Shareholders play a crucial role in improving a company’s performance. But a new report out this week found that some of the biggest asset managers in the world are backing only a small, and shrinking, percentage of shareholder resolutions that seek to improve companies’ treatment of employees, and assuage their environmental impact.

The asset managers, for their part, say there are now too many shareholder resolutions, and that they’re too prescriptive. Companies should be allowed to decide for themselves how to achieve their goals, especially those they’re already working towards, asset managers say.

The debate around environmental, social, and governance (ESG) goals is raging, particularly in the US, where Republican states have recently pulled money out of BlackRock, the biggest fund manager in the world, to protest a focus on ESG practices which, they claim, hurts investors’ returns. Political point-scoring aside, shareholders must question how much responsibility they hold, compared to boards, managers, or governments, to make companies better.

How do asset managers vote on ESG resolutions?

Asset managers decide where to invest money, often from sources like pension funds, and lots of that money goes into buying shares of public companies. As major shareholders, they have influence over the way those companies operate. In recent years there has been more recognition of that investor power, and more examples of “activist” investors making use of it to push companies to achieve certain goals.

This week ShareAction, a UK campaigning group, released a report looking into how asset managers actually vote when faced with resolutions, often presented by other shareholders, designed to change company policy in three areas: environment, social change, and “pay and politics,” which encompassed executive compensation and political spending relating to environmental or social causes.

Its headline findings suggest that the world’s biggest asset managers voted against far more ESG resolutions in 2022 than they did in the previous year, and that the fall in support was particularly driven by some of the world’s biggest managers, mostly based in the US, including Vanguard, BlackRock, and State Street. ShareAction created an overall score for voting in favour of all the ESG resolutions they believed should have been passed in order to push companies to treat people and the environment more fairly. Some investors of the 68 they studied scored 100% or close to it. France-based BNP Paribas Asset Management, for example, which has $760 billion in assets under management, voted in favour of 99% of the ESG shareholder resolutions covered by the report in 2022.

By contrast, State Street voted yes in 29% of cases, BlackRock in 24%, and Vanguard in just 10% of resolutions, according to ShareAction’s methodology. Those numbers represented almost a halving of the support level in 2021 for both Blackrock and Vanguard, while State Streets support for ESG measures fell by ten percentage points over the same time period.

Some of the methodology is subjective. ShareAction says it read all the shareholder resolutions put before the 68 managers it studied, and selected those they “confidently believe[d] would improve companies’ social and/or environmental impact, or require the disclosure of information useful for investors,” discarding any that were ill-conceive or badly written. “Therefore, all the resolutions against which asset managers were scored and ranked are ones we believe asset managers should vote for,” ShareAction wrote.

Some asset managers took issue with both ShareAction’s methodology and its subsequent ranking. Here’s how the best and worst-performing asset managers compared, using ShareAction’s ranking system. Of the 252 resolutions covered by the report, none of the managers voted on all the resolutions, but even those with the fewest holding, or for which the least data was available, voted on at least 30. Most voted on many more than that.

Asset managers respond

As a UK-based group, ShareAction weighted its list of asset managers towards Europe and the UK. The list comprised the 29 biggest asset managers in the world, the next 29 biggest European managers, and the next 10 biggest UK managers.

Most of the shareholder resolutions (207 of 252), however, were brought in the US, where they are more common.

The world’s biggest asset managers, which are also US-based, say that there are increasing problems with the ESG shareholder resolutions they’re seeing. In a May 2022 report, BlackRock explained that it would be voting “no” on more shareholder resolutions, because changes to the US Securities and Exchange Commission (SEC) rules had made it much easier to file them (for example, the SEC rowed back its definition of “micromanaging” to allow more resolutions through, and clarified how email should be used to submit them.) Environmental and social (E&S) resolutions were more often deemed too prescriptive, BlackRock said, failing to allow for company management to do their job as they saw fit.

“Of the E&S shareholder proposals BIS [BlackRock Investment Stewardship] did not support, the majority were because the company had substantially implemented or was already making notable progress on the issue being addressed,” a BlackRock spokesperson wrote in a statement to Quartz.

Vanguard took a similar line. “In 2022, we observed an evolution regarding the nature of certain proposals’ requests for company action particularly on environmental and social matters,” a spokesperson for the asset manager said in a statement. “Vanguard’s Investment Stewardship team engaged with company boards on these issues and analysed shareholder proposals on a case-by-case basis…[Vanguard] determined that many were overly prescriptive in dictating company strategy or operations, and/or lacked a clear link to material risks and shareholder value at the company in question.”

State Street declined to comment on the ShareAction report.

A balancing act

Vanguard’s final point, above, is key. Asset managers might want to push companies to do better on ESG measures, but they also want the companies to do well financially, since their own investors are counting on financial returns. “Vanguard retains an unwavering focus on advocating for good governance practices that promote shareholder value,” another part of the Vanguard statement read.

This is, of course, one of the debates at the very heart of the discussion around how to tackle inequality and climate change. Companies often point to their need to create value for their shareholders; shareholders have become more activist in recent years, but still have financial imperatives. Governments can regulate companies to force social or environmental change but many need to balance intervention with letting markets regulate themselves. Meanwhile, NGOs like ShareAction can take a harder line, insisting that any resolution with a positive ESG impact should be passed, but have no responsibility to make sure a company beats its competitors, or even remains solvent.

The raging debate

The extent to which companies are responsible for effecting social change, or protecting the environment, is something of a cyclical debate. In recent years, corporate CEOs and the heads of investment firms have been much more vocal in expressing the big role they believe companies have to play. But right now, in a deep economic downturn affecting much of the world, there is a clear backlash going on—again, most prominently in the US.

At Davos, the annual meeting of the super-rich and corporate leaders, BlackRock CEO Larry Fink talked about how difficult the whole area had become. Speaking on a panel about the political backlash from the right to BlackRock’s ESG-led investing, he said: “The narrative is ugly. The narrative has created this huge polarization…For the first time in my professional career, attacks are now personal. They’re trying to demonize the issues.”

Also at the meeting Nicolai Tangen, CEO of the vast Norwegian sovereign wealth fund, said he and managers like him would continue pushing boards to do better on climate protection, board diversity, and executive pay:

Ultimately, vast changes need to happen to find solutions to the problems of climate change and global inequality. Passing the buck between different powerful entities, who each have a role to play in taking meaningful and decisive action, risks wasting precious time.