Date: 25 October 2021

The AMNT’s review into fund managers' voting policies on climate change (https://amnt.org) has concluded that urgent action is required as continuing poor disclosure and generic platitudinous statements on this vital issue are hindering market competition and the ability of trustees to make effective investment decisions. It also masks whether fund managers are doing what is necessary to tackle climate change in their approach to voting. For example, the research finds that many have just a generic policy as opposed to a specific voting policy on climate change. This needs to be rectified.

Given the FCA’s own priorities regarding addressing “insufficient evidence of active stewardship in advancing environmental and social goals”, AMNT is recommending regulatory action to remedy what it believes is market failure. 

Roughly half the assets under management in the UK are in pooled funds and nearly all fund managers of those funds will not accept the voting policies of pension scheme trustees investing in such funds. So until they allow trustees to do this, trustees have to rely on the fund managers to use the votes associated with their investments in an appropriate way, and hold them to account for it.

AMNT’s study compared the comprehensive climate change policies contained in its own Red Line Voting policy for trustees with those of 30 fund managers.

Key findings:

1.      40% of the fund managers (12/30) either:

·         Did not disclose their voting policy on any ESG issue; or

·         Did not reference climate change in their voting policy at all; or

·         Referenced climate change but none of their references met AMNT’s Red Line voting policies on climate* and thus reasonable standards for taking action on climate change.

2.      Of the 18 fund managers that had a voting guideline, nearly 40% of them only had a voting guideline concerning shareholder resolutions. 

3.      Only eight of the 30 fund managers reviewed would target directors for insufficient disclosure or action taken on climate change. 

4.      Just four fund managershad voting policies and guidelines which met all five of AMNT’s policies (Aviva, Blackrock, Federated Hermes and LGIM).

5.      Neither of the dominant proxy advisors - ISS and Glass Lewis - have voting policies and guidelines for climate change that reflected AMNT's policies and thus reasonable standards for taking action on climate change.

The number of fund managers whose voting guideline on climate change is currently only to vote if there is a shareholder resolution is a particular concern, because in practice hardly any shareholder resolutions are put forward on climate change at company AGMs. So fund managers that only vote in this way are in practice holding hardly any companies to account on climate change at all.  AMNT’s voting policy holds directors to account regardless of whether there are shareholder resolutions.

Some did not disclose their voting policies or guidelines on climate change; some pointed to their voting records as evidence of commitment. Others pointed to other documentation on climate change elsewhere on their websites that was separate from their voting policy. Fund managers have justified the lack of or poor disclosure on voting guidelines on the grounds that they wished to maintain flexibility in their voting actions.   Given that some fund managers are very clear and robust on how they will vote if their expectations are not met, AMNT sees no reason why other fund managers should be using the flexibility argument in 2021.

Even when fund managers do have a voting guideline, AMNT is concerned at the imprecise terminology.  Terms like “insufficient disclosure or risk oversight” does not give sufficient information to determine the threshold that will trigger a vote of dissent.   A significant percentage of the fund managers use terms like “may withhold support”, “we will consider voting against”.  However, as some fund managers have no difficulty in setting out clear statements it suggests that the flexibility argument does not hold true for every fund manager, and therefore it is possible to take a more robust stance on the issue. However, the majority choose not to.

Voting policies are of vital significance in the fight against climate change. A voting policy sets out an investor’s expectations of how a company should act in relation to environmental, social and governance issues. A voting guideline sets out how the investor might actually vote at an AGM if those expectations are not met. So if investors set tough policies on climate change for the companies in which they invest, and follow through with their voting at company AGMs, it could substantially speed up progress.

AMNT is calling on the fund management community to re-evaluate their voting policy and guidelines on climate change in advance of the 2022 proxy voting season. They should consider whether their voting policy and guidelines are sufficiently clear and robust when compared to AMNT’s Red Line climate change policies and, if not, make appropriate revisions.

AMNT is also calling on fund managers to accept the recommendations of the Taskforce on Pension Scheme Voting Implementation which recently reported, calling on the fund management industry to allow pension schemes an ‘expression of wish’, in other words a choice of voting policy. An alliance of AMX, DWS, Northern Trust and Minerva Analytics set up a fund earlier this year with this offer. BlackRock recently announced that they intended to extend voting policy to their clients. AMNT is urging all other fund managers to follow suit. AMNT also calls on trustees to adopt their own voting policy and insist that it is respected, and to use it to hold fund managers to account.

AMNT founding co-chair Janice Turner said: "Given how high climate change is on the regulatory agenda in the UK, it is very surprising that only four fund managers had a voting policy and guideline that met AMNT’s criteria. 

"It is clear that this issue requires urgent action, especially by the FCA as it relates to not only poor disclosure hindering market competition and the ability of trustees to make effective investment decisions, but also whether fund managers are doing what is necessary to tackle climate change in their approach to voting.

"It is crucial that fund managers are fully transparent on their voting policy and guidelines on climate change.  A trustee should not be left in the dark as to how their fund manager intends to vote, especially if trustees are expected to hold their fund managers to account through benchmarking their own stewardship policies against that of their fund managers.   It is a massive understatement to say that there is a public interest in fund managers’ voting policies and guidelines: humanity has an interest.

“AMNT’s Red Line Voting policies include stringent criteria on climate change. We urge fund managers to allow their trustee clients to adopt them and have the votes associated with their investments cast in accordance with them.”

-Ends-

For further information please contact:

Andrew Sharkey. andrew.sharkey@amnt.org  07711 825439

Notes to Editors

*In June 2021, AMNT updated its Red Line Voting policies for climate change in several key areas and these form the basis of the 2021 survey. ( http://redlinevoting.org/wp-content/uploads/2021/06/Red_Line_Voting_2021.pdf )

The new policies and guidelines cover five key areas as follows:

•          Board level responsibility for climate change, not merely environmental issues

•          Disclosure of climate change approach against TCFD

•          Paris-aligned strategy and science-based targets (not targets or emission reductions with no qualifier that they need to be Paris-aligned/net zero/science based). 

•          Remuneration metrics which specifically reference climate change

•          Climate change lobbying, including full disclosure of company lobbying activities on

climate.

Thirty fund managers’ voting policies were compared with these updated Red Lines under six categories (strategy and targets were split into two separate categories). Stewardship reports and voting records were not given credit as this study was focussed on voting policies and guidelines, not outcomes.  Separate online documents that contain information on climate change with no reference or hyperlink to them in the voting policy itself were also not given credit.

AMNT supports the comply or explain principle when it comes to voting and engagement, and there are good reasons why a fund manager may choose not to take voting action against a company.   But there is no reason why a fund manager cannot state what its default voting intention is if certain expectations are not met, and then provide an explanation through appropriate client reporting as to when they have deviated from that position and for what reason.   This is the position AMNT advocates. 

Whilst AMNT recognises that the fund manager has the ultimate responsibility for the contractual relationship between themselves and their proxy provider, the poor policies of the proxy voting companies in AMNT’s view indicates a failure to recognise the gravity of the climate change crisis. This is particularly relevant as fund managers (or indeed asset owners) lacking in responsible investment expertise and/or resources may choose to adopt their proxy agency’s policy rather than develop their own.

The Association of Member Nominated Trustees (AMNT) was established in 2010 as an organisation run by and for member‑nominated trustees, directors and representatives of private sector and public sector pension schemes. AMNT has more than 850 individual trustee members, representing pension schemes with assets under management of over £1-trillion.