Shareholder power: our approach to resolutions and voting at AGMs
Many of the resolutions we vote on are nuanced and complex. Our decision to vote against a Barclays resolution that referenced ‘fossil fuel phase-out’ is one example.
The votes we cast on behalf of clients are critical to our ability to push for positive changes that create value. How we use our influence over the companies in which we invest is a vital component of our role as active managers.
Although voting occurs only once a year, our analysis and dialogue with companies takes place all year round.
Assessing and engaging with companies on their management of ESG challenges and opportunities is becoming more and more important to investment processes. Investors no longer have a choice over whether to seek exposure to them; all companies and portfolios are impacted.
The opportunities we have to influence the companies we invest in through engagement and voting help us to ensure the portfolios we manage are better prepared for those impacts.
While engagement continues through the year, each annual general meeting season provides opportunities to send clear and public signals of our expectations to businesses. Last year we voted on almost 70,000 resolutions.
As long-term stewards of clients’ capital, we have a duty to protect them from the impacts of financial and non-financial risks. As we state in our ESG policy, the overriding principle governing our approach to voting is to act in line with the interests of our clients.
At Schroders, our approach to voting incorporates what we’ve learnt from more than 20 years of embedding ESG analysis across asset classes and geographies as active owners.
Small but powerful: the role of “shareholder resolutions”
Scrutiny of asset managers’ voting has intensified, and we are rightly held accountable for the decisions we make.
Although shareholder resolutions – proposals submitted by investors for a vote at the company's annual meeting – represent a small share of the votes we cast every year (two per cent in 2020), they have been increasingly attracting attention. This year’s AGM season has seen a glut of climate-related shareholder resolutions.
A recent example was ExxonMobil’s AGM, where Schroders supported – along with US pension funds and other major investors – proposals led by hedge fund Engine No.1 to replace four directors with candidates well-placed to pursue a climate transition.
Shareholder resolutions can be used to ask management to act on ESG issues – areas not typically captured by standard management resolutions. For example, a very common shareholder resolution theme in the past year has been demands for more transparency around corporate lobbying activities.
Rules covering the rights of shareholders to propose resolutions, or the degree to which they are binding on management, vary across countries. But all provide a mechanism to push management teams into making changes.
Investors are increasingly voting in support of shareholder resolutions. The average percentage of support for ESG resolutions almost doubled between 2012 and 2020 from just over 30% to just under 60%, according to data provider Proxy Insight.
Sometimes shareholders come under pressure from activist groups or non-governmental organisations to support shareholder resolutions, almost as a matter of principle rather than recognising the individual attention and evaluation they deserve.
Shareholder resolutions come in many shapes and sizes. They can reflect specific campaign goals or political priorities that may contradict fiduciary responsibilities or a company’s strategic goals.
The best course of action is often not clear cut. Many of the resolutions that we vote on are nuanced and complex. The principles or intent of a resolution may be admirable and attractive, but the details may undermine that intent. For example, perhaps a resolution is asking for changes on an impractically short deadline. Or for strategic changes that pay little attention to the action companies have already taken. Votes represent specific asks of specific companies, which in many cases require management teams to take concrete steps. The recent Barclays AGM is such an example.
Barclays case study: our decision to reject a resolution that referenced ‘fossil fuel phase-out’
On climate change, our priorities are clear. We expect the companies we invest in to prepare for a transition to a net zero carbon economy. We conveyed this in writing to FTSE 350 companies earlier this year, for example, and expect the same progress beyond these shores.
As well as engaging boards around the world, with a focus on those sectors most responsible for carbon emissions, we seek to ensure our voting reflects these priorities. We will vote in favour of resolutions we believe will help push companies to transition and against those we think will undermine progress.
But this is not the same as voting in favour of every resolution that references climate change.
Climate campaign group Market Forces tabled a resolution at the Barclays AGM on 5 May. In it, the group called on the bank to phase out its provision of financial services to fossil fuel projects and companies.
Barclays is one of the world’s largest lenders to fossil fuel companies, but during 2020 made significant commitments to align its business to a low-carbon transition.
This followed pressure from shareholders, including Schroders.
It is now one of less than a handful of large banks to have established targets relating to a commitment to become net zero by 2050.
The detail of the Market Forces resolution was critical. We believed that forcing Barclays to take decisions based on “phasing out” the provision of financial services to fossil fuel projects could hinder its climate transition plans. We felt a forced rethink of its climate strategy could potentially hinder its ability to support companies committed to transition and delay its progress toward the target it has set.
Some fossil fuel companies have embarked on these transition programmes and should be supported on that journey. Others have not. We were concerned that this resolution did not distinguish adequately between those groups and would tie Barclays’ hands.
For example, some oil companies have set courses of a complete transition of their business, whereas others are hoping pressures to change will abate.
The decision not to support the resolution was difficult. There are no simple answers to these questions, but we believe it was the correct conclusion.
This illustrates the complexity of shareholder resolutions and how conclusions require the investigation of both context and consequences.
There is no easy route, and supporting resolutions based on headline topics rather than the outcomes they promote can be counter-productive.
Our commitment to ESG priorities is reflected in the scrutiny we apply to every decision. We share the conclusions we reach and the reasons for those conclusions with our clients, as well as the principles that underpin our decision-making.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.