Scottish Widows reveals discontent with core managers on voting activity

Insurer and savings provider says core managers support management far more than own policy, summons them to meeting with other asset owners.

UK insurer and savings provider Scottish Widows has revealed its discontent with some of its core asset managers over their voting activity and has summoned them to a meeting with other asset owners to be held in Autumn.

The £166 billion ($211 billion; €194 billion) asset owner – one of the UK’s largest – conducted a review of the voting activity of its largest asset managers and found “instances of failure to meet expectations on core issues”.

The firm said that in collaboration with other UK pension funds, it had called a meeting with its main managers to discuss concerns regarding alignment with its voting positions. It claimed this would be the first such collaborative engagement held with managers as opposed to investee companies.

In its stewardship report, published Wednesday, Scottish Widows said it had started work in 2022 to enable it to direct votes and better oversee the voting of its managers.

It now has the ability to review ESG-related votes at its top 300 holdings, and to override votes at AGMs if necessary. For its pooled funds, it adopted ISS’ SRI voting policy at BlackRock in 2022 and put the same in place at State Street from the start of 2023. It will consider reverting back to in-house policies if managers have progressed enough to be closer to its own expectations.

According to the voting analysis, the ISS policy voted for more shareholder proposals than Schroders, State Street and BlackRock, with BlackRock only backing 11.4 percent compared to 80.5 percent for the ISS policy. The ISS policy opposed 29.6 percent of board-related resolutions, versus 5, 6 and 9 percent for BlackRock, Schroders and State Street, respectively.

Scottish Widows said BlackRock did not vote against management recommendations more often than the other two managers in any resolution category and recorded the lowest overall level of dissent at 4.7 percent compared to 9.1 percent for State Street and around 11 percent at Schroders. The ISS policy dissented in 22 percent of votes.

The investor also challenged BlackRock’s assertion that it preferred to escalate via voting against directors instead of voting on resolutions, saying the latter can be overly prescriptive. Data supplied by Minerva Analytics, however, “does not seem to evidence this approach”, it said. The report says Scottish Widows will be engaging BlackRock and challenging it to provide evidence of this approach working in practice.

“While we have found that BlackRock and State Street’s engagement activity has improved, we believe they can still better use their voting to ensure measurable and timely positive outcomes from companies,” the report continued.

A BlackRock spokesperson told Responsible Investor: “As a strategic fund management partner we are privileged to support Scottish Widows in delivering their investment goals. Demonstrating this, Scottish Widows were important partners in pioneering BlackRock Voting Choice with us, which has enabled policy-directed voting across Scottish Widows investments in line with their preferences.”

A spokesperson for Schroders said active ownership was a key component of the value it delivered to its clients.

Our engagement and voting with companies on these topics are central to delivering our strategy. We look forward to continued dialogue with our clients on how to best use our influence to protect and enhance the value of our investments,” they continued.

State Street and did not respond to a request for comment.

The analysis also highlighted several resolutions which received high levels of shareholder support and support from both Schroders and the ISS Policy, while BlackRock and State Street voted against. These included a request for Chevron to report on the impacts of a net-zero scenario, at Home Depot on political donations and at Honeywell International on climate lobbying.

Scottish Widows has been actively challenging asset managers on voting and stewardship issues for some time. Maria Nazarova-Doyle, its head of responsible investments and stewardship, sat on the government-established Taskforce on Pension Scheme Voting Implementation, which delivered a highly critical report on asset manager attitudes towards their clients.

In July last year, it said it would end business relationships with managers who didn’t sign up to the UK stewardship code or local equivalents. According to today’s progress update, only two managers are yet to sign up, both of whom are non-UK domiciled with limited UK operations.

Nazarova-Doyle said understanding stewardship strategies more broadly is important given voting is only one tool, saying she was also concerned about engagement “happening behind closed doors”.

“If managers fail to act in line with our priority, which will always be the interests of our beneficiaries, we will have no choice but to take action. We are hopeful that our meeting with our managers this autumn will result in positive outcomes for all parties.”

In other stewardship developments, Scottish Widows said it would consider divesting BHP and Vale if they stayed on MSCI’s global compact violators list and continued to fail to engage. The firm has written to both miners since 2020, but said the only response it has received was a letter in 2021 from Vale.