Mutual Funds Inconsistent on Climate Change

Although inconsistent in practices, the mutual fund industry appears to be changing its attitude toward climate change shareholder resolutions as Wall Street starts to recognize the financial risks and opportunities of global climate change, according to a new report analyzing the voting records of 1,285 funds of 62 leading mutual fund firms.

The report, evaluating 2004-2007 proxy votes, shows that historic opposition toward such resolutions is softening, with some fund firms such as GoldmanSachs supporting many climate resolutions outright, and others, such as Fidelity and Janus, abstaining on most or all resolutions after opposing them in the past. Opposition has dropped from three-quarters of fund votes to less than two out of three, while the number of abstention votes has more than doubled.

Still, many mutual funds are acting inconsistently on climate change–offering new climate-related funds and research products, while continuing tooppose virtually all climate-related resolutions. The inconsistent behavioris especially apparent at Morgan Stanley, State Street Global Advisors and other Wall Street firms which are investing aggressively in new climate-related business activities, yet have opposed virtually all climate resolutions in recent years.

One positive stand-out noted in the report:Goldman Sachs, which is both promoting climate-related investments while also supporting climate change resolutions.

"More mutual fund firms are waking up to the broad financial realities of climate change, but very few are integrating this awareness across all of their business activities, including proxy voting policies," said Mindy Lubber, president of Ceres, a coalition of investors and environmental groups, which released the report.

"Investors should be scrubbing their portfolios for climate risks just as they’re now scrubbing them for hidden sub-prime risks. Mutual funds that are ignoring climate resolutions aimed at boosting corporate disclosure ofclimate risks are failing in their fiduciary responsibilities and failing their customers," Lubber said.

Nell Minow, co-founder and editor of The Corporate Library, an independent research firm specializing in corporate governance, said, "Fund managers are beginning to recognize that climate change issues are an indispensable element of assessing investment risk, and that proxy voting is one element of managing that risk."

Minow added, "We expect to see increasing support for these resolutions and withhold votes for board members at companies whose practices and disclosures show inadequate attention to the impact of climate change concerns."

The report, based on proxy voting data compiled by researcher Jackie Cook, is the fourth by Ceres examining mutual fund proxy voting practices on climate change shareholder resolutions. The report shows that near universal opposition to climate resolutions is gradually eroding as scientific evidence of climate change and its far reaching business impacts has become more conclusive.

The industry’s reduced opposition coincides with rising overall investor support for climate-related resolutions, which received record high voting support in the 2007 proxy season.

Among the report’s other key findings:

  • The mutual fund industry still lags compared to other investors in supporting climate resolutions. While climate resolutions have garnered record record votes in recent years (average voting support at annual meetings grew from 10.2% in 2005 to 21.6% in 2007), support from the mutual fund industry for climate resolutions has remained relatively stagnant.
  • Socially responsible investing firms are setting the bar on best practices by supporting all climate resolutions in 2007. Calvert, Domini, Parnassus, Pax and Walden have consistently supported all climate resolutions, and often file or co-file many of the resolutions as well.

The report recommends that mutual fund firms take specific actions toimprove their support of climate resolutions, including the following:

  • Codify support for climate resolutions in their proxy voting guidelines and then follow those guidelines by voting in favor of climate resolutions.
  • Include language in their guidelines supporting resolutions calling for better climate risk disclosure by companies, as well as resolutions that go beyond disclosure, such as asking companies to set specific greenhouse gas reduction goals.
  • Funds that have moved from opposing to abstaining on climate resolutions are encouraged to go a step further by supporting such resolutions.

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