Climate Change & Voting: What's Lost in Translation and Why it Matters

Mark Tercek raised an important issue today in response to today's NYT's article regarding financial institutions' role in voting on climate change focused shareholder resolutions.

However, what was lost in translation in the debate unmasks a a fundamental misunderstanding on how the proxy voting (shareholder voting) process works, and what it really signals when a financial institution supports climate change voting decisions.

The choice facing investment managers such as BlackRock Vanguard and Fidelity Investments and others on climate change voting decisions is binary—a thumbs up or thumbs down decision—which means by definition it forces the company to pick a side/position should it chose to engage.

What's more, voting results on climate change related issues are non-binding; meaning that even if 100% of a company's shareholders agree that the company is blowing it on managing its climate change transition risks, and is not operating in the best interests of its shareholders over the long-term, there is no ensuing legal or regulatory requirement for the company to do anything differently regardless of the outcome.        

When financial institutions such as BlackRock and Vanguard vote on climate change related issues for the companies they own, the decision on how to vote is not political, nor is a signal of the firms views on climate change science or anything else that is not financially relevant to the company. 

The question posed to these investment managers is also not whether they believe climate change is real, or whether its environmental consequences are consequential. The question is whether climate change risks are considered financially material for this specific company at this moment in time. In other words, the voting decision is a risk-adjusted financial decision on whether the company’s CEO and Board is governed by and aligned with the best interest of the companies’ shareholders over the long-term. It's a purely financial decision on how financially material risks posed to its shareholders are managed—it's about value not values.

This voting decision on climate change has nothing to do with politics, yet this is usually misrepresented (as depicted in this NYT’s article) as either a woke inspired overreach, or an extremist anti-woke and politically motivated decision that signals that the financial institution is in denial of the irrefutable science behind the harm and costs inflicted because of climate change related impacts.

So when the NYT author Farhad Manjoo writes that he is sympathetic with a small inconsequential firm whose remit seems focused on ginning up controversy by weaponizing climate science under the false pretext of wanting to keep politics out, he is depicting a false choice because politics was never a consideration in the first place. It's the wrong question and presents a false choice. 

What this start-up firm is really signaling via its dog whistle is a hope that investment managers will be forced (because the public is fooled) to withhold their votes--or even vote against-- environmental and social issues based on alternative facts depicting false choices. This firm is one of many entering the ESG investing space now, presumable seeking to juice the stock prices of its portfolio companies to seek short-term financial gains versus deploying its capital to benefit the company's shareholders and the planet over the long-term. 

Mark Tercek said it best when he voiced his disappointment that the New York Times’ author of this Farhad Manjoo (who Mark usually admires very much) gives the would-be anti-woke start-up investor mentioned in his article such prominent coverage’. 

Mark is correct, and as such Farhad should consider retracting his article and/or explaining his rationale for not doing so.

#climatechange #newyorktimes #esginvesting #esg #impactinvesting #sustainability