The US Mutual Fund industry is the largest in the world, with $11.8 trillion in assets under management. Around 35% of this is invested in domestic stocks (see: “Investment Company Institute 2011 Factbook, 51st Edition“). U.S. Mutual fund voting data shows that, on average, the largest of the mutual fund complexes held stocks in around 70% of S&P 500 companies and around 40% of the Russell 3000 across their respective portfolios in 2011.
Since mutual funds, invested as they are across so much of the U.S. securities market, can’t do the ‘Wall Street Walk’, there seems no alternative but to invest in improved market-wide ESG risk management.
Over the eight years that mutual funds have been reporting their proxy votes there’s a discernible trend towards increasing support for social and environmental shareholder resolutions by a number of well-known mutual fund brands. In 2011 hydraulic fracturing, coal combustion waste and political spending were the most supported categories.
Calculated as the percent of votes cast for compared with all votes for, against and abstained, average support for social and environmental resolutions by 30 large fund complexes inched up from around 5% to almost 19% over the eight year period from 2004 to 2011. The average support for environmental resolutions was over 21% in 2011. The graph below shows the 8-year average support trend for 30 large US fund families.
While this certainly represents progress, some of the largest mutual fund groups vote against most or all social and environmental resolutions. Some, including the largest two, Fidelity and Vanguard, simply abstain. The graph below shows breaks the 2011 mutual fund vote down by fund complex during.
BlackRock, an Investor Network on Climate Risk (INCR) member and one of the largest asset managers in the world, recently announced that it will be investing in a campaign of engagement to promote good governance at its portfolio companies (see: “Fink Leverages BlackRock’s $3.5 Trillion in Shareholder Push“). Will this commitment also include voting on social and environmental shareholder resolutions? With increasing international emphasis on institutional investor stewardship following the financial crisis as well as accumulating empirical evidence supporting the business case for sustainability what else will it take to light a spark under other large mutual fund complexes?