Support for shareholder resolutions that address corporate sustainability issues fell to a five-year low in 2024, according to Morningstar data out this week, as shifting political considerations made U.S. asset managers wary of backing the proposals.
Although there are more sustainability proposals being filed, many of those resolutions are of low quality, wrote director of stewardship research and policy for Morningstar Sustainalytics in a post on the company website. Morningstar considers a proposal to be higher quality only if it receives at least 30% support from shareholders who aren’t company insiders.
In 2024 there were 107 such significant proposals acted on by corporate boards, garnering 31% approval overall. That was down from 118 proposals in 2023 that gained 39% backing. The number of significant resolutions peaked in 2022 at 157, while support peaked in 2021 at just under 54%.
Stewart said that the increased number of lower-quality proposals “has brought with it a growing number of questions about their quality.” Complaints from fund managers that too many of them address matters not central to a company’s strategy and financial performance, or are better dealt with by boards than shareholders, have increased. he wrote.
The rising skepticism among asset managers is forcing investors who want their sustainability ambitions reflected in proxy-voting decisions to re-examine “whether their fund and manager choices still match their own preferences,” Stewart said.
U.S. sustainable fund asset managers are twice as likely to back significant resolutions as the wider universe of managers, supporting 62% of the 2024 proposals. But even that support is down from a peak near 78% in 2021.
The picture is very different in Europe, Stewart pointed out, where more space is given to investment fiduciaries to incorporate sustainability considerations into their decision-making. Average support for significant environmental and social resolutions by Europe’s largest asset managers is consistently very close to 100%.
Against the backdrop of rising political criticism on support for ESG-focused resolutions, all the top eight U.S. fund managers by market share have substantially withdrawn their backing for significant proposals in the last three years, the data show. Five of the eight supported more than half these resolutions in 2021. Now, all support no more than one-third.
There are a few key messages here for investors who want their fund manager’s proxy-voting decisions to reflect higher sustainability ambitions, Stewart said.
“Firm choices have to be made—on manager selection, fund selection, or even selecting a specific voting policy. It is unlikely in the near future that any of the largest U.S. asset managers will prioritize environmental or social goals by default in the way that many have done in recent years. It’s all gotten a lot more complicated for sustainable investors,” he said.
To check out the full report, click here.
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