The Shifting Tides of Sustainable Investing: Top Asset Managers Rethink Their Approach

In a surprising turn of events, the three largest US money managers - State Street, Vanguard, and BlackRock - have significantly reduced their support for environmental and social shareholder proposals during the latest proxy voting season. This shift in stance comes amid a growing Republican-led backlash against sustainable investing practices, signaling a potential sea change in the industry's approach to ESG (Environmental, Social, and Governance) issues.

Navigating the Evolving Landscape of Sustainable Investing

The Big Three's Changing Proxy Voting Patterns

The data reveals a stark contrast in the voting patterns of the three money management giants. State Street's investing unit supported only 6% of environmental shareholder proposals and 7% of social ones in the first half of the year, a significant decline from the same period a year earlier. Vanguard went even further, stating that it did not back any of these resolutions, while BlackRock's support dropped from 7% to 4% in the 12 months ending June.

The Influence of the "Big Three"

The collective power of these three asset managers cannot be overstated. Together, they own approximately 20% of the shares in all S&P 500 companies, primarily through their vast index-tracking funds. This immense influence means that their voting decisions can have a significant impact on the outcome of shareholder proposals, making their shift in stance all the more noteworthy.

The Shift from 2021's Record Support

The current voting patterns represent a stark turnaround from the previous year, when the "Big Three" voted in favor of a record number of proposals focused on issues such as climate change, workforce diversity, and human rights. This change in approach has not gone unnoticed, with industry experts and observers closely analyzing the underlying factors driving this shift.

The Role of Political Backlash and Proposal Quality

Experts attribute the decline in support to a combination of factors, including the growing political backlash against sustainable investing and concerns about the quality of some shareholder proposals. Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics, noted that "the political climate, and the rise of anti-ESG resolutions and legislation, has played at least some role in the decline in proxy voting support." However, he also acknowledged that some of the pro-ESG resolutions "were badly worded or lacked a clear benefit to shareholders," which may have contributed to the asset managers' decision to reject them.

The Broader Shift in CEO Priorities

The decline in shareholder support for environmental and social proposals corresponds with a broader shift in the priorities of chief executive officers. According to a recent survey by Bain & Co., CEOs are now more focused on concerns such as inflation, artificial intelligence, and geopolitics, with sustainability taking a backseat on their list of top priorities.

The Asset Managers' Explanations

The asset managers themselves have provided explanations for their reduced support of environmental and social shareholder proposals. State Street Global Advisors cited the increasingly prescriptive and niche nature of these proposals, while Vanguard and BlackRock argued that many of the resolutions did not address financially material risks to shareholders or were overly prescriptive in their requests.

Contrasting Approaches with European Rivals

Morningstar's Stewart noted that the voting records of the US money managers contrast with some of their large European counterparts, who remain focused on sustainability. This divergence highlights the evolving landscape of sustainable investing, where regional differences and regulatory environments may be shaping the approaches of asset managers.In conclusion, the shift in the proxy voting patterns of the "Big Three" US money managers reflects a complex and rapidly changing landscape in the world of sustainable investing. As the industry navigates the political and regulatory challenges, the long-term implications of this shift remain to be seen, with the potential to significantly impact the trajectory of ESG-focused initiatives and the broader investment landscape.