This month, we hosted a panel on the evolution of the stewardship industry and 2024 voting trends, led by Global Stewardship Lead, Siobhan Archer. The audience heard from experts Lindsey Stewart, Director of Stewardship Research at Morningstar Sustainalytics, and Georgia Stewart, co-founder and CEO of Tumelo.
The first area for discussion focused on the evolving landscape of support for shareholder proposals during the most recent proxy season, which typically runs annually from April to June. Proxy season is a critical period when shareholders of publicly traded companies vote on various proposals, ranging from corporate governance to environmental and social issues. Reflecting on the 2024 season, Lindsey Stewart noted some intriguing shifts. While governance-focused resolutions saw a rise in support, there was a notable decline in backing for environmental and social (E&S) proposals. Lindsey expressed the view that this decline isn't just about numbers; it's also about sentiment. Some of the largest asset managers, including BlackRock, State Street, and Vanguard, have pulled back their support, questioning the quality and necessity of certain E&S resolutions. He believes this may be as many of the E&S issues addressed by shareholder proposals at the start of the 2020s, particularly Environmental, Social and Governance (ESG) disclosures, have now been embedded into regulation. This has created a situation where the remaining topics involve matters on which there is less consensus.
This shift is exemplified by ExxonMobil's unprecedented decision to take legal action against two activist investors over their environmentally focused proposal, underscoring the tension between corporate boards and shareholder activists. Typically, investors in publicly traded companies attempt to influence corporate policies by submitting shareholder proposals to be voted on during annual meetings. However, ExxonMobil contends that two specific investor groups misused this process by repeatedly submitting similar climate-focused proposals in an attempt to “micromanage” the company's operations. The lawsuit, which has since been dismissed, underscores the escalating conflict between corporations and investors who are pushing for more aggressive climate action.
Georgia Stewart, fresh from the Council of Institutional Investors conference in New York, shared her insights into US investor sentiment. Despite the decline in support for E&S proposals, Georgia noted a growing interest in pass-through voting platforms among pension funds and institutions with long-term and sustainability-focused stewardship approaches.
Traditionally, stewardship in the investment industry has operated through a centralized approach, where asset managers made voting and engagement decisions on behalf of all clients based on standardised policies. This approach often meant that the unique values and priorities of investors were not always represented. During the discussion. Lindsey and Georgia both highlighted the transformative shift towards client-directed stewardship, where investors are increasingly given a say in proxy voting. Lindsey observed that this trend allows investors who prioritise ESG issues to have a stronger influence on voting outcomes. Major asset managers like BlackRock and State Street are beginning to implement "multitrack" engagement and voting policies, catering to investors' specific preferences. This indicates a move towards more personalised and fragmented voting decisions, reflecting individual investors’ values rather than monolithic voting blocks. However, Lindsey emphasised the need for greater education for investors to ensure informed voting decisions.
Georgia explained how Tumelo is facilitating this shift by integrating institutional and retail investors' views through its pass-through voting platform. This approach addresses the misalignment that can occur when fund managers' proxy votes do not reflect the investors' stewardship goals. Tumelo is now working with major asset managers such as Legal & General Investment Management and State Street, highlighting the growing recognition of the importance of aligning voting practices with the values and goals of individual investors. Together, these insights paint a picture of a stewardship landscape that is becoming more democratised, with a stronger emphasis on aligning voting practices with the diverse values of individual investors.
As the stewardship industry continues to evolve, the integration of client views will be crucial in shaping effective and responsible stewardship strategies. Lindsey envisions a future where client education and engagement play a central role. He anticipates further fragmentation in voting decisions as more investors take control of their proxy votes. This shift will likely lead to more tailored stewardship practices that are more effective in aligning with individual investor values.
Georgia emphasised the importance of democratising proxy voting and making it more accessible to investors. She sees a future where pass-through voting empowers investors, ensuring institutional investors’ views are heard and allowing retail investors to have a direct say in corporate governance. Georgia also highlighted the need for ongoing education and support to help investors navigate the complexities of proxy voting and make informed decisions.
These issues are deeply aligned with LGT's stewardship approach, emphasising our commitment to transparency, accountability, and the integration of client perspectives into our sustainable investment practices. Stewardship to us means the responsible allocation and management of capital for the long term, enhancing and preserving assets for clients, as well as the economy, environment, and society. It's multi-layered, complex, and vital for the transition to a low-carbon and just economy.
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