Sept. 11, 2019, 8:39 a.m. EDT

Demand for climate-proofed portfolios was a key proxy-season theme this year

2019 sees record levels of shareholder and mutual-fund support for environmental concerns — and increased action to head off proxy votes

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Amazon.com Inc. (AMZN)
  • X
    Chevron Corp. (CVX)
  • X
    Capri Holdings Ltd. (CPRI)

or Cancel Already have a watchlist? Log In

By Rachel Koning Beals

1 2

The regulatory shift appears in contrast to the fact that “shareholders increasingly want companies to provide decision-useful information, including measurable, timebound greenhouse gas emission reduction goals, and plans for how they will adjust their operations and products to compete in the transition to a low-carbon economy,” said Morningstar’s Hale, in a report .

The broader interpretation at the SEC “has had a damping effect on the willingness of shareholders to file and defend these types of disclosure requests,” agreed Heidi Welsh, executive director of the Sustainable Investments Institute .

Yet companies have to embrace the broader movement, and are. Fully 63% of Fortune 100 companies that disclose engaging with investors over the past year say environmental and social factors were among the topics of focus, according to EY, the global organization of Ernst & Young, in a proxy-season report . Outside of climate issues, shareholders in this proxy round intensified their attention on corporate lobbying spending and executive diversity, as well as opioids and gun issues.

“Many investors have also told us they are further integrating ESG considerations into their stewardship programs and broader approach, and want to see boards prioritize oversight of company-relevant environmental and social issues and human-capital management,” the EY report said.

With this in mind, the Climate Action 100+ Coalition, launched in December 2017, is the largest-ever coalition of investors, representing $33 trillion in assets under management. Among the members, the California Public Employees’ Retirement System, known as Calpers, joins other major pensions and investment groups from Japan, Australia and elsewhere. Many of the resolutions in the U.S. proxy process ask companies to use a reporting framework developed by the Taskforce on Climate Related Financial Disclosures .

Read: Maximizing shareholder value can no longer be a company’s main purpose: top CEOs

The funds going to bat on climate

Morningstar’s Cook also pointed to a shifting mood among funds acting on behalf of investors’ concerns for environmental factors. Of the funds provided by the “Big Three” asset managers, State Street’s support for environmental and social shareholder resolutions is markedly higher than either BlackRock /zigman2/quotes/207946232/composite BLK +1.31% or Vanguard, which tend to rely on engagement initiatives over proxy voting, said Cook.

Vanguard, in a 2018 report on stewardship, made clear that its role is sometimes sizing up a company’s public commitments compared with a particular investor proposal. In one instance, the fund family engaged with two unnamed U.S. consumer companies that received similar shareholder proposals for enhanced sustainability reporting.

The first company’s existing sustainability disclosure was limited, and Vanguard backed its investors’ push for more reporting, Vanguard senior strategist Marc Lindsay detailed in the report . But Vanguard voted against the proposal at the second, already more open, company, believing that the shareholder action was misdirected given the company’s already “leading sustainability disclosures and approach.”

As for other fund groups, State Street and Geode, spun off from Fidelity in the early 2000s, have considerably increased their support for environmental and social shareholder resolutions, said Cook. And among the smaller firms, strong support lately for climate-focused corporate initiatives from funds offered by DWS, Natixis and Nuveen is consistent with track records of support for environmental and social issues, she added.

Investors who care about the climate-focused makeup of their funds are advised to track the efforts of the fund families they invest with as well as corporate actions, or lack thereof, around such issues.

In just a sampling from the latest proxy season: JP Morgan /zigman2/quotes/205971034/composite JPM +0.72% funds voted across the board against investor actions directed at the handful of companies at which resolutions made it to the voting stage — mostly centered on greenhouse-gas-emission reduction or methane measuring.
The fund group under Goldman Sachs /zigman2/quotes/209237603/composite GS +0.37% voted in favor of all; BNY Mellon voted against most resolutions that called out energy firms but agreed with its investors that Amazon should be more forthcoming on its climate-change resilience and fossil-fuel use.

