More Than Meets the Eye With Institutional ESG Support

There is a frequent criticism of institutional support of ESG proposals and related voting trends. It’s that three fund industry behemoths are the primary drivers of corporate-level ESG action.

Some critics assert that if those giants didn’t actively participate in ESG proposals and votes, related appetite would decline. That would potentially dampen demand for ESG products. However, there’s more than meets the eye on this front, and that could bode well for exchange traded funds such as the Calvert US Select Equity ETF (CVSE).

Environmental, social, and governance proposals floated at S&P 100 member firms totaled 158 last year. That tally has jumped to 222 this year. Corporate ESG resolution need to reach a 40% threshold to be considered “key resolutions.”

Independent ESG Investors Matter, Too

Some data points regarding participation trends of all investors in ESG voting could be interesting to those considering ETFs. Many investors beyond the three big fund issuers prioritize ESG and vote to that effect.

“Our analysis showed that among the near-miss resolutions, support by the Big Three is considerably lower than that of other independent shareholders in the U.S. market. Indeed, if the Big Three didn’t vote their shares, around 30 near-miss resolutions at U.S. large caps in each of the last two years would actually have been key resolutions,” noted Morningstar analyst Lindsey Stewart.

Stewart adds that a decent amount of recent ESG proposals at S&P 100 firms, plenty of which dot the CVSE lineup, would have become key resolutions even without the help of the “big three.”

“It’s fair to say that the Big Three’s voting policies for 2023 did not change radically compared with 2022. However, voting policies are written to include an element of flexibility to accommodate current market realities,” observes the analyst. “It’s clear that changes in the composition and specific wording of this year’s resolutions, as well as managers’ interpretation of ongoing management actions to respond to previous resolutions, have prompted changes in voting outcomes among the largest managers.”

Bottom line: ESG proposals can still get attention and approval without the assistance of the largest fund issuers. To that end, everyday investors that prioritize ESG principles should be selective in their searches for the related ETFs. With the help of active management, CVSE obliges that selectivity.

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