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A response from the PRI: We’re looking at how we can better support voting practices

Fiona Reynolds responds to a recent report suggesting PRI’s US signatories don’t support key shareholder resolutions

Fiona Reynolds, CEO at PRI
Fiona Reynolds, CEO at PRI

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The issue of stewardship is one that the PRI has prioritised in recent years, indeed active ownership is embedded in our six principles. As stewards of capital, exercising voting rights is an important part of an investor’s responsibilities. Voting on shareholder resolutions is a powerful instrument in the stewardship toolkit as it helps communicate shareholders’ views to companies, as does investors being transparent about disclosing their voting records.

The recent industry study by Dutch investment manager Robeco and the Erasmus School of Economics - looking at the practices of 50 US managers - found that US-based PRI signatories have “consistently” supported fewer environmental and social shareholder proposals at US companies than their non-signatory peers.

While we welcome research that can help draw attention to the importance of voting and other stewardship tools as a means to align portfolios with the interests of beneficiaries and society more broadly, this study, because of its focus on data up to 2018, did not capture the real momentum on ESG resolutions that we have seen since then.   

In 2020, despite the onset of the Covid-19 pandemic, which has crystallised for many investors the importance of sustainable investing, a record number of resolutions addressing issues from climate change to diversity passed at annual meetings globally. A total of 21 shareholder resolutions focused on social or environmental issues received the support of a majority of investors - up from 13 in 2019 and 2018, and just five in 2017, according to data provider Proxy Insight. Two of the most significant wins included proposals around deforestation at consumer goods business Procter & Gamble and climate lobbying at oil major Chevron, both of which were backed by at least 50% of shareholders, according to the data.

We know that some investors have joined the PRI, not out of any desire to incorporate sustainability into their investment practices, but to win mandates

It goes without saying that at the PRI, we are, of course, disappointed when we see investors failing to support relevant, well-structured and meaningful ESG resolutions; however, we cannot tell investors how to vote. 

Although, we are proud of the role that the PRI plays in educating investors on voting, being a PRI signatory should not be the only due diligence test for investors. 

We know that some investors have joined the PRI, not out of any desire to incorporate sustainability into their investment practices, but to win mandates.  This is why we have worked hard in recent years to toughen up our minimum requirements. We’ve also continually emphasised that it is critical for asset owners to monitor their managers on voting as noted in our publication Assessing Active Ownership through Engagement and Voting.

In late 2019 we launched our Active Ownership 2.0 programme, making it clear that we were concerned at the ineffectiveness and lack of assertiveness in stewardship conducted by PRI signatories to date.  Active Ownership 2.0 highlights our belief that investors should be using all the stewardship tools available to them to their fullest potential - including voting - to advance progress on the systemic issues that are most critical to investors and their beneficiaries.

The PRI is now looking at how we can better support voting practices. Next month, we will launch new guidance, Making Voting Count, which aims to set out for signatories how principle-based voting on shareholder resolutions can contribute to clear, effective and accountable stewardship and how investors can strengthen their processes around proxy voting, and align their approach to shareholder resolutions with Active Ownership 2.0. 

We plan to publish further guidance to the proponents of resolutions, setting out details on what makes these proposals supportable by institutional investors

We hope this will result in investors taking a more principled approach to voting on shareholder resolutions that can both help improve the effectiveness of voting as a tool and give asset owners a better opportunity to scrutinise voting decisions of their external managers.

Following shortly after that, we plan to publish further guidance to the proponents of resolutions, setting out details on what makes these proposals supportable by institutional investors, specifically, recognising that sometimes, factors that may seem trivial can affect the ability of investors to support a given vote, even if they broadly support the overarching intentions of a proposal. 

This summer, we will be announcing our new minimum requirements, where we are actively considering the inclusion of engagement and/or voting requirements as part of our emphasis on stewardship. Our leadership group, which will be announced later this year, will focus on stewardship, highlighting the best of active ownership amongst our signatory base. We hope that all of these efforts will help to raise the bar on voting, engagement, and how investors can fulfil their oversight and stewardship responsibilities.  

With over 3,700 signatories, the PRI is a broad tent that welcomes investors from all geographies and at different stages of their ESG journey. We are cognisant that US investors have often lagged behind their European peers on consideration of ESG factors in investment practices; however, we also recognise the very different regulatory environments that investors work in.  

We are very hopeful that the new US administration's strong support for issues such as climate change, will translate into more affirmation for ESG issues at the policy level so that investors can be truly transparent, collaborative and considered on their voting practices.

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