In Canada, as elsewhere in the world, investor interest in sustainable investing has increased. In the second quarter of 2022, 14 new Canadian-domiciled sustainable investment products were launched, according to the Morningstar Q2 Sustainable Investing Landscape for Canadian Fund Investors report. The report found that for the quarter, net inflows totaled $1.9 billion, bringing the total sustainable assets to $31.5 billion.
Investors might feel that they’re doing their part to save the planet by investing in these funds, but are asset managers walking the talk when it comes to sustainability?
To find the answer to that, we looked at how the largest Canadian asset managers voted on significant climate and greenhouse gas emissions-related shareholder proposals. We found that pension funds voted in favour of climate change shareholder proposals more often than mutual fund or exchange-traded fund asset managers.
There’s a reason for that. Pension funds and asset managers usually have two very different structures and goals. Pension funds, for example, must consider not just current beneficiaries and immediate returns, but also their future beneficiaries. Asset managers might be focused on short- or medium-term returns and goals.
What is proxy voting? Find out here.
It is important to point out that this research is based on Canadian funds’ voting on companies in the United States in the 2022 proxy-voting season. Canadian funds’ proxy-voting records can be found on asset managers’ websites.
Do Canadian Asset Managers Walk the Talk on Sustainability?
How did Canadian asset managers vote on climate and greenhouse gas emissions-related issues? We looked at the votes of the largest 10 Canadian asset managers in terms of assets under management. Altogether, these firms manage $2.8 trillion. Here’s a look at how they voted on the strongest-supported climate-related shareholder measures.
TD Asset Management, BMO Global Asset Management, CIBC, and Desjardins Investments were the most likely to support climate-related shareholder resolutions. On the other hand, Manulife Investments (including subadvisors, for Manulife only look here), iShares, CI Investments, and Fidelity Investments were most likely to vote in line with management recommendations.
The largest mutual fund asset manager, RBC Asset Management, supported many of these resolutions but voted against some proposals. One surprising against vote was at ExxonMobil. Christian Brothers Investments filed a shareholder proposal at the oil and gas major, asking that the board of directors seek an audited report assessing how applying the assumptions of the International Energy Agency’s Net Zero by 2050 pathway would affect the assumptions, costs, estimates, and valuations underlying its financial statements, including those related to long-term commodity and carbon prices, remaining asset lives, future asset retirement obligations, capital expenditures, and impairments. Most shareholders agreed with this ask, and it received a little over 50% support.
RBC voted against this, saying, “After further review, RBC GAM determined that a vote against is warranted. Providing the additional disclosure around the scenario requested in the proposal would not offer additional benefit to shareholders. Requesting forward looking disclosure, including operating and strategic detail, while making assumptions about the impact of this NZE scenario on its complex business is problematic. Further, asking for this analysis to be audited for an outcome in the distant future exposes the company to liability and additional risk given the uncertain pathways with which the world could achieve these goals.”
Proxy-voting results can directly affect company behavior and economic results, so there's good reason to know how public funds and asset managers use their market power to influence these outcomes. At present, these results are recorded manually, and can be found where voting records are made available. We will continue to keep an eye on the proxy season and report on how asset managers and pension funds vote.
This article is an excerpt from a report titled, "Which Canadian Investment Institutions Walk the Talk on Climate Action?" For a copy of the complete report, please email ruth.saldanha@morningstar.com
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