U.S. Mutual Funds Ignoring Business Risks of Climate Change
New Data Shows None of Nation’s 100 Largest Mutual Funds Supported Shareholder Resolutions in 2006
None of the nation’s 100 largest mutual funds voted in 2006 to support shareholder resolutions calling for more corporate disclosure on the financial impacts from global climate change, according to proxy voting data compiled by Institutional Shareholder Services (ISS) for Ceres.
The data found that all 28 of the investment management companies responsible for the nation’s 100 largest funds – including industry giants Fidelity, Vanguard and American Funds, which manage 55 of the 100 largest funds – abstained or opposed all shareholder resolutions in 2006 seeking greater corporate disclosure on the financial risks and opportunities from climate change. By contrast, many other institutional investors, including TIAA-CREF, a national financial services organization and leading provider of retirement services to the academic, medical and cultural fields, and California’s two largest pension funds, CalPERS and CalSTRS, have backed global warming resolutions in growing numbers – with voting support levels reaching a record high of 39 percent at some 2006 annual meetings.
“Mutual funds are a critical missing link in the push for better corporate disclosure about climate risks and opportunities,” said Ceres President Mindy S. Lubber “Mutual funds are ignoring that climate change will have far-reaching impacts on numerous business sectors, whether from rising insurance losses from natural disasters, compliance costs from new carbon-reducing regulations or growing global demand for climate-friendly technologies.”
A total of 30 climate-related resolutions were filed last year with U.S. companies, including insurance companies, electric power companies, oil producers, automakers, homebuilders and retailers. While some of the resolutions were withdrawn after the companies responded positively to the investors’ requests, resolutions that did go to a vote at corporate annual meetings received support levels as high as 39 percent at Standard Pacific and 22.6 percent at Dominion Resources. The average support level of resolutions going to a vote in 2006 was 17 percent.
Lubber said the mutual funds’ stance on global warming is in stark contrast to the growing number of other institutional investors and corporate boards pushing for closer analysis and scrutiny of climate business impacts from companies. Lubber said the push is a direct result of growing pubic acceptance that global warming is real, its impacts are growing and that carbon-reducing regulations will soon be taking effect in many parts of the world, including the United States.
“Investors and corporate directors now are more mindful of their fiduciary responsibilities to protect their shareholders from financial risks posed by climate change and related forces,” Lubber said. “While mutual funds have been ignoring global warming, pension funds and other investors are winning record high support for shareholder resolutions and they’re pressuring companies to undertake climate risk studies that have never been done before.”
Lubber noted that Co-op America, a national non-profit group that educates consumers and investors about promoting corporate responsibility, is encouraging mutual fund investors to contact American Funds, Fidelity and Vanguard, urging them to vote responsibly on climate-related resolutions. With more than 10,000 emails and letters already sent, Co-op America is hoping to generate a total of at least 20,000 investor communications to the mutual fund companies this year.
None of the top 100 mutual funds have explicit proxy voting guidelines on global warming. Instead, they lump these resolutions with other stakeholder (or so-called “corporate social responsibility”) proposals. In this catch-all category funds typically apply one dismissive set of proxy voting guidelines, regardless of how individual proposals might affect shareholder value. A more discerning approach would apply the same cost-benefit tests and selective criteria that increasingly guide their voting decisions on other proxy issues.
“Mutual funds compete on many levels to differentiate their services. But when it comes to proxy voting on climate change and other social issue proposals, virtually all big funds vote the same way,” said Doug Cogan, deputy director of the social issues service at ISS. “If one fund breaks from the pack, will others follow? That question bears watching among mutual fund investors concerned about climate change.”
Ceres is a leading coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change. Ceres also directs the Investor Network on Climate Risk, a network of more than 50 institutional investors collectively managing more than $3.7 trillion in assets. For more information, visit http://www.ceres.org.