When it comes to ESG investing, most people think about excluding “bad” companies from their portfolios. But there’s another very effective way to influence corporate behaviour—voting.
In a nutshell:
- Active ownership, which includes both engagement and voting, sends a signal to companies that their behaviour on environmental and social issues is important to shareholders.
- While voting performance of the industry overall has remained stagnant in recent years, Nordea in contrast supported 91% of Environmental and Social resolutions in 2021.
- The 2021 ShareAction report shows that members of Climate Action 100+ or the Net Zero Asset Managers initiative vote more supportively than non-members on climate resolutions. Nordea was one of only three asset managers that voted for 100% of its holdings’ climate resolutions.
The way asset managers use their votes is crucial to a company’s behaviour. The 2021 Voting Matters report by ShareAction, examining large asset managers’ voting performance on Environmental and Social resolutions, revealed that many asset managers miss out on opportunities to facilitate real change by not voting. Worse, the world’s largest asset managers frequently block efforts to make progress on environmental and social issues.1
As shareholders, we have the power to help companies improve the management of their environmental, social and governance risks. At Nordea Asset Management (NAM), we believe this is an important part of safe-guarding the long-term interests of both shareholders and society. NAM has a long history of driving change through actions like fieldtrips, dialogues and voting, as part of our goal to offer investors returns with responsibility.2 These engagement efforts enable us to address material sustainability risks and opportunities.
Voting for change
In 2021, NAM voted at more than 4,200 General Meetings on thousands of proposals, including ESG issues such as climate. This reflects our ambition to vote in the majority of all General Meetings in our portfolio companies, which is supported by an internal cross-departmental framework that is increasing our voting capacity.
This is especially so as on the whole they are cheaper. MSCI EU forward price to earnings is 14.6, while its US counterpart is 18.2. Low interest rates should continue to be at the core of innovation and the emergence of Green technologies. The real test for the Eurozone is not a mild eventual increase in interest rates, but the reduction in the ECB’s balance sheet too far in the future to easily forecast.
This initiative is in stark contrast to the broader market. According to the 2021 ShareAction report, overall voting performance across our industry is unimpressive. Even in ESG and climate resolutions, an area of growing investor interest, industry performance is notably poor. Just 21% (30 of 146) of environmental and social resolutions assessed received over 50% support in 2021, which was little changed from the previous year.3
When it comes to climate, the proportion of ‘for’ votes on climate resolutions by each asset manager, including those who are members of Climate Action 100+ or the Net Zero Asset Managers initiative, is broken down in the 2021 ShareAction report.4 In this ranking, NAM is one of only three managers with a 100% score, despite the fact that many of the peer group are pledging to support green agenda initiatives. The report goes on to point out that “although the voting performance of the industry as a whole remains stagnant, some individual managers have shown substantial improvement”. Nordea was one of these, supporting 91% of Environmental and Social resolutions in 2021.”5 The longstanding efforts of our Corporate Governance and Active Ownership teams continue to pay off. We are regarded as among the best in the industry, placing 8th overall in Europe and first in the Nordics in terms of voting activity.
What is becoming increasingly clear is that voting and engagement can overlap. Engaging with our investee companies to influence outcomes is nothing new, but increasingly attention is being placed on the fact that it also enables us to address material sustainability risks and opportunities. Investor actions can make a meaningful difference.
One example of this is the case of ExxonMobil. NAM co-filed a proposal requesting that the company begin reporting on how its direct and indirect lobbying aligns with the Paris Climate Agreement goals. Increased disclosure has taken place within the sector on this topic and so we saw this resolution as a way for ExxonMobil to align themselves with best practice. Other shareholders clearly welcomed the idea of additional information on the company’s lobbying activities and trade association memberships, and we are pleased to report that our resolution was passed on 26 May 2021.
The asset management industry has a vital role to play in addressing climate change and other pressing issues. Proxy voting is an effective and public way to influence companies in the right direction and drive real-world change.
Initiatives like CA100+ and NZAM are one way that we influence corporate behaviour
We are a member of Climate Action 100+ a global investor initiative on climate change launched in 2017. The initiative’s aim is to engage with the 100+ companies that are most critical to the transition towards net zero emissions. CA100+ has over 545 signatory investors and is one of the largest investor driven climate initiatives to date.
We are also a founding member of the Net Zero Asset Managers initiative, which implements a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with ambitions for all assets under management to achieve net zero emissions by 2050 or sooner. Net zero refers to the aims of reducing greenhouse gas emissions and fully offsetting the remaining emissions by activities that remove greenhouse gasses from the environment (such as planting trees).