You wait a couple of decades for movement on enfranchisement of asset owners, and then two things happen in quick succession. Barely was the ink dry on the Taskforce on Pension Scheme Voting Implementation (TPSVI) report, which castigated asset managers for not facilitating client voting, when the world’s largest asset manager opened the floodgates.
Last week BlackRock announced that from 2022 it will ‘expand the opportunity for clients to participate in proxy voting decisions where legally and operationally viable’, starting with its largest investors’ allocations to index strategies.At long last asset owners will be given a greater say in how some of the biggest companies are run.
BlackRock is responsible for running USD 4.8 trillion of other people’s money in equity index funds, and it is critical those asset owners are empowered to make their own decisions on the environmental, social and governance risks they face at investee companies.
PIRC has always argued that forcing investors to follow the voting decisions of their asset manager is ludicrous. When asset owners are investing passively they are explicitly choosing not to ask for stock selection decisions from the manager, so why should they be forced to follow the manager’s ESG views of index constituents? It is also completely implausible that a single asset manager can represent the varied ESG views across its entire investor base. By opening up voting options for clients BlackRock is addressing this. And, by the way, getting itself off the hook for criticisms from asset owners of how it votes.
Not everyone with a share of that USD 4.8 trillion will be eligible to enjoy BlackRock’s new proxy voting services to start with. The asset manager says that it will only allow sophisticated investors that account for 40% of the total AUM and includes USD 750 billion of pooled assets – to take part initially.
‘While we are offering clients more choice in how their index holdings are voted… we heard that many clients want our stewardship team to continue voting on their behalf,’ the company said.
But this is a very significant development in the corporate governance world. And, of course, this does not just affect BlackRock. The manager’s decision has significant ramifications for the rest of the industry. There has been a notable trend by large pensions funds to move to index strategies enticed by low fees. Yet, as all managers now charges comparatively similar, rock bottom fees, they are left struggling to demonstrate a competitive edge. Consequently, their USP needs to come down to service offering and now BlackRock offers voting options where rivals do not, it gives them a tremendous opportunity to grow their massive market share even more.
Put it this way: if you’re an asset owner that wants to take an active position on ESG issues are you going to pick the index manager that lets you apply your own voting policy or the one that doesn’t? Based on what we’ve been hearing we suspect that other managers are going to start feeling the heat from clients pretty quickly.
And there’s political support too. Aside from the fact that the TPSVI report has the DWP logo on it, the FT reports that UK pensions minister Guy Opperman endorsed BlackRock’s initiative, adding that he would ‘encourage asset managers more widely to develop similar services that expand the voting choice options for investors’.
Opening up proxy voting properly to asset owners has been a long time coming, but now that one of the big guns has moved it seems the rest of the industry will have little choice but to get on board if they want to keep hold of ESG-aware clients.