How an active voice in passive management can drive climate action
Can index-based investing really be a solution to climate change? Don’t active managers have the voice that’s needed to encourage companies to make changes? It’s true: historically, index-based or ‘passive’ asset managers simply replicated an index with minimal fees. Dedicating resources (and incurring cost, which would be passed on) to analyse, follow, meet and engage with companies was not thought to create value for index investors. In the index arena, the battle was being fought on headline fees.
Today however, index investing has proliferated, and passive managers hold a higher share of companies’ equity than ever before. With a higher share of companies’ equity held by indexed managers, they have more ability and responsibility to promote sustainable investing practices through the power of voting and engagement activities.
Climate action and index investing
Voting on climate issues
According to Morningstar, since 2004, shareholders have voted on over 400 resolutions asking companies to report climate-related risks and disclose strategies for addressing these risks. The number of resolutions and the increasing levels of support reflect shareholders’ growing concerns about the climate resilience of their portfolios.6
A revolution is underway in climate shareholder engagement
The development of sustainable and responsible investment solutions among active and passive fund managers, as well as increasing shareholder awareness on sustainability, has led to the rise in the number of engagement campaigns by shareholders which prioritise climate action.
Acting for the long-term, engaging with companies and voting at AGMs.
It's rare nowadays for a responsible investor not to have at least one climate-focused voting or engagement campaign.
More transparency demanded around action taken on energy transition, and alignment with Paris Agreement goals.
6Source: https://www.morningstar.ca/ca/news/195571/shareholder-climate-engagement-at-all-time-high.aspx