The Institutional Investor Group on Climate Change (IIGCC) has recommended that asset owners conduct an annual review of their managers after proxy season to assess how their voting activities mapped to owner expectations and manager policies.
The recommendation came in new guidance on setting net-zero voting policies, which notes that asset owner and manager alignment on climate stewardship is “critical” to achieving net-zero targets.
The guidance encourages asset owners to conduct a review of manager stewardship activities following the AGM season, noting that it may be helpful to set up an annual call to discuss alignment between how managers voted and their climate commitments.
Potential misalignment between asset owners and managers on climate stewardship, and particularly voting, has risen up the agenda in the past year.
The quality of manager stewardship can also be make or break for mandates. Investment consultancy Redington said recently that two of its clients had ditched managers in the past year after a poor stewardship assessment.
The IIGCC guidance recommends embedding voting in manager selection, monitoring and appointment.
Members of the Net Zero Asset Managers initiative and Paris-Aligned Asset Owners group are expected to develop stewardship strategies with a clear net-zero voting policy, and there is an expectation under the IIGCC’s own Net Zero Investment Framework that investors publish a policy.
The IIGCC said the guidance was intended to support both owners and managers in their development of these policies and practices. It sets out three principles for net-zero voting, which it says should align with an investor’s objectives and targets, communicate expectations, and support net-zero stewardship and investment approaches.
As part of communicating expectations, the IIGCC recommends investors publish their voting policy, as well as share it directly with priority firms. It gives the example of Aviva Investors, which sends an annual letter setting out its expectations to company chairs.
The IIGCC said managers’ disclosure of policies helps potential and existing clients see how their stewardship objectives are aligned. It said it was “helpful” for managers to disclose how they consult asset owner clients, how voting is linked to engagement, and how far they rely on default recommendations of proxy advisers.
On individual votes, the IIGCC said communicating voting decisions either publicly or privately to the company can help achieve change. Public pre-declarations can be a “powerful tool”, it noted, and can help other investors align around approaches.
After the vote, the guidance recommends that full voting records should be published, and says that best practice is to publish records on a monthly rolling basis.
Among the other recommendations made in the guidance is developing special treatment for high-priority companies such as those targeted by Climate Action 100+ or the Net Zero Engagement Initiative.
It also notes that “a robust approach to director accountability for climate concerns may be the single most important voting lever investors can pull”.