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‘BIG THREE’ US MUTUAL FUNDS: SCANT GUIDANCE ON CLIMATE VOTING.

As universal owners with some 35% of US$11.8 trillion in assets under management invested in domestic stocks, mutual funds have both the rationale and power to move the corporate and legislative agenda on climate change in the US.

Yet, their proxy voting guidelines remain mostly silent on specific environmental issues, including climate change.

In a recent study for Ceres, an advocate for sustainability leadership leading the Investor Network on Climate Risk (INCR), Fund Votes found that the three largest mutual fund groups, managing over US$1.6 trillion in US securities in 2011, cast not a single vote for climate.

Notwithstanding the large number of climate-related resolutions that come to vote each year, scant guidance is to be found in their proxy voting guidelines.

Fidelity (85% abstain; 15% against): “Where information is not readily available to analyze the economic impact of [shareholder proposals not specifically addressed by the Guidelines], FMR will generally abstain.”  http://personal.fidelity.com/myfidelity/InsideFidelity/InvestExpertise/governance.shtml

Vanguard (88% abstain; 12% against): “… regardless of our philosophical perspective on the [corporate and social policy issues], these decisions should be the province of company management unless they have a significant, tangible impact on the value of a fund’s investment and management is not responsive to the matter.” https://personal.vanguard.com/us/content/Home/WhyVanguard/AboutVanguardProxyVotingGuidelinesContent.jsp

American (100% against): “…when reviewing [proposals] related to environmental issues (including climate change) we …examine each issue within the context of each specific company’s situation, including any potential adverse economic implications for the company’s business or operations that we feel have not been properly addressed.” https://www.americanfunds.com/pdf/proxy_voting_guidelines.pdf

Such qualified language seems at odds with recent urgent calls for decisive action issued by institutions representing global economic interests.

  • Water supply and food shortage crises top the World Economic Forum’s 2012 list of risks to society.  The potential economic impacts are viewed as second only to major systemic financial failure.  Climate change is the primary driver of these risks.[1]
  • With Global annual temperatures expected to be 2º C above pre-industrial levels by 2050, the World Bank notes “…a warmer world will experience more intense rainfall and more frequent and more intense droughts, floods, heat waves, and other extreme weather events. As a result, it will have dramatic implications for how countries manage their economies, care for their people and design their development paths.”[2]
  • To avert projected greenhouse gas emission rises, severe water shortages, human health impacts, biodiversity loss and fisheries collapse charted on the present course of economic development, the OECD Environmental Outlook to 2050 recommends “environmental taxes and emissions trading schemes to make pollution more costly than greener alternatives; valuing and pricing natural assets and ecosystem services like clean air, water and biodiversity for their true worth; removing environmentally harmful subsidies to fossil fuels or wasteful irrigation schemes; and encouraging green innovation by making polluting production and consumption modes more expensive while providing public support for basic R&D.”[3]

Ceres’ press release detailing the survey notes that, even though the ‘Big Three’ fund complexes have yet to support climate resolutions, seven of the fund groups surveyed supported more than 50% of climate resolutions in 2011.


[1] World Economic Forum, Global Risks 2012 – Seventh Edition. http://www.weforum.org/reports/global-risks-2012-seventh-edition

[3] OECD Environmental Outlook to 2050: The Consequences of Inaction, March 15, 2012. http://www.oecd.org/document/11/0,3746,en_2649_37465_49036555_1_1_1_37465,00.html