Stepping out of the shadows: The investors embracing vote pre-disclosure

RI speaks to investors about the stewardship benefits and obstacles to pre-declaring intentions ahead of company meetings.

Corporate engagement by investors, for better or for worse, is something that usually takes place behind closed doors – often in the name of maintaining good relationships with management.

But in recent years a growing number of investors have stepped out of the shadows, becoming much more candid about their voting intentions ahead of company meetings. 

Beyond laudable transparency, there are signs that pre-disclosure is an effective but perhaps overlooked stewardship tool, one which could have influence beyond the targeted company. 

One fund that has started pre-declaring is PGGM, manager of Dutch healthcare pension fund PFZW. 

In 2023, the €240 billion fund began with votes at a selection of companies it had worked with as part of existing engagement programmes.  

Colin Tissen, adviser responsible investment at PGGM, tells Responsible Investor that there is always a concern that the company will not like such a public contradiction. “But it is a risk that we are more willing to take over time if a company is not making sufficient progress,” he says.

PGGM was already disclosing its voting after meetings via a database, but Tissen says the fund wanted to “explore a new way of being open with our pension participants on how and why we vote the way we do”. This also communicates the fund’s thoughts with peers and other companies, he adds. 

The Dutch investor is not alone. In 2021, Norges Bank Investment Management (NBIM), manager of Norway’s trillion-dollar sovereign wealth fund, began publishing its voting position at the tens of thousands of companies in which it holds shares five days ahead of company meetings.  

NBIM’s head of ESG analytics, Alexis Wegerich, describes the decision to systematically pre-disclose as a “big step, a big change in how transparent we are around voting”.   

Less comprehensive and more opportunistic examples of pre-disclosure, often as part of engagement escalations, also have become more common in recent years. Proponents include the likes of Legal & General Investment Management (LGIM) and Neuberger Berman, whose NB Votes Initiative is now in its fifth year.   

“There’s always a concern that the company won’t like you publicly saying that you are voting against the board or for a resolution they don’t like. It is a risk, but it is a risk that we are more willing to take over time if a company is not making sufficient progress”

Colin Tissen, PGGM

The Principles for Responsible Investment (PRI) has even introduced a way for members to communicate their positions on key votes ahead of meetings via its resolution database, also launched in 2021.   

That database was used in November by South African-based investors Old Mutual and Ninety One to signal their intention to vote against Sasol’s decarbonisation pathway. The former also voted against the South African energy giant’s remuneration report and one of its directors.

 An overlooked stewardship tool?

There are signs that such signalling is effective.

In June, the Church of England Pension Board (CEPB) and Swedish government fund AP7 announced that they would vote against National Grid’s chair and CEO in response to the UK energy firm’s failure to disclosure its climate lobbying activities.

The decision was reversed shortly afterwards, when the company pledged to undertake a review of its trade associations. 

A month earlier, German car manufacturer Volkswagen had published its first trade association review. The disclosure followed a multi-year engagement by AP7 and CEPB, which included pre-declarations by both of their intention to vote against the firm’s management and supervisory boards.

Emma Henningsson, AP7’s manager of active ownership, tells RI that pre-disclosing votes can be a good way of getting the attention of the board and senior management. “Sometimes the investor voice seems to get stuck with investor relations, which is concerning,” she says.  

Like PGGM, AP7 pre-declared for a handful of company meetings in 2023 and intends to increase this in 2024. 

Henningsson describes it as “an important step” in implementing net zero stewardship.  

PGGM’s Tissen tells RI that part of the reason it now pre-discloses is because the fund wants to “pay more attention to the voting side of stewardship”. 

There is, he says, a tendency to separate engagement from voting by investors, when in fact they complement each other.  

PGGM is in the middle of a two-year engagement programme with the oil and gas sector, which will result in the divestment of those deemed to be misaligned with the Paris Agreement. Many of the fund’s pre-declarations last year centred on these companies, including BP and Shell.  

“It made sense to pre-disclose in the second year of that engagement as a sort of escalation measure,” Tissen says.    

