Say-on-Climate Votes: Asset Managers Send Mixed Signals

Key Takeaways

Three Years of Say-on-Climate: Most Action in Europe

• Say-on-climate resolutions are a relatively new genre of proposals, enabling shareholders to express a view on a company’s climate strategy.
• This paper reviews the votes on 87 say-on-climate resolutions in the past three years. European companies account for 83% of these proposals.
• Shareholder support for say-on-climate resolutions is relatively high, at an average of 89% over three years. The average is bolstered by support from the largest shareholders in the market on nearly all proposals

Managers’ Rising Scrutiny, Lower Support Over Time

• Support by 25 asset managers we reviewed declined significantly. Their average support fell from 92% in 2021 to around 70% in 2022 and 2023.
• The managers’ range of percentage support for sayon-climate plans has widened as they developed their thinking on how to approach say-on-climate votes.
• Because say-on-climate resolutions are proposed by company boards, lower support could indicate that managers are demanding more ambition on climate, but other interpretations are possible.

Voting Results Have Become Difficult to Interpret

• Views on addressing climate risk have diverged to the point that managers making the same voting decision on a particular resolution could hold very different opinions on the quality of the company’s strategy.
• For example, BlackRock considers both disclosure and oversight of climate strategy; State Street and Vanguard focus on disclosure. Meanwhile, Abrdn and Dimensional have serious reservations about the need for say-on-climate. Differing voting rationales make it harder to interpret the results in aggregate.

Source: Morningstar Manager Research, public filings, asset managers’ disclosures. Data as of April 12, 2024. Note: Data for voting decisions on 87 resolutions by 25 asset managers in the three proxy years ended June 30, 2023

Three Years of Say-on-Climate

Companies have been proposing say-on-climate resolutions at their shareholder meetings for over three years. These management-sponsored proposals offer shareholders an opportunity to express an opinion on the company’s climate strategy or reporting (or both) on an advisory basis. This research paper reviews asset managers’ voting records on 87 say-on-climate resolutions proposed in the past three proxy years.

Say-on-climate votes have become common in Europe, where 72 of the 87 votes (82%) were held across a wide range of sectors. Such votes have also become a regular feature in the energy and materials sectors in Australia, representing nine of the resolutions in our analysis (10%). In contrast, say-on-climate votes have not gained similar traction in North America, where investor views on climate strategy are more frequently expressed through shareholder resolutions.

We have recorded only two management-sponsored climate resolutions in the United States so far, both in 2021, with three held in Canada in 2021 and 2022. Say-on-climate votes are held at management’s discretion, and most companies have decided not to hold them annually. As a result, the volume of say-on-climate resolutions peaked in the 2022 proxy year, falling back significantly in 2023. As with most management resolutions that aren’t about executive pay, support for say-on-climate proposals is high on average. The three-year mean stands at 89%. Mean support for the resolutions in our selection reached a low of 87% in 2022, rising slightly to 91% in 2023 amid a lower volume of proposals.

Source: Morningstar Manager Research, asset managers’ disclosures. Data as of April 12, 2024. Note: Data for proxy years ended June 30, 2023. See Appendix 1 for a full list of resolutions.

Managers Increasingly Withheld Support for Say-on-Climate Proposals in 2022 and 2023

We analyzed the say-on-climate voting decisions of 25 asset managers with a significant presence in European equities. Our prior research has shown stronger intention on sustainability in Europe when it comes to proxy voting, so it is not surprising to see that this group withholds support for say-on-climate votes more frequently than the market overall. Mean support among the 25 managers stood at 73% over three proxy years.

This below-market average reflects voting trends in 2022 and 2023, when most of the resolutions were voted. Managers withheld support more often in the latter years, as evolving thinking on what makes a high-quality climate strategy prompted higher scrutiny from voting decision-makers. Managers withheld their support most often at companies in the energy and materials sectors, which are exposed to high climate risk.

Source: Morningstar Manager Research, asset managers’ disclosures. Data as of April 12, 2024. Note: Data for proxy years ended June 30, 2023. See Appendix 2 for the full list of managers.

The Range of Support for Say-On-Climate Proposals Broadened in 2022 and 2023

The chart shows the median, range, and quartile distribution of support for say-onclimate resolutions by the 25 managers. The median behaves similarly to the mean over the three years, falling significantly in 2022 before rising slightly in 2023.

The range of the bottom quartile is extended significantly because of the exceptionally low support by Dimensional. (We examine why on the following page.) The dotted lines on the chart indicate where the bottom of the first quartile would be in each period if we exclude Dimensional. The median support level of 100% in 2021 is notable, reflecting managers broad acceptance of early say-on-climate resolutions amid a low initial volume of such proposals. (Companies would have been reluctant to be among the first to voluntarily submit a say-on-climate proposal if there was a strong risk of shareholder rejection.)

As managers developed their voting approaches for say-on-climate in 2022 and 2023— withholding support more often—the median fell and the range increased in these subsequent years. This is positive evidence of considered approaches by managers making voting decisions on these resolutions. As a result, a firm’s say-on-climate voting record can be useful in assessing the firm’s alignment with an investor’s own stance on climate strategy.

However, the wide range of approaches employed poses challenges to interpreting shareholders’ voting records in aggregate.

Source: Morningstar Manager Research, asset managers’ disclosures. Data as of April 12, 2024. Note: Data for proxy years ended June 30.

Managers’ Varying Approaches to Voting Mean That Market Signals Are Hard to Read

Managers have used withheld support for say-on-climate resolutions to send very different messages to companies on their climate strategies. This can make it harder to assess whether shareholders are sending any prevailing message to a company on climate. Here are some examples.

Amundi, which “considers it essential that shareholders be able to comment on the company’s decarbonization strategy,” chose to signal its higher ambitions on climate by withholding support for most of the say-on-climate resolutions it voted on in 2022 and 2023. Several sustainability-conscious managers have shown similar voting patterns. Abrdn changed its policy in 2023, choosing to abstain from most say-on-climate votes because “presenting the climate strategy as a standalone item risks diminishing … the direct responsibility and accountability of the board.” Dimensional holds a similar view on board accountability, but, unlike Abrdn, the firm is conceptually opposed to say-on-climate resolutions, signaling this by rejecting nearly all such proposals since 2022.

Say-on-climate support by all the “Big Three” index firms exceeded 95%, but even among these three, different voting perspectives are being applied. Vanguard treats these treats as an opportunity to express an opinion on the “coherence and comprehensiveness” of a company’s climate disclosure rather than the climate strategy itself. State Street’s policy is similarly disclosure-focused, while BlackRock emphasizes “the oversight of, and processes to manage, material climate-related risks.”

Source: Morningstar Manager Research, asset managers’ disclosures. Data as of April 12, 2024. Note: Data for proxy years ended June 30, 2023.