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January 20, 2017

Investors Challenge Mutual Funds on Proxy Voting
    by Robert Kropp

Sustainable investment firms respond to update by Ceres by pressuring mutual funds on their proxy voting records relating to climate change. Second in a two-part series.

When Ceres recently updated its annual tally of mutual fund voting on climate change resolutions, there was—as Timothy Smith of Walden Asset Management recently wrote in an email—signs of improvement. “Two or three years ago companies like State Street and Northern Trust voted against all climate resolutions and now they support a healthy percent of them,” Smith observed.

“The great majority of mutual fund companies voted in favor of many climate-related resolutions,” Rob Berridge of Ceres wrote.

Yet, the Ceres update also revealed that four mutual fund signatories to the United Nations'
Principles for Responsible Investment (PRI)—Vanguard, American Funds, BlackRock, and Fidelity—failed to support even a single shareowner resolution addressing climate change, despite their commitment to addressing environmental, social and corporate governance (ESG) issues with the companies in their portfolios.

Complicating the efforts of sustainable shareowners to request responsible attention to climate change is the fact that mutual fund families are not obligated to hold annual general meetings. However, Smith writes, “by filing a resolution and 'getting in line' to be included in a future proxy statement, investors are officially confirming to Vanguard and the specific fund that you are questioning their proxy voting policy and practices. The goal here is to demonstrate that investors have deep concerns about their proxy voting record on issues like climate change.”

This proxy season, Walden and 30 other investment firms have filed resolutions with BlackRock, JPMorgan Chase, and Bank of New York Mellon, addressing proxy voting on climate change. Additionally, Smith has written to Vanguard, expressing concern over the fund's “proxy voting record on environmental and social issues, specifically on climate change.” Furthermore, “similar to any of us filing a resolution with a company like IBM...we can also file with Vanguard in selected equity funds Then, if they wish, individuals or institutions who invest in Vanguard funds can join as individual co-filers in their own name,” Smith wrote in his email.

In the specific case of Vanguard, more than two-thirds of its holdings are passive investments in index funds, where divestment is not an option. Thus, the only avenue open to the PRI signatory for effecting legitimate change is through corporate engagement, including proxy voting. And as Berridge of Ceres observed, voting in favor of shareowner resolutions addressing climate change “arguably adds teeth to the negotiations.”

Zevin Asset Management has also filed resolutions with “financial firms T. Rowe Price, JPMorgan Chase, and Franklin Resources to support common-sense climate change policies at the companies where they invest.”

“The proxy voting records on climate change of investment firms and mutual funds are under increasing scrutiny by investors and clients,” Smith of Walden said.

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