Exclusive: Drastic misalignment in master trust shareholder climate votes at AGMs

As this proxy season is slowly coming to a close, Net Zero Investor scrutinised a number of key votes at dozens of companies' AGMs, with a particular focus on climate and net zero-related motions. 

Given that companies' biggest shareholders usually drive change and are crucial for getting a resolution approved, so-called master trusts play a key role, as they make up some of the biggest shareholders.

Most master trusts - investment vehicles that collectively manage pooled investments - have placed their legal shareholder vote with their fund managers, so it is critical that both asset owner and asset manager are aligned on their investment strategy and values.

However, it seems a drastic misalignment in this area exists.

Data ploughed through by Net Zero Investor shows that fund manager votes on climate-linked AGM proposals clash with master trust member preferences in almost a third of all cases.

On climate-related proposals, the fund manager’s vote conflicted with the scheme’s policy and members’ majority vote preferences in 31% and 32% of cases, respectively, according to an analysis by shareholder voting fintech Tumelo, which shared its findings exclusively with this publication. 

Misalignment in climate proposal votes

Scrutinising Master Trust voting data on climate related proposals at company AGMs, including those of BP, Shell and Exxon Mobil, shows that climate change is the key theme incorporated by the Master Trust stewardship framework.

The analysis focused on the levels of alignment or divergence between fund manager votes, climate policy recommendations, and scheme member majority vote preferences on proposals at organisations in which the funds have holdings.

Comparing the policy recommendation with the fund manager vote showed there was misalignment on 31% of all proposals. A similar examination of scheme majority votes and fund manager votes uncovered misalignment in 32% of cases.

For example, on one climate proposal at BP in May - Should BP report annually on its emissions progress? – both master trust member preference and the climate policy were ‘for’ the proposal, while the fund manager vote was ‘against’.

Key votes

The table below shows a range of proposals submitted in 2022, illustrating instances where misalignment in FM votes occurred on climate-related proposals. Note: these examples represent a portion of overall cases.

Georgia Stewart, CEO and co-founder of Tumelo, warns that when a scheme's votes are not in sync with its overall activities, it can weaken its stewardship efforts.

“In other words, if the voting decisions diverge from the scheme's goals and principles, it undermines the asset owner's entire responsible-investment strategy,” Stewart told Net Zero Investor.

Alignment is displaying more prominently on regulators’ radar. A report released by the Occupational Pensions Stewardship Council said asset owners "should feel more empowered to engage their asset managers on their voting options".

Meanwhile, the Taskforce on Pension Scheme Voting Implementation is recommending pension trustees take a more active role in directing the votes cast by their fund managers.

"So, it's being taken more seriously. Asset managers can see this as a momentous opportunity — to enhance their voting practices and forge closer collaborations with their clients," Stewart concluded.