About 72% of asset managers said they engage in active ownership, or having a dialogue with companies and exercising ownership rights, as part of their environmental, social and governance investment strategy to minimize risks and maximize returns, according to research and consulting firm Cerulli Associates.
The figure represents an increase from 54% in 2017, according to the report. Cerulli Associates said 90% of asset managers surveyed use proxy voting and 78% engage in dialogue with a company's management. The report also shows 40% of asset managers engage in shareholder resolutions that are then placed on the company's proxy statement.
"While most of these proposals are nonbinding, an industry rule of thumb suggests that a vote of greater than 20% sends a clear signal to management," said Michele Giuditta, a director of institutional research at Cerulli Associates. She also explained communication between investors and management is a key ingredient of active ownership as it gives asset managers the opportunity to explain ESG-related risks and encourage action to enhance shareholder value and company performance.
Climate change is at the top of ESG issues for asset managers, with 94% of those surveyed citing it as a key topic. Other top issues for asset managers include clean water and water scarcity, with 73% of those surveyed indicating so, and issues related to the opioid addiction epidemic, with 44% of asset managers saying so. Close to half of the asset managers surveyed said workforce and board diversity is a priority for 2019 engagement efforts.
While the ESG movement may have been gaining ground in recent years, it also has its skeptics. Commissioner Hester Peirce of the U.S. Securities and Exchange Commission said the movement has resulted in companies being unfairly shamed and misjudged, as environmental and social factors "are more nebulous" and those that assign ESG ratings often make mistakes or their rationale is based on incomplete reporting. Peirce, in a podcast with S&P Global Market Intelligence, also voiced out her worries that some asset managers are using companies as their "personal piggy bank" to push for activist causes, a trend that could grow bigger as millennials move up in the corporate ranks.
The Securities and Exchange Commission is considering to tweak proxy process rules and Peirce said they want to get it right so as to prevent some shareholders "subsidizing the pet issues of a few smaller shareholders."