Abstaining on ESG votes is not ‘fence-sitting’

Voting is a fundamental governance and stewardship activity but it is rarely black and white

In a highly competitive industry such as finance, there’s nothing like a league table to focus the mind! That’s why ShareAction’s Voting Matters report gets such a significant amount of attention from both asset managers and their clients.

Its report takes a deep dive into asset managers’ voting practices at company annual meetings. This year the report analysed 298 pre-selected shareholder proposals on a variety of ESG topics from the 2022 AGM season and then assessed how asset managers voted, giving a ranked scoring of 68 different firms.

Governance and voting are often overlooked these days in the fast-paced and ever-changing world of ESG. Let’s face it, climate change, human rights and biodiversity tend to be more interesting and topical things to talk about. But, at the end of the day, good governance is a necessary condition for good sustainability outcomes.

For an asset manager, the act of voting is a fundamental governance and stewardship activity. It is also an activity that many asset managers have been doing for several years – governance being the most established letter of the ESG acronym.

Yet despite this importance, asset managers’ approaches to voting is actually incredibly opaque. This is a fact ShareAction’s report tries to address; it is also a trend we have seen come to light through other channels.

Presently, and unfortunately, very few asset managers are transparent about how they vote – something I find quite perplexing. Given this, and the lack of public information on voting, the ShareAction report becomes an important talking point within our industry.

But, despite its importance, it is crucial to remember that some nuance and explanation is required when considering the report’s findings. As with all things ESG, nothing is ever black and white.

One notable element, for example, is how the use of an abstain vote is considered. We have experienced this first-hand, with our approach sometimes differing from other asset managers’.

There is an assumption in our industry, which is represented throughout the ShareAction report, that voting for a shareholder proposal is always good and against one is always bad. There is also an assumption that abstaining on a resolution is either a non-vote or an act of fence-sitting.

I disagree. It is only rarely that these issues are clear-cut and, as such, thinking and voting cannot simply be divided into ‘yes’ or ‘no’. Abstaining is an active decision, used to enable us to communicate concerns or views to management without either supporting the status quo or, alternatively, wholly disregarding any progress that has been made.

Over the years, this has been an approach that has served us well, leading to further engagement with companies on area where progress has been made, but further improvements are still required. On occasions where we take this stance, we often write to companies to explain the reasons for our vote.

Our experience is that companies are often more receptive to engaging after an abstention, recognising the concerns of that shareholder and offering a dialogue on how to seek improvements. Critically for shareholders, an abstention also leaves scope to escalate votes in the future if that proves necessary.

So, while reports like these are highly important in providing independent challenge and challenge to us as an industry, we should also use them as a basis for debating and considering our approaches. As responsible investors, this is something we should welcome, but this debate has to go beyond the simple concepts of ‘yes’ or ‘no’, ‘right’ or ‘wrong’.

The nuances of each resolution and its long-term implications matter and we must consider these in the context of votes – be they ‘for’, ‘against’ or ‘abstain’ – providing a platform for meaningful and positive change, and not simply reflecting positively on an asset manager in a report.