Putting Politics Over Pensions: The 2024 Committee to Unleash Prosperity Report Card on Investment Fund Managers and Proxy Voting Behavior - Pension Politics

Putting Politics Over Pensions: The 2024 Committee to Unleash Prosperity Report Card on Investment Fund Managers and Proxy Voting Behavior

Over the past year, investment management companies have faced unprecedented scrutiny regarding their support for left- leaning shareholder proposals focused on environmental, social, and governance objectives – better known as “ESG.” These investment firms – with more than $20 trillion of assets under management and nearly 75 percent of the publicly traded stocks – are also pressured into supporting shareholder resolutions related to race, sex, and ethnicity under the guise of promoting diversity, equity, and inclusion (DEI). Many of these resolutions would, if approved, reduce the profitability of the targeted companies. As such, a vote for these resolutions is in direct conflict with the fiduciary obligation these firms have to their clients.

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A Committee to Unleash Prosperity (CTUP) report released last May revealed that most large firms – from State Street to BlackRock to JP Morgan to Franklin Templeton – were routinely voting in favor of even the most radical and hostile resolutions. By doing so, they were putting political considerations over the financial interests of tens of millions of Americans whose pensions and other retirement funds they manage.

CTUP has now analyzed how more than 600 investment management companies voted on 50 of the most extreme ESG-oriented resolutions in the 2023 proxy voting season. Examples of these resolutions that are in conflict with the fiduciary duty of the firms include requiring firms to divest in oil and gas companies, adopting racial/ethnic and gender quotas in hiring, and pursuing internal “racial equity” audits. The table on the preceding page shows the grades of the 40 largest investment firms, which account for the vast majority of funds under management. Our analysis reveals three headline findings.

  1. The good news is that that the broad trendline shows investment firms are gradually moving away from supporting ESG/DEI initiatives being pursued by left-wing pressure groups and shareholder activists. In 2023, private sector, non-ESG branded funds were 25 percent less likely to support extreme shareholder proposals than they were in 2022. And the 25 most active voting funds were 30 percent less likely to support such proposals in 2023 relative to 2022.
  2. The bad news is that the large investment firms are STILL violating their fiduciary duty by supporting ESG resolutions more than half the time. The average grade assigned to the 40 largest firms was a C, with a dozen of these firms receiving a grade of F.
  3. More bad news is that the two major proxy voting services, ISS and Glass-Lewis, continue to advise their client firms to vote in favor of ESG resolutions. Glass-Lewis received an implied grade of D, and ISS an F, based on their recommendations. ISS endorsed nearly every ESG resolution. Money management firms would be doing a great service to the clients whose money they manage to stop taking advice from these ultra- liberal firms on proxy voting.

The diminished support for extreme shareholder proposals is emblematic of a broader retreat from the ESG movement. In 2023, investors withdrew $13 billion from U.S.-based ESG funds, according to Morningstar.2 And total assets in U.S. “sustainable” funds at the close of 2023 were down 12 percent compared to two years earlier. Set against these encouraging developments is the reality that many firms are still embracing left-leaning ESG ideas.

Investors pay the price for this ideologically driven approach to investing – in the form of having their votes harvested in favor of policies that could diminish the performance of the funds holding their savings. Furthermore, when ESG investing is used to guide investment allocations – an example would be underweighting asset classes such as energy – this can depress returns.

The purpose of this report is to identify which major investment houses are the most – and least – guilty of putting politics ahead of their clients’ interests. We examined hundreds of major shareholder proposals and trimmed that list to what we call the “Fiduciary-Free 50,” which were the most radical proposals related to left-wing activism. None of these proposals were supported by management at the targeted companies.

We calculated the percentage of times these management firms voted for ESG resolutions on issues such as curtailing the financing or insuring of fossil fuel projects or companies, banning plastics, requiring “net zero” emissions, imposing “diversity” quotas in hiring, and so on. These votes were typically made without the approval, or even the awareness, of their clients.

This report – the second in what will be an annual series – documents which of these financial behemoths are violating their fiduciary duty. The Committee will soon be releasing a companion report, which will be focused on state and local pension funds and the support they (or their asset managers) are giving to ESG-oriented shareholder resolutions.

The misplaced focus on ESG issues is a distraction – and often a major headache – for many of the country’s major corporations. When their performance falters, as we’ve seen happen at companies like Target and Budweiser, America’s security and global competitiveness is threatened.

We hope that exposing the funds that are putting political beliefs and their social policy biases above profits and returns will 1) help persuade investors to withdraw their money from these funds and 2) prompt fund management companies to stop letting left-leaning ideology drive their investment decisions.

In the appendix to this report we present the grades for 600+ investment advisory firms.

You work and pay into your pension

The funds go to investment managers who have the responsibility of growing your pension

They invest your pension in companies like Disney and McDonald's, becoming a shareholder

As shareholders, the investment managers get a vote in important company decisions

Instead of voting for resolutions that would benefit the company, and the customer, many managers support resolutions calling for “climate justice” and “racial equity audits”

These ESG policies hurt company performance, which means lower returns for your pension

Investment firms are gradually moving away from supporting ESG/DEI initiatives

The average grade assigned to the 40 largest investment firms was a C

The two major proxy voting services continue to advise their client firms to vote in favor of ESG resolutions

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