Asset Managers’ guide to net zero voting strategies

The Institutional Investors Group on Climate Change (IIGCC), which accounts for more than 400 financial members worth more than $65trn in assets under management, has released its comprehensive Net Zero Voting Guidance. This guidance is designed to assist asset owners and managers in shaping their voting policies to align with net zero emissions targets. This development is especially timely, considering the recent findings by ShareAction, which indicate a significant decline in the support for environmental resolutions by the world’s largest asset managers.

The urgent need for net zero commitments

Responsible investment charity, ShareAction, has published an alarming report, revealing that only 3% of assessed environmental and social resolutions passed in 2023, a stark decrease from 21% in 2021. This trend underscores the importance of the IIGCC’s new guidance in encouraging asset managers to take a proactive role in supporting decarbonisation and fulfilling their fiduciary duties.

IIGCC’s Net Zero Voting Guidance: A closer look

The guidance emphasises the critical role of voting as a tool for investors to influence corporate behaviour towards the decarbonisation of the real economy. It aligns with the Net Zero Investment Framework, recommending policies consistent with achieving net zero emissions by 2050 or sooner. Underpinning the guidance is the principle that effective engagement and stewardship are vital for aligning investments with the goals of the Paris Agreement.

Key highlights of the guidance

1. Alignment with net zero objectives: Investors should develop voting policies that reflect their net zero commitments, ensuring their investment portfolios are on track to meet emissions targets.
2. Communication of net zero expectations: The guidance advocates for clear communication of net zero expectations to investee companies, enhancing transparency and accountability.
3. Support for net zero stewardship: It underscores the need for robust stewardship strategies that integrate net zero goals into broader investment and engagement approaches.

IIGCC Net Zero Voting Guidance

Laith Cahill, IIGCC’s Senior Net Zero Stewardship Specialist, emphasises the tailored approach necessary for effective voting strategies: “There is no one size fits all approach to voting. This paper embraces those differences, setting out three principles that will help investors develop bespoke voting policies and actions that effectively support and communicate their net zero objectives and targets to companies. While voting is only one tool amongst many in the stewardship toolkit, utilising the full range of resolutions and options available to shareholders is important for investors seeking to secure real-world emissions reductions.”

Consequently, for asset managers, this guidance serves as a call to action for the investment community to reaffirm their commitment to environmental stewardship and responsible investment practices. As the financial sector continues to evolve, the principles laid out by the IIGCC will play a pivotal role in shaping a sustainable future.