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Some mutual funds lag on climate risk reporting

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Some of the largest mutual funds failed to support any climate-related resolutions on reporting risks, goals and strategies in 2016, according to investor coalition Ceres. 

In 2016, 33% of 42 large U.S. mutual funds tracked since 2004 by Boston-based Ceres and proxy voting analytics firm Fund Votes in Vancouver, British Columbia, voted in favor of shareholder resolutions focused on climate issues compared with 16% in 2004. 

However, big-name players such as Los Angeles-based American Funds, New York-based BlackRock Inc., Austin, Texas-based Dimensional Fund Advisors, Boston-based Fidelity Investments, Milan, Italy-based Pioneer Investments, Boston-based Putnam Investments and Malvern, Pennsylvania-based The Vanguard Group did not support any climate-related resolutions tracked by Ceres last year, Rob Berridge, director of shareholder engagement at the Boston-based investor coalition, said in a blog post on Friday. 

"We view proxy voting as an integral part of the investment process," Anne Chapman, senior manager of governance and proxy for American Funds parent Capital Group, said in an email. "Our investment professionals consider human rights, environmental issues and other factors that can affect companies’ long-term prospects for success when making investment decisions, as well as when reviewing proxy proposals. When evaluating these proposals, decisions are made on a case-by-case basis based on the impact to the company’s shareholders, the specific circumstances at each individual company, and the current policies and practices of the company."

A spokesman for Fidelity emailed a link to the firm’s proxy voting guidelines but declined to speculate on future votes. The other firms could not be immediately reached for comment. 

A number of shareholder resolutions are receiving strong support in the 30%-40% range, and given that these mutual funds collectively manage trillions of dollars in assets, their support could increase pressure on companies to disclose their plans for addressing climate risks and help push these votes above the 50% mark, he said.

He identified three potential reasons for voting against shareholder resolutions asking companies to disclose their climate-related risks and strategies, including that the firms’ leaders do not believe climate change is real, or are ideologically opposed to admitting it is real, or that they may either accept the science of climate change but see few material risks or implications for businesses in their portfolios. In addition, the fund firm managers may believe private dialogue with companies is a more effective strategy than proxy voting.

“I’m baffled as to why they’re doing this,” Mr. Berridge said in an interview on Monday. “It’s clearly a financial risk. A lot of these resolutions are filed with oil and gas companies. What could be a more important risk than climate change?”

The mutual fund industry in the United States may be experiencing the same challenge as the U.S. insurance industry, which has lagged the European insurance industry on addressing climate change because of the political debate over whether climate change is real or a hoax, he said. 

“Some of the insurance firms don’t want to anger half their customers by being proactive on climate change,” Mr. Berridge said. 

New York-based Deutsche Asset & Wealth Management was the biggest supporter of climate-related resolutions, voting for 100% of the resolutions tracked by Ceres, with 10 other mutual fund firms supporting more than 70% of the resolutions. 

“These firms are signaling that these resolutions are financially material,” he said.

Other mutual funds are making progress in their support for climate-related resolutions, he said, specifically citing Boston-based State Street Corp., which not only increased its support to 46% in 2016 from 7% in 2015, but also released a “helpful” white paper on a climate change risk oversight framework for corporate board of directors last year, Mr. Berridge said. 

“This is exactly the shift we would like to see for the laggards,” he said.