Mutual Funds Give Climate Change Proxy Resolutions the Cold Shoulder, Study Finds

Mutual Funds Give Climate Change Proxy Resolutions the Cold Shoulder, Study Finds

BOSTON, Mass., Dec. 10, 2004 - A mere 2% of the assets of the largest 100 mutual funds in America voted in 2004 to support shareholder resolutions calling for more corporate disclosure on the financial impacts from global warming, according to a new CERES study authored by the Investor Responsibility Research Center (IRRC) and released by Results for America, a project of the Civil Society Institute.

The study found that 25 of the 28 investment companies controlling these 100 funds did not heed any requests for closer examination of emerging climate risks. Instead, they abstained or opposed all shareholder proposals that came before them in 2004 seeking analysis and disclosure of the financial risks posed by global warming. By contrast, pension funds and many other investors have backed global warming resolutions in growing numbers -- with voting support levels reaching a record high of 37% at some 2004 annual meetings.

The study, "Unexamined Risk: How Mutual Funds Vote on Global Warming Shareholder Resolutions," was made possible by a new U.S. Securities and Exchange Commission requirement that mutual funds publicly disclose their proxy votes and practices, beginning with the 2004 proxy season.

Mindy S. Lubber, executive director of Ceres, said: "Mutual funds are a critical missing link in the push for better corporate disclosure about climate risk. Mutual funds are ignoring the growing evidence that global warming will have far-reaching fiscal impacts on a wide range of business sectors, whether from rising insurance claims from natural disasters or increased demand for hybrid vehicles and other 'clean' technologies."

Civil Society Institute president Pam Solo said: "Increasingly, investors of all types are recognizing that global warming poses large financial risks and opportunities that will bear directly on the bottom lines for shareholders. Yet the vast majority of mutual funds ignore the threat to shareholder value by casting their proxy votes against global warming proposals. Given this track record, it is no surprise that these funds fought so hard to prevent disclosure to investors of how they vote on major proxy issues such as global warming."

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 risk from companies. Lubber said the push is a direct result of growing public acceptance that global warming is real and that the Kyoto Protocol and carbon emission controls will soon be taking effect in many parts of the world.

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 added.

Two such groundbreaking reports -- from two of America's largest coal-burning utilities -- have been issued the past few months, after shareholders filed resolutions requesting them.

Key findings of the study include the following:
  • Fidelity, Vanguard and American Funds, which alone manage about 70% of the assets held in the nation's largest 100 mutual funds, are among the 25 investment management companies that either voted against or abstained on all global warming proposals that came before them in 2004.

  • Only three of the investment management companies - American Century, Columbia Funds and the Janus Funds - voted in favor of any global warming proposals in 2004. And even those firms cast a majority of their votes as abstentions or in opposition to global warming proposals.

  • Most of the nation's largest mutual funds still adhere to the "Wall Street Rule" when it comes to voting their proxies on global warming. This tenet of portfolio management urges investors to support a company's business strategy and proxy voting recommendations - or sell their shares. While "Enron-era" corporate governance scandals are causing many institutional investors to abandon this rule, mutual funds have not yet seen that taking a more independent stance from corporate managers on global warming proposals is in the best interests of investors and fund beneficiaries.

  • 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.
"In the post-Enron era, corporate governance issues are facing more investor scrutiny than ever before. Global warming should be no exception," said Douglas G. Cogan, author of the study and deputy director of IRRC's Social Issues Service. "Global warming will not go away as a proxy issue as long as the threat to the economy and global environment continues. Mutual funds need to consider whether their votes favor more disclosure from management on this issue and whether company strategies are maximizing investment returns while minimizing exposure to climate risk."

A PDF version of the full report can be downloaded here.