Mutual Funds’ Strategic Voting on Environmental and Social Issues

Are environmental and social (ES) funds really voting in support of their claims? Each year, asset managers vote on various proposals from the companies in their investment portfolio on behalf of fund investors, who expect strong support for ES initiatives from these companies. However, in a recent research conducted by the author, Prof. Roni Michaely,…

4 Oct 2024

Do Environmental and Social funds vote the way they talk? Do they walk the walk or only talk the talk? Every year, around March-April, asset managers like BlackRock, Vanguard or Fidelity vote on behalf of their millions of funds investors in thousands of proposals at their portfolio companies. In recent years, their votes on environmental and social proposals have taken the spotlight. Indeed, the extent to which these managers support environmental and social proposals is an important factor in the debate concerning the impact of institutional investors on firms’ attitudes towards ES issues. It is equally relevant to efforts by the SEC and other regulatory agencies to encourage institutional engagement and tackle concerns over greenwashing.

The debate is important. These asset managers control some of the largest stakes at the biggest companies, so their support of environmental and social proposals is paramount for these issues to break into the corporate agenda. As importantly, asset managers have the fiduciary duty to vote in their investors’ best interest, and most of them offer funds with sustainability-related labels. Thus, an investor in, say, the BlackRock ESG Multi-Asset Fund, can reasonably expect that its fund will support a good share of environmental and social proposals. As it turns out, when it really matters, these expectations might not be met.

So, do funds with sustainability labels vote in line with the principles they advertise, or do they greenwash their votes? This is a tricky one. As Jon Hale, Head of Sustainability Research at Morningstar, argued, “while we expect sustainable funds, in general, to be supportive of environmental and social proposals, we also expect them to be discerning about how they vote rather than automatically supporting all such proposals”. Indeed, some of the environmental and social proposals are eccentric and bizarre, and even the most ES-oriented investors would hope that their funds vote against them.

Whether to appease their shareholders or to fulfil their fiduciary duties, ES funds seem to care about their voting records. In a recent paper published in the Review of Finance, Professor Roni Michaely, a Co-Director of the Hong Kong University, Jockey Club Enterprise Sustainability Global Research Institute at HKU, together with Professor Silvina Rubio and Professor Guillem Ordonez-Calafi from the University of Bristol in the UK, uncover a voting strategy by which some sustainable funds greenwash their votes. These environmental and social funds are supportive of environmental and social proposals that are likely to pass or fail by a large margin, but their support decreases significantly when their votes are more likely to be pivotal: that is, for close votes, when their votes really count, they tend to vote against these proposals. This strategy results in a high average support rate of environmental and social proposals, seemingly consistent with their fiduciary responsibilities, while allowing these funds to oppose ES proposals when their vote matters the most.

Which funds vote this way? And why? These strategic voters are sustainable funds sponsored by the traditional, often largest asset managers which do not have an overarching sustainability agenda. These are the fund families that (legitimately) care more about value than values (such as the environment). One can imagine a conflict between the fund family objectives and those of the environmental and social funds they manage. As environmental and social funds, they are supposed to incorporate ES values into their voting decisions. However, they are subject to a conflict between their stated goals as an ES fund and the objectives of their sponsors (the family), which have different priorities. The voting pattern that we identify allows funds to exhibit high average support for ES proposals, presumably pleasing their investors. Yet, when their votes truly count, they vote against ES proposals, consistent with the preferences of their sponsoring asset managers. It seems that they can hold the stick at both ends. Interestingly, environmental and social funds who are sponsored by ES families do not exhibit this behaviour.

In 2021, Allison H. Lee, the then acting chair of the SEC, declared “Investors are demanding ESG investment strategies and opportunities, but funds may not always reflect those investor preferences in their voting. Addressing this agency cost is at the heart of corporate governance today.” This research shows that funds’ stated objectives (e.g., environmental) affect their support for ES proposals, but the family ideology seem to be more important. This is relevant to investors who care about investing responsibly and improving the ES policies of the firms in which they invest. The outcome of this research indicates that investor who care about investing in sustainable funds should pay special attention not only to the fund investment philosophy but also to the family fund ideology. It is also important to policy makers: the work might suggest that the current regulation isn’t sufficient to “illuminate potential conflicts of interest and discourage voting that is inconsistent with fund shareholders’ best interests” (SEC Rule 30b1-4).

