Research suggests that a marked shift in the voting behaviour of institutional investors is pushing the level of support for shareholder ESG resolutions to record levels.

Separate analysis by Morningstar and Alliance Advisors has found that the level of support for ESG shareholder proposals looks set to reach record levels in 2021. The research suggests that the uptick in the level of support is being driven in large part by a change in the voting behaviour of institutional investors.

What does the research say?

Alliance Advisors has published an early look at the issues/trends observed so far this proxy season. Among other things, the research found that the number of shareholder ESG resolutions has significantly increased this year and that the level of support for climate change, political activity and diversity related shareholder proposals has spiked, due in part to the uptick in support from large institutional investors.

For example, according to Alliance Advisors, since 1 January 2021, BlackRock has backed 91% of environmental proposals (up from 6% in the one year to June 2020), 23% of social proposals (up from 7% in the year to June 2020) and 26% of corporate-governance proposals (up from 17% in the full year to June 2020).

Separate analysis by Morningstar has found that the ESG shareholder resolutions voted on so far this proxy season, have attracted a record level of support. Morningstar, like Alliance Advisors, again attributes this to a shift in the voting behaviour of large institutional investors, including BlackRock, Vanguard and State Street (which together manage nearly 40% of the money in mutual funds).

Morningstar points out that both BlackRock and Vanguard have published updated proxy voting guidelines that leave the way more open for them to support reasonable ESG shareholder proposals. Morningstar suggests that there is evidence that this new approach is translating into a material increase in the level of support for ESG shareholder resolutions as compared with 2020.

For example:

  • As at 7 May 2021, 21 ESG shareholder resolutions were supported by a majority of shareholders (up from 15 in 2020).
  • From the beginning of January 2021, average shareholder support for ESG resolutions has increased to 44% (up 12% as compared with the same period in 2020).

Looking at repeat resolutions – resolutions that were on the ballot in one of the previous two years – Morningstar found that the increase in the level of support is even clearer.

For example, in 2019, a resolution calling for regular disclosure of DuPont's plastic pellet spills received 7% support. In 2021, despite management's 'against' recommendation, the same resolution received 81% support. A diversity disclosure resolution at the same company received 84% support. Given BlackRock, Vanguard and State Street hold a combined 27% of Dupont shares, Morningstar considers it extremely likely that all three supported both proposals.

In light of these early trends, and given the fact that the three largest asset managers have singled out climate and diversity as priority themes, Morningstar considers it likely that the upswing in support for shareholder ESG resolutions is likely to continue to gain momentum.

[Note: Ceres has also previously flagged this trend. You can find a summary in Governance News 19/05/2021 at p13.]

[Sources: Harvard Law School Forum on Corporate Governance and Financial Regulation 20/05/2021; Morningstar media release 12/05/2021]