheimer, GMO, and
Delaware all voted to support more than 50% of such resolutions.
TIAA-CREF is a PRI
signatory and a member of the Investor Network
on Climate Risk (INCR), a $10 trillion investor initiative coordinated by Ceres.
even that silver lining is not without its clouds. Last year's analysis by Fund Votes revealed that
in 2010, TIAA-CREF voted in support of 82.6% of climate resolutions. In 2011, TIAA-CREF abstained
from voting on 23% of such resolutions. Resolutions which TIAA-CREF abstained from voting on in
2011 addressed such issues as the adoption by a number of companies in high-emitting industry
sectors of quantitative greenhouse gas (GHG) emission reduction goals; the appointment by Chevron
of a board member with environmental expertise; and reporting by ExxonMobil on hydraulic
"So many resolutions address the issue of climate change, and the issue is now
becoming such an important investment consideration," Cook said. "But the guidelines of the large
mutual funds are almost uniformly quiet with respect to climate change. We need to see a change in
proxy voting guidelines."