Activist or steward? Why are European managers filing proposals in the states but US peers not?

    ‘Owners don’t have conflicts of interest; asset managers have conflicts of interest. That distinction will give you an instant reality check on why the market shaped the way it does,’ says LGIM’s Head of US Stewardship and Sustainable Investments

    Filing ESG proposals in the US has long been seen as the preserve of activist asset managers, NGOs or individual shareholders, seeking to grab the attention of boards that are otherwise inaccessible to them.  

    Figures published by US think-tank the Manhattan Institute show that none of the 100+ “social policy” resolutions (which cover climate, human rights and lobbying, among other topics) filed at Fortune 250 companies in 2019 came from mainstream asset managers. The proponents include a couple of US pension funds, but large investment houses have shunned such tactics – favouring private dialogue with corporate boards.   

    That’s changing though. Last year saw ‘hedge funds’ and ‘companies’ creep onto the list, and some of Europe’s largest asset managers are beginning to co-file – and in some instances lead file – such proposals in the US, often with the support of partners in the States. Recent filers include Legal & General Investment Management (LGIM), BNP Paribas Asset Management and Europe’s largest asset manager, Amundi.   

    But US asset managers are still holding back, despite mounting public pressure for investors to demonstrate their commitment to corporate sustainability.   

    According to John Hoeppner, Head of US Stewardship and Sustainable Investments at LGIM, there is a “big line” separating US investors willing to support ESG proposals and those willing to file them.   

    “When you create a new shareholder proposal, you often get bucketed as an activist and, in the US, that’s not a mainstream concept,” he says, adding that such distinctions are “really at the heart of all this”.  

    But LGIM and some of its European peers are now testing those definitions.   

    “Are you really an activist if you’re filing shareholder proposals… or is it just part of the typical responsibilities you’d expect from a big mainstream asset manager?” asks Hoeppner, who expects “the market will get more involved in this.”  

    London-based LGIM co-filed its first US shareholder proposals in the 2021 proxy season, in collaboration with members of the Investors for Opioid and Pharmaceutical Accountability initiative. Those resolutions called for independent chairs at pharma giants Eli Lilly and Gilead Sciences, and LGIM has followed up with a solo filing at Moderna this proxy season, asking it to explain how the financial support it received from government during the pandemic will be reflected in the price of its Covid-19 vaccines and therapies.  

    That most recent resolution has now been withdrawn, after Moderna published a report on the issue, which Hoeppner describes as the “tangible outcome of thoughtful engagement and escalation”.  

    Another major European investor taking a leadership position on ESG resolutions in the US is Amundi, which co-filed its first ever US shareholder proposal in the 2021 proxy season. It partnered with US non-profit The Shareholder Commons to ask McDonalds to improve its disclosure on the use of antibiotics in its supply chains.  

    Caroline Le Meaux, Amundi’s Global Head of ESG Research, Engagement and Voting says that part of the reason for co-filing on this proposal was to use its $2trn heft to “highlight [the] importance” of antimicrobial resistance – a topic that does not receive the same level of attention as other issues such as climate change and racial justice.    

    “It’s logical [to co-file], when you see a resolution where you will add value,” she says, adding that it a “a little bit too early to say” whether the proposal has been effective because it takes large companies two or three years to start moving on an issue as big as antimicrobial resistance.  

    LGIM’s Hoeppner says that, along with adding weight to pressing systemic issues, large investors can file resolutions in a bid to “poll the investor base to see how many think like you” – something that isn’t possible to do through solitary engagement.   

    RI contacted major US investors Northern Trust, Wellington Investments and JP Morgan Asset Management – all of whom have increased their support for ESG proposals in recent years – to ask if they have, or would consider, filing a shareholder proposal in the country. Northern Trust and Wellington did not respond to the request, and JP Morgan declined to comment.

    Some large players have argued that private engagement is more appropriate because it fosters trust between the shareholder and the company, while public ‘outing’ through resolutions could damage relations. This isn’t something that LGIM has experienced in its work on shareholder proposals, says Hoeppner. Instead he points to pressure from clients, which he says can pose a “bigger question”.  

