Bloomberg has recently released a news story, suggesting that Climate Voting by NZAOA members is far from sufficient if we are to achieve the goals of the Paris Agreement.

The story is based on a report released by Critical Climate Votes, analyzing the climate related proxy votes of members of the Net Zero Asset Owner Alliance (NZAOA) revealing a lack of transparency that casts doubt on the effectiveness of the alliance itself. The report is authored by researchers from Queen’s University Belfast, University of Edinburgh and University College Dublin.

Below are listed a number of key quotes from the Critical Climate Votes website:

Climate Votes today publishes a new report examining the Net Zero Asset Owners Alliance (NZAOA) climate voting records and proxy voting, finding that overall, transparency is low and few members exercise their share voting rights.

Our analysis found that being a member of NZAOA does not correlate with an increase in direct pro-climate voting compared to that of those not in the alliance.

At COP26, The Glasgow Financial Alliance for Net Zero (GFANZ) took centre stage and demonstrated the influence financial institutions have in defining climate action. Members of the UN convened Net Zero Asset Owners Alliance (NZAOA), which exists under the GFANZ coalition, were complicit in continuing nothing more than voluntary decarbonisation policies and, worse, supporting fossil fuel expansion.

Asset owners have a very important role to play in influencing companies to accelerate action on climate change, through their asset allocation decisions, but equally through their stewardship activities, in particular voting the shares they hold. They can also influence asset managers, governments and other important entities. In that context, the Net Zero Asset Owners Alliance (NZAOA), created in 2019 and now part of the larger Glasgow Finance Alliance For Net Zero, offers huge potential.  

This study analyses the direct climate voting activities of the 46 institutional investors which are part of the NZAOA as well as the proxy voting practices outlined in their 2020 PRI Transparency reports for year ending 31 December 2019. Using data from their latest PRI reports as well as data from ProxyInsight, we find that overall, transparency levels with respect to the voting practices of NZAOA members are low. Very few have publicly observable climate votes that have been cast directly by them.

In the analysis, we found:

  • 75% of NZAOA members that rely on asset managers, proxy advisers or other service providers, do not disclose whether they review their advisors’ voting recommendations.
  • 52% of NZAOA members either do not publicly disclose or track how many votes they cast from the total amount of votes that either themselves cast or their service providers can cast on their behalf.
  • 39% of NZAOA members do not make public in their PRI Transparency report how voting decisions are made.
  • Voting data from Proxy Insight revealed that only 13 asset owners who are members of the NZAOA directly exercise their share voting rights on climate related shareholder proposals.
  • We find that asset owners (both NZAOA and non-NZAOA group) are more likely to vote in favour of climate resolutions if the company whose shares are voted is a fossil fuel company.
  • Lack of transparency on securities lending programmes could further exacerbate the potential of an asset owner’s votes not getting exercised responsibly.
  • Joining the NZAOA does not result in asset owners improving their voting in favour of climate resolutions in comparison to non-members.

Recommendations include:

  • Asset owners in the NZAOA and similar initiatives should align their proxy voting with the goal of limiting global warming to 1.5℃ in alignment with the International Energy Agency’s Net Zero pathway.
  • Asset owners should develop and publicly disclose escalation policies, and make transparent in a timely manner how their shares are voted, whether directly or by service providers on their behalf indirectly all elements of their voting outcomes.
  • Asset owners should track, monitor and disclose how votes are exercised on their behalf. Asset owners should commit to holding asset managers accountable if the asset manager fails to represent their climate voting values and commitments. This includes finding alternative asset managers if needed.
  • Future versions of NZAOA’s Progress Report should provide more detail on the issues covered by this report.

Read the full report to learn more about how the NZAOA voted and our recommendations on what they can do to improve.