Focus: Forget shareholder resolutions, fund manager says: hire better directors
10/01/2022 11:00
By Ross Kerber
Jan 10 (Reuters) - A Texas-based fund manager is not jumping
on the bandwagon of peers backing shareholder resolutions that
call on companies to take stronger action on climate change.
Dimensional Fund Advisors argues it would be more effective to
just replace corporate directors who fail to address the issue.
Austin-based Dimensional backed just a tiny fraction of the
climate-related shareholder resolutions tracked by Boston-based
advocacy group Ceres last year.
Firm executives said the measures demanding everything from
emissions reports to contingencies for extreme temperatures can
be ineffective or not material to investors, even if the
measures pass.
While Dimensional wants boards to oversee environmental
risks, "not every issue of environmental concern is material to
shareholders," said Jim Whittington, Dimensional's head of
responsible investment, in a recent interview.
Meanwhile Dimensional has voted against corporate directors
more often than rivals, although it is unclear how often those
votes stemmed from environmental issues.
Whittington said corporate directors are the ones
best-placed to judge a company's exposure to climate risk.
"Our overall philosophy is that we're trying to protect and
enhance shareholder value," Whittington added. For some
companies, steps to counter or adapt to climate change can
certainly make sense, he said.
In 2021 Dimensional supported just two of 49 climate-related
shareholder resolutions tracked by Ceres, about the same level
as in 2020 and the lowest support rate by a significant margin
among 58 top asset managers.
The average vote on the resolutions rose to 41% in 2021 from
31% in 2020, Ceres found, as giant asset managers BlackRock Inc
BLK.N and Vanguard Group ramped up their support. urn:newsml:reuters.com:*:nL1N2SM2EH
Ceres said Dimensional risks losing assets as investors put
more money into funds focused on environmental, social and
governance (ESG) matters. Dimensional actually has seen outflows
from its funds firmwide, although analysts cited other factors.
Still, Dimensional's own ESG funds have had substantial inflows.
Many climate activists blast Dimensional's voting approach,
saying the resolutions can spur companies to quicker action.
"Dimensional needs to face the gravity of the systemic
risk created by climate change," said Rob Berridge, Ceres'
senior director of shareholder engagement.
STRATEGY PIONEER
With $710 billion in assets, Dimensional developed a
reputation on Wall Street as an influential pioneer of
quantitative and value-investing strategies. Its contrarian take
on climate change-related resolutions stands out as more of the
asset management industry pays attention to ESG
matters. urn:newsml:reuters.com:*:nL1N2SZ1XA
The Austin-based firm saw net withdrawals of $10.3 billion
for the first 11 months of 2021 and $37.7 billion for all of
2020, according to Morningstar Direct.
For last year, Dimensional said its specialized U.S.
sustainability-focused funds, which supported more of the
climate resolutions tracked by Ceres, had net deposits of about
$2 billion.
Morningstar analyst Daniel Sotiroff said the outflows were
likely due to its investment focus on smaller companies at a
time investors were chasing gains in companies with large
capitalizations, such as Tesla Inc TSLA.O and Amazon.com Inc
AMZN.O .
Dimensional's ESG approach "fits in with its house
philosophy" that with sufficient disclosures, efficient markets
will price in the risks companies face, Sotiroff said.
When Dimensional votes against climate-related resolutions,
it is often in the minority. Last May, it voted against a
proposal for ConocoPhillips COP.N to disclose so-called 'Scope
3' carbon emissions, created when consumers burn its fuel. The
resolution passed with 59% support.
Dimensional's head of investment stewardship, Kristin Drake,
said in an interview that the oil and gas exploration and
production company has little control of how its fuels are used.
"For them to even be able to calculate their Scope 3 emissions
would be really difficult," she said.
A Conoco representative declined to comment on Dimensional's
voting or whether it might set a Scope 3 target.
In the case of Monster Beverage Corp MNST.O , Dimensional's
views carried the day. The firm voted in June against a proposal
for the soft drinks giant to offer investors an annual
"say-on-climate" vote. Drake said the idea would insulate boards
from accountability. At Monster it won just 7% support.
"If shareholders are unhappy, they should be voting against
directors," Drake said.
A Monster spokesperson declined to comment.
BACKING DIRECTORS LESS
Dimensional has been less supportive of board directors than
other major asset managers. It voted in favor of
company-nominated directors just 86% of the time at U.S.
shareholder meetings in 2021, compared to an average of 91% for
investors of its size and larger, according to research firm
Insightia.
Insightia also found about 8% of Dimensional's critical
board votes went against directors who served on a board
committees overseeing environmental or similar matters.
Since few companies have such committees, the finding
suggests Dimensional was willing to vote against directors where
it saw environmental concerns, said Doug Chia, president of
consulting firm Soundboard Governance.
Dimensional did not provide a breakdown of how often its
critical board votes were tied to climate change.
"We vote against directors for reasons that we think are
likely to contribute to insufficient oversight of E&S
(environmental and social) risk such as a lack of independence,
poor attendance, and serving on an excessive number of boards,"
Drake said.
Dimensional backed two of three dissident directors who won
seats at Exxon Mobil XOM.N last May, choosing to support
nominees of hedge fund Engine No. 1 which argued the oil major
was not doing enough to tackle climate change.
In addition, on April 9 Dimensional also voted against the
re-election of a Rio Tinto Plc RIO.L director who chairs its
sustainability board committee. In an e-mail to Reuters
Dimensional said the vote was due to "ongoing concerns about Rio
Tinto’s oversight of material environmental and social risks."
The nominee, Megan Clark, won 74% of votes, the lowest of
any director. urn:newsml:reuters.com:*:nL1N2T40HT
A Rio Tinto spokesman declined to comment on Dimensional's
votes.
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Ceres.org report on asset manager proxy voting for 2021 https://www.ceres.org/news-center/blog/climate-risks-skyrocket-largest-asset-managers-vote-more-climate-related
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(Reporting by Ross Kerber in Boston
Editing by Greg Roumeliotis and David Gregorio)
((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters
Messaging: Ross.Kerber.Reuters.com@Reuters.net))