    “If we take a position against lobbying, say, and write a shareholder proposal, our clients who perhaps are lobbying [themselves] could take a really tough view on it … that’s the real risk.” He caveats that this is not something LGIM has encountered because its principles are “pretty reasonable”, but that it could explain why pension funds are more willing to file than their asset managers.   

    “[Asset] owners don’t have conflicts of interest; asset managers have conflicts of interest. That distinction will give you an instant reality check on why the market is shaped the way it is.”  

    Like Amundi, LGIM started to co-file in the US last proxy season and when asked why now, Hoeppner tells RI that it is not the result of a shift in internal policy, “it was more the initiative of the stewardship team watching market dynamics to say, we now think that this is a reasonable next escalation”.   

    He adds that the growth of the stewardship team over the last few years, including having three people on the ground in the US, has played a role too, as this work is “resource intensive.”  

    The significance of a US presence is also seen with France-based asset manager BNP Paribas, which co-filed its first US proposal for the 2017 proxy season at US oil major Exxon Mobil. The following year, the manager appointed Adam Kanzer as its first Head of Stewardship for the Americas. Kanzer previously had led corporate engagement for US SRI investor Domini Impact Investments for around 20 years, including filing numerous shareholder proposals.  

    Since his appointment, BNP Paribas filed its first proposal as lead filer in 2020 on Paris-aligned lobbying at Chevron, Exxon Mobil, Delta Air Lines and United Airlines. The proposal, which won majority support at Chevron in its maiden year, has since been adopted by US non-profits, Ceres and ICCR, and garnered six majority votes to date.  

    Investors are increasingly coming under pressured to demonstrate their stewardship efforts, and LGIM’s Hoeppner thinks that filing proposals could be seen as “a much clearer way of showing genuine engagement,” than just saying “yes, we’ve engaged with 25 companies or 50 companies.” But Le Meaux warns that when a proposal is filed it must have some “true meaning for the company and cannot be just done to tick a box.”  

    But, what, if any, are the practical obstacles to filing?  

    According to Hoeppner there are none for large asset managers when it comes to having the requisite number of shares for the right amount of time. However, he adds, there is “specialised expertise” needed when it comes to the drafting of them, which is why LGIM has often opted to co-file its proposals and work with expert groups.   

    This dynamic of big asset managers teaming up with smaller organisations, often nonprofits, with specific expertise on ESG topics to file proposals is going to be “a big trend,” Hoeppner believes.   

    One practical issue flagged by Le Meaux, when it comes to filing proposals is the “real bottleneck” in terms of workload during the proxy season. “If we could, we might do more, but for the time being this is what we can do,” she says. As with LGIM, Amundi leaned heavily on its partner, The Shareholder Commons in the filing of its proposal at McDonald’s.  

    On the issue of risks to existing relationships caused by filing, Le Meaux tells RI that what is important that you “are very, very transparent” with the company. You need to be “clear to the management that you are filing because you have a clear ESG policy and that it is not against them.”   

    She adds that any co-filing must be “prudent” and that anything being asked of the company must not have unintended negative consequences on their operations. “I think a lot the best shareholder resolutions are around raising awareness of some topic by demanding greater disclosure at companies that have been maybe less responsive or where they have high exposure,” she says.  

    When asked having co-filed on McDonald’s, how likely is Amundi to file again, Le Meaux tells RI it would depend on the topic and what it can bring to the table, but she says, “obviously now we have already done it, we are more relaxed about doing it again.”  

    The expectation to keep filing once you start is something that Hoeppner thinks might put off peers, he says that “once you start to file shareholder resolutions, you’re kind of opening Pandora’s box.”  

    If any of LGIM’s larger peers start the process, he says, “the amount of press attention will be extraordinary” and will be followed by questions of why they aren’t filing elsewhere on the same issue, which is a very hard question to answer.   

    Hoeppner tells RI that even LGIM is in the “learning phase”. “This is a new tool for us,” he tells RI, but adds, “we have noticed that it is effective [at Moderna]…and that’s really enticing.”