Investor Group Issues 'urgent' Call For Asset Managers To Ramp Up Pass-through Voting Adoption

Tribe Impact Capital, Scottish Widows, London CIV and Smart Pension are part of a list of pension providers, endowments and wealth managers urging fund houses to allow asset owners to directly influence proxy votes in proportion to the AUM they have invested.

Pass-through voting is the mechanism by which investors in a pooled fund can vote their shares in proportion to the AUM they have invested, giving them a direct say in how the companies they invest in are run.

Pass-through voting tech to boost shareholder democracy among fund investors

"Asset managers wield significant influence over how public companies are run, and their actions impact corporate governance profoundly," the letter stated. 

"Globally, the data show that the three largest fund managers currently cast approximately 23% of the votes at companies in the S&P 500, a percentage projected to rise to 40% by the mid-2030s if current trends continue."

The letter highlighted a misalignment between the voting behaviours of these managers and their clients' investment principles.

"Regrettably, we have continued to evidence a divergence between the voting behaviour of appointed asset managers, when compared with our investment principles and the expectations of our beneficiaries," the letter added.

"This disconnect is especially noticeable regarding ESG issues, where some asset managers are regressing rather than progressing on their expectations of portfolio companies." 

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Despite the urgent need to address climate change as underscored by the United Nations and the Intergovernmental Panel on Climate Change, the investor group said this gap is growing. 

The letter noted the 2023 voting season marks an "inflection point", as the dwindling support for shareholder proposals on matters such as climate change contradicts the global call for more decisive environmental action.

Moreover, the signatories argued that the growing anti-ESG sentiment among some asset managers is "hindering their ability to represent diverse investor views effectively".

The asset owners noted that some asset managers have started offering more voting flexibility to their clients, with technologies such as Tumelo's pass-through voting system and initiatives by BlackRock, State Street Global Advisors, Hargreaves Lansdown and interactive investor.

Newly launched CIRCA5000 impact suite first UK ETF range to offer direct shareholder voting

With growing pressure on fund managers in both the UK and US to pass through votes to investors, a whitepaper by Tumelo earlier this year found that passing on the decision to vote on contentious issues to clients could potentially lower the chances of divestment from funds.

According to the signatories, these are examples of how client-directed voting can be integrated into asset management, offering investors a voice in both segregated and non-segregated mandates.

The coalition said pass-through voting is not only a best practice but a necessity for investors to meet their fiduciary responsibilities.

This approach aligns with the efforts of UK regulatory bodies like the Financial Conduct Authority, the Department for Work and Pensions and the Financial Reporting Council, which aim to strengthen robust stewardship, the letter added.

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