Vanguard, for its part, had a mixed response this proxy season. It voted against investors’ urging of energy firm Fluor /zigman2/quotes/203795934/composite FLR +0.49% to pledge a specific greenhouse-gas-emissions reduction and similarly let Michael Kors and Ross Stores /zigman2/quotes/202639496/composite ROST +0.47% off the hook for now. But it backed shareholder demands that Duke Energy /zigman2/quotes/201480230/composite DUK +0.37% be more accountable for mitigating health and climate risks and agreed to step up pressure on greenhouse-gas emissions at aerospace company TransDigm /zigman2/quotes/203902625/composite TDG +0.0018%  . BlackRock voted down all investor climate initiatives except for the emissions directive for Ross Stores.

“When your largest investors stress the need to diversify your board, or more actively address climate change or develop new governance practices, it adds considerable credibility to the debate around climate or diversity and registers in company boardrooms,” said Timothy Smith, director of ESG shareowner engagement at Walden Asset Management.

“We are not close to the end but more in the middle of this story. BlackRock [whose CEO, Larry Fink, has made ripples with a letter on ESG issues to company CEOs ] and Vanguard have a long way to go, but seeing the impact of their first two climate votes ... at Exxon /zigman2/quotes/204455864/composite XOM +1.01% and Occidental Petroleum /zigman2/quotes/207018272/composite OXY +3.15% [during earlier proxy seasons] may motivate them to leverage their proxy votes at more companies.”

Read: Why are green housing bonds not getting more love from ESG investors?

/zigman2/quotes/207946232/composite
US : U.S.: NYSE
$ 490.96
+6.37 +1.31%
Volume: 342,074
Nov. 15, 2019 6:30p
P/E Ratio
18.92
Dividend Yield
2.69%
Market Cap
$76.18 billion
Rev. per Employee
$952,953
loading...
/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 129.53
+0.93 +0.72%
Volume: 10.16M
Nov. 15, 2019 6:30p
P/E Ratio
12.78
Dividend Yield
2.78%
Market Cap
$406.27 billion
Rev. per Employee
$497,647
loading...
/zigman2/quotes/209237603/composite
US : U.S.: NYSE
$ 220.25
+0.82 +0.37%
Volume: 1.69M
Nov. 15, 2019 6:30p
P/E Ratio
9.85
Dividend Yield
2.27%
Market Cap
$77.99 billion
Rev. per Employee
$1.34M
loading...
/zigman2/quotes/203795934/composite
US : U.S.: NYSE
$ 18.29
+0.09 +0.49%
Volume: 1.76M
Nov. 15, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
2.19%
Market Cap
$2.56 billion
Rev. per Employee
$359,268
loading...
/zigman2/quotes/202639496/composite
US : U.S.: Nasdaq
$ 113.37
+0.53 +0.47%
Volume: 1.15M
Nov. 15, 2019 4:00p
P/E Ratio
25.76
Dividend Yield
0.90%
Market Cap
$41.01 billion
Rev. per Employee
$181,179
loading...
/zigman2/quotes/201480230/composite
US : U.S.: NYSE
$ 88.58
+0.33 +0.37%
Volume: 3.57M
Nov. 15, 2019 6:30p
P/E Ratio
18.32
Dividend Yield
4.27%
Market Cap
$64.58 billion
Rev. per Employee
$815,112
loading...
/zigman2/quotes/203902625/composite
US : U.S.: NYSE
$ 559.78
+0.01 +0.0018%
Volume: 346,702
Nov. 15, 2019 6:30p
P/E Ratio
41.90
Dividend Yield
0.00%
Market Cap
$29.88 billion
Rev. per Employee
$391,730
loading...
/zigman2/quotes/204455864/composite
US : U.S.: NYSE
$ 69.19
+0.69 +1.01%
Volume: 11.25M
Nov. 15, 2019 6:30p
P/E Ratio
20.16
Dividend Yield
5.03%
Market Cap
$292.75 billion
Rev. per Employee
$3.93M
loading...
/zigman2/quotes/207018272/composite
US : U.S.: NYSE
$ 38.95
+1.19 +3.15%
Volume: 14.17M
Nov. 15, 2019 6:30p
P/E Ratio
25.38
Dividend Yield
8.11%
Market Cap
$34.79 billion
Rev. per Employee
$1.60M
loading...

Rachel Koning Beals is a MarketWatch news editor in Chicago.

1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.