Gap in ESG voting support widens between Europe and US fund giants

A divergence in attitudes towards environmental, social and governance (ESG) investing is growing between the US and Europe. 

Amid increasing political hostility, US asset managers are showing a notable decline in enthusiasm for ESG-related shareholder proposals, in contrast to their European counterparts, according to research from Morningstar on proxy voting trends.

The report points out a significant decline in independent shareholder support for key ESG resolutions at US companies, where support fell below 50% in 2023 for the first time in over three years.

This came amid manager concerns that US shareholder resolutions were becoming inappropriately prescriptive, the report said.

BlackRock and Vanguard were instrumental in that decline in prior years but the past year found many other large US managers also pulled back their support for ESG proposals, even well-supported ones.

This compared to 99% support from European asset managers, including Allianz, Aviva, BNP Paribas, HSBC, Schroders and UBS.

Alarmingly, 10 of the 20 US equity fund managers in the research are now categorized as low supporters of key ESG resolutions, a stark contrast to their performance over the last three years.

This includes firms like BlackRock - a notable about-turn after the criticism from the anti-woke, Goldman Sachs (NYSE:GS), Janus Henderson and American Century exhibiting the most pronounced negative trends.

In Europe, all 15 assessed managers consistently demonstrated very high support for ESG resolutions, with average support for key ESG resolutions above 90% over the last three years, which Morningstar said reflects a stronger inclination towards sustainability among European investors.

The data also includes Norges Bank Investment Management, the Norwegian sovereign wealth fund manager, which does not manage any open-end funds or ETFs but as the largest European shareholder of US equities is an important contributor to overall voting outcomes on key ESG resolutions. 

"Sustainability-focused investors are increasingly questioning whether their manager’s voting policy is well-aligned with their own environmental and social objectives," said Lindsey Stewart, director of investment stewardship research at Morningstar.

"In Europe, where expectations of proxy-voting support are higher, and several of the US firms have large market share, those questions are being asked with greater intensity."

The report suggests that these trends are unlikely to change in 2024, posing alignment challenges for sustainability-focused investors with US managers.

Launches of ESG funds slowed significantly in the second half of 2023, as political opposition grew, performance wobbled and tighter labelling rules loomed.

Only six such ESG funds debuted in the period, according to separate data from Morningstar, a steep decline from 55 in the first half and an average annual launch of nearly 100 between 2020 and 2022.