Although many Canadian mutual fund companies support environmental, social and governance (ESG) standards for corporations over the long-term, only those fund companies with a responsible investing (RI) mandate are consistently pushing for change through proxy voting, according to a study released by the Toronto-based Responsible Investment Association (RIA).
RIA’s Canadian Mutual Fund Proxy Voting Survey finds that “mainstream” fund companies are voting for management resolutions 95% of the time whereas RI mandated funds are voting in favour of such resolutions only 56% of the time.
“Canadian investors care about environmental, social and governance issues. And there’s more and more evidence that companies that manage these issues are more profitable in the long-term,” said Deb Abbey, CEO of the RIA, in a statement. “RI mutual funds review all proxy issues, both management and shareholder led, with a critical eye. Their goal is to help build long-term sustainable value for companies and their stakeholders.”
The study looked at the voting patterns of 25 fund families, four of which have responsible investing mandates, across all sectors of the Canadian mutual fund industry during the 2013 proxy voting season. Results were compiled from proxy ballots on 2,840 resolutions brought forward at annual shareholder meetings of S&P/TSX Composite companies. The resolutions were mostly management resolutions relating to director elections, executive compensation and share-based incentive plans. As well, the study included 66 shareholder-sponsored resolutions. For the executive compensation resolutions, the survey also reviewed votes from U.S. Russell 3000 companies.
Results were also compiled from U.S. Russell 3000 shareholder resolutions as there are few such examples in Canada. Survey results include 215 shareholder resolutions from the U.S. Russell 3000 meetings on four ESG issues: severance pay, independent board chairs, transparency in corporate political influence and climate change.
In each of these categories, RI mutual funds were more likely to vote against management resolutions and often by a wide margin.
For example, in the matter of executive compensation, also known as “say on pay,” ESG-minded mutual fund companies voted against management at S&P/TSX companies 92% of the time, and 97% in the case of Russell 3000 companies. In comparison, mutual fund companies without an RI mandate voted against management (both Canada and the U.S.) 13% of the time in this category.
Climate change was also an area where RI fund companies stood out. According to the study, RI-focused mutual funds voted in favour of climate-related resolutions 92% of the time compared to the 39% average of “mainstream” companies. However, there were a few standouts within the non-RI mandated funds pool, according to the RIA survey, as nine of the 22 non-ESG mandated companies surveyed voted in favour of climate-related resolutions more than 50% of the time.
Similarly, the study reveals other instances where the gap between RI-mandated mutual funds and their “mainstream” peers lessened somewhat. For instance, in the case of independent board chair resolutions – calls for a separation of the chairman and CEO roles – RI funds voted in favour 100% of the time while five “mainstream” funds supported such measures more than 75% of the time.
Corporate political influence is another area where more mutual fund companies of all stripes took exception to management resolutions. According to the study, political influence resolutions mostly relate to the disclosure of the following: corporate political spending, how spending relates to corporate values, lobbying practices, expenditures, activities and contributions to trade associations involved in political lobbying. Seven of the 22 non-RI fund companies supported calls for more transparency in this area more than 50% of the time.