This article is based on the research conducted by Professor Roni Michaely, Professors Silvina Rubio and Guillem Ordonez-Calafi from the University of Bristol, titled “Mutual Funds’ Strategic Voting on Environmental and Social Issues.” The research has been published in the European Corporate Governance Institute – Finance Working Paper No. 774/2021. You can view it at the following websites:

Professor Roni MICHAELY
Associate Dean (Global Engagement), HKU Business School
Co-director, HKU Jockey Club Enterprise Sustainability Global Research Institute

Translation

共同基金在環境和社會議題上的策略性投票

環境和社會基金的投票行為是否與資產管理公司的公開聲明相符？究竟是言行一致還是只說不做？每年的三、四月，貝萊德、先鋒或富達等資產管理公司的基金經理會代表旗下數百萬的基金投資者，對其投資組合公司的數千項提案進行投票。近年來，資產管理公司在環境和社會提案上的投票行為備受關注。這些基金經理對環境和社會提案的支援程度，無疑是影響機構投資者評估企業對這些議題重視程度的關鍵因素。這和美國證券交易委員會（SEC）及其他監管機構鼓勵機構參與、共同解決「漂綠」問題所作出的努力有莫大關連。

這場討論的重要性不言而喻。這些資產管理公司在一些大型公司中持股比例甚大，因此，它們是否支持企業環境和社會的提案，很大程度影響著環境和社會議題會否被重視，並被納入企業議程。另一方面，資產管理公司需履行信託責任，按照投資者的最佳利益進行決策，並提供帶有可持續發展標籤的基金讓投資者選擇。以貝萊德 ESG 多資產基金為例，當投資者投資這類基金時，會期望該基金將大力支持環境和社會提案。但事實證明，在一些關鍵時刻，投資者的期望可能無法實現。

帶有可持續發展標籤的基金在進行投票時，是否真的遵循了其所宣傳的原則？投票過程當中是否存在「漂綠」行為？這無疑是個難題。正如晨星公司可持續發展研究全球主管Jon Hale所言，「雖然我們期望可持續基金總體上支持環境和社會提案，但我們也希望他們在投票時要有鑒別力，而不是盲目支持所有此類提案。」實際上，有些環境和社會提案甚至十分離奇古怪，即便是最關切環境與社會問題的投資者，也希望自己的基金會對這些提案投下反對票。

無論是為了安撫股東還是履行信託責任，環境和社會基金似乎頗為注重自己的投票記錄。我最近聯同英國布里斯托大學的 Silvina Rubio 教授和Guillem Ordonez-Calafi教授，於《金融評論》發表了一篇論文，揭示了一些可持續基金在投票策略方面存在「漂綠」的行為。

當環境和社會提案極有可能以較大差距被通過或遭到否決時，這些基金紛紛表示支持，從而營造出高支持率的假像。然而，在競爭激烈、票數相近的關鍵時刻，他們卻傾向投反對票。這種策略使基金對環保和社會提案的平均支持率看似很高，表面上符合信託責任，但實際上在最關鍵的時刻，卻違背了對環保和社會責任的承諾。

哪些基金會以這種方式進行投票呢？為什麼？採取策略性投票的往往是由傳統的、通常規模較大的資產管理公司所贊助的可持續基金。然而，這些資產管理公司並沒有整體的可持續發展議程。在一定程度上，這些基金家族更加注重經濟價值，而非環境等價值。不難想像，基金家族的目標與他們所管理的環境和社會基金的目標之間存在衝突。作為環境和社會基金，理應將環境和社會價值觀納入其投票決策之中。但是，它們卻面臨環境和社會基金所宣稱的目標與投資者（基金家族）目標之間的衝突，兩者的關注點完全不同。我們的研究發現，這種投票模式無疑使基金看似對環境和社會提案有高支持度，令投資者滿意。然而，當這些投票真正發揮作用時，基金卻會對環境和社會提案投出反對票，這與他們所投資的資產管理公司的偏好相符。如此看來，基金似乎能夠從中獲取雙重利益。有趣的是，那些由環境和社會家族贊助的環境和社會基金並未顯現出這種行為模式。

2021 年，Allison H. Lee擔任美國證券交易委員會代理主席時宣稱：「投資者對環境、社會和治理（ESG）投資策略及機會有需求，但基金的投票行為未必能反映出投資者的偏好，解決代理成本問題成為了公司治理的核心。」研究顯示，基金所宣稱的目標（例如環境目標）會影響其對環境、社會提案的支持，但基金家族理念似乎更為重要。對於那些希望通過負責任投資改善企業環境、社會政策的投資者而言，這一發現尤為重要。研究亦指出，關注可持續基金的投資者，不僅要特別留意基金的投資理念，基金家族的理念也不容忽視。現行的監管工作不足以「揭示潛在的利益衝突，並阻止與基金股東最佳利益不符的投票」，這一結果對政策制定者來說也非常重要。（美國證券交易委員會規則 30b1-4）

本文基於筆者與英國布里斯托大學Silvina Rubio 教授和Guillem Ordonez-Calafi教授的研究「Mutual Funds’ Strategic Voting on Environmental and Social Issues (共同基金在環境和社會議題上的策略性投票)」。該研究已發表在European Corporate Governance Institute – Finance Working Paper N° 774/2021（歐洲公司治理協會–金融工作文件第 774/2021號），可到以下網站瀏覽：