“We are a long way from diluting the influence of the big proxy advisors. But pre-disclosed votes and rationales can provide precedent that helps other investors think through their own decisions on votes for systemic issues that might otherwise be missed in the company-specific advice they receive”

Delaney Greig, UPP

For those uncertain about pre-disclosing, a recent study by NBIM suggests that it amplifies an investor’s vote, at least for one the size of the Norwegian fund.  

Published in December, the paper found that, where NBIM submitted a vote against management, there was an average increase of 2.7 percent in shareholder support. 

It concluded that there is “potential for large institutional investors to use voting pre-disclosure as a tool for influencing other shareholders and, ultimately, companies”. 

Countering proxy adviser influence

Interestingly, the uplift identified in NBIM’s paper was more correlated with votes where there was “higher information demand” and when “the large shareholder pre-discloses a decision that is not directly observable from its proxy-voting guidelines”. 

NBIM’s perspective, as a large long-term investor, is valued by other shareholders, it seems.

That perhaps should not be a surprise.

Investors have been increasingly critical of the big proxy advisers over a perceived failure to fully factor systemic risks such as climate change into voting recommendations, which are done on a company-by-company basis rather than a system-wide level. 

Wegerich, who co-authored the pre-disclosure impact study, tells RI that another motivation for NBIM’s decision to pre-declare was the fund’s belief that the “market for voting advice was not fully efficient”.

The space prior to the shareholder meeting has traditionally been dominated by companies and proxy advisors, he says, with shareholders only occasionally sharing their views on things like contested board elections. 

Delaney Greig, director of investor stewardship at Canada’s University Pension Plan (UPP), agrees. “We believe that having more asset owner and manager perspectives in the market would generate more nuanced and thoughtful voting results,” she tells RI. 

Greig adds that pre-disclosed votes and rationales “can provide precedent that helps other investors think through their own decisions on votes for systemic issues that might otherwise be missed in the company-specific advice they receive”. 

She acknowledges, however, that we are still a long way from “diluting the influence of the big proxy advisers”. 

UPP, which was set up in 2020 and is headed by climate and sustainability expert Barbara Zvan, “typically” shares its votes ahead of company meetings, Greig says. “In 2023, we implemented a real-time vote disclosure system to disclose our votes in segregated funds as they are cast,” she tells RI.

Obstacles  

Beyond upsetting companies, there are obstacles to pre-disclosing.  

One is the congested nature of the proxy season.  

“If other asset owners or investors shared more of their voting decisions and rationale, I do think that would provide more useful information to the market, including companies themselves, about the thinking of their shareholders.”

Alexis Wegerich, NBIM

Laith Cahill, senior specialist of net-zero stewardship at the Institutional Investors Group on Climate Change (IIGCC), notes that the proxy season is an “incredibly intense period” and getting a fund’s position into a concise piece of analysis can be difficult. 

The investor climate group recently put out new guidance on setting net-zero voting policies, which highlighted pre-declarations as a “powerful tool”. 

NBIM’s Wegerich admits that technically it is more demanding to pre-disclose than to disclose after the meeting. There can also be structural considerations, he adds. 

“Different asset managers have different set-ups, different governance structures,” Wegerich.

As he notes, NBIM has just one beneficial owner, making for a “relatively simple set-up”.  “That’s a key point. We don’t have separate funds, we always vote in the same direction.”   

PGGM is in a similar position to NBIM, with just PFZW as its client. Tissen acknowledges that for funds with multiple clients it could get more complicated, especially if they do not agree on votes.  

He adds that PGGM will not pre-disclose on every vote due to the amount of work that would require, especially as the fund is keen to provide detailed voting rationales. 

Instead, Tissen believes it would be better to focus on developing a detailed voting policy, outlining clearly, for example, on what basis the fund votes for or against climate plans. 

Clear and robust voting policies also add accountability, Cahill says, as deviations become more apparent. “Part of what we are looking for is explanations of where voting actions have deviated [from policies or commitments],” he says.  

Policies should retain “some flexibility”, he adds, “but if you are saying that you vote on a ‘case-by-case basis’, there is no deviation to explain, and less accountability”.

IIGCC is working with investors on how to communicate clear expectations for clients and companies through policies – task that Cahill acknowledges is “complicated and nuanced” for investors.