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Asset Managers Pressure Companies on Responsible ESG Investing

Asset Managers Pressure Companies on ESG

Asset managers are starting to put more pressure on companies regarding environmental, social, and governance (ESG) issues, as they are using their large equity ownership stakes to influence management.

Through U.S registered investment companies alone, such as mutual funds, asset managers have $19.2 trillion in assets and a 31% share of U.S. corporate equity, according to the Investment Company Institute. And nearly half of U.S. households invest in these funds, so as general public interest in ESG matters grows, asset managers are taking more action.

Supporting Other Shareholders

Historically, large asset managers have tended to vote according to management’s recommendations, particularly for environmental and social issues, which has often meant not supporting shareholder resolutions. However, this is changing.

For example, Fidelity recently added a new section to its proxy voting guidelines stating that it “may support shareholder proposals calling for reports on sustainability, renewable energy, and environmental impact issues,” as Reuters reports. A Fidelity spokesperson told Reuters that the changes is a result of growing client interest in both responsible investing and how companies approach ESG issues.

At some companies, this support for shareholder resolutions is already starting to make a difference. For instance, ExxonMobil shareholders recently passed a resolution for the company “to report on the impact of global measures designed to keep climate change to 2 degrees centigrade,” reports The Washington Post. The paper notes that large asset manager BlackRock, as well as likely State Street and Vanguard, supported the resolution in opposition to management’s recommendation.

Engaging with Management

In addition to supporting shareholder resolutions, ESG asset managers also engage with management directly in order to influence change regarding ESG issues. This engagement can come from both large asset managers as well as boutique ones, because they all can bring insight to management that adds value to the company and even help them get ahead of shareholder resolutions.

Even if starting a dialogue with boards and executives does not prompt immediate change, it can build awareness, both within the company and externally, such as from media. And when public awareness breeds support for ESG issues, it can end up causing management to make changes.

Sustainable and responsible investment (SRI) manager Walden Asset Management notes that “building corporate and public awareness of material ESG concerns is frequently the first step on the continuum of change. Walden believes that engagement resulting in increased understanding of an ESG priority is a significant sign of progress.”

Asset managers hold a lot of power given the size of their stake in corporate equity, as well as their resources to engage with companies and publicly work toward eliciting change. But rather than being in opposition, engagement can be a good way for ESG asset managers, executives and boards to all work together so that companies incorporate ESG factors in a way that creates real value.

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