New regulations and stakeholder pressure are creating the need for investors to demonstrate their commitment as responsible owners that view corporate accountability as a means of achieving greater long-term value. In Europe, the Shareholder Rights Directive II requires transparency around voting and engagement and, in North America, voting is considered part of investors’ fiduciary duty with engagement being a natural extension of voting proxies. This underscores the benefit of aligning voting and engagement activities.
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Morningstar Sustainalytics’ ESG Voting Policy Overlay supports a holistic approach to stewardship by providing voting recommendations that are based on:
ESG Principles & Sustainability Signals
Our policy overlay is designed to provide investors with expert guidance on ESG focused shareholder resolutions and management proposals, looking beyond traditional corporate governance measures to align with Morningstar Sustainalytics ESG Principles or the SDGs.
Investor Driven Research Signals
Based on the previous proxy season’s proposals and votes, we identify ESG topics that have strong support among investors. Morningstar Sustainalytics’ ESG Risk Ratings are then used to identify companies where the management of these issues is assessed as weak.
Engagement Signals
As part of our Engagement Services, we explore all avenues of stewardship with a focus on constructive dialogue. An issuer’s willingness to engage and authentically work toward change objectives that are in the best interest of shareholders is a cornerstone of the vote recommendations driven by our policy guidelines.
Net Zero Climate Governance
Many financial institutions have set the goal of reducing portfolio greenhouse gas emissions to net zero by 2050 and taking action to advance economy-wide decarbonation. We aim to support our clients by encouraging the most carbon intensive companies, beginning with large fossil fuel companies, to align corporate governance arrangements with climate targets consistent with Paris Climate Agreement goals.
Key Features and Benefits
Comply with Stewardship Responsibilities
Choose your level of participation and where to focus your own efforts while leveraging Sustainalytics’ support to meet stewardship responsibilities and comply with relevant regulation.
Holistic Stewardship Strategy
Seamlessly align voting and engagement activities to shared investor concerns, robust ESG principles and the latest ESG research.
Use Cases
1. Portfolio Management
Voting seeks to influence corporate behavior in clients’ holdings and the societies in which they operate.
2. ESG Integration
Voting on research signals enables fuller ESG integration and aligns messages across different products.
3. Shareholder Collaboration
By voting in alignment with Morningstar Sustainalytics research and principles, clients will, together with likeminded peers, collaboratively advance their sustainability agendas.
4. Stewardship
Voting demonstrates a commitment to be a responsible shareholder.
5. Fiduciary Duty
Engaging with high risk portfolio companies is a key element of stewardship codes and guidelines for responsible investors, such as EU Action Plan on Sustainable Finance on Long Term Shareholder Engagement, the EU Shareholder Rights Directive II and more.
6. Engagement
Voting supports engagements, which address material ESG issues that may end up on companies’ AGM agendas.
Deliverables
Voting recommendations
Post-AGM report on Engagement and Voting Activities
Industry Requirements
Given the global nature of our business, Morningstar Sustainalytics is working to implement equal measures across all its affiliates, such as to enable alignment with the industry requirements that apply to providers of voting recommendations in different jurisdictions. An overview of the measures implemented by Morningstar Sustainalytics is available here.
Morningstar Sustainalytics’ mission is to provide the insights required for investors and companies to make better informed decisions that lead to a more just and sustainable global economy. We believe that when investors and companies embrace ESG meaningfully, it will create long-term value that benefits all stakeholders, including shareholders. The cornerstone hereof is mutual trust, which is built on transparency. We have captured these values in a set of principles that are aligned to widely accepted norms, standards and sustainability objectives. For more information, please see Morningstar Sustainalytics' ESG principles.
Morningstar Sustainalytics’ ESG Voting Policy Overlay is intended to work in tandem with traditional corporate governance voting policies, supplementing it with guidance, analyses and recommendations on ESG topics. It can be used in combination with clients’ own policies or that of a third-party policy and provider. With regards to corporate governance voting items, Morningstar Sustainalytics supports the International Corporate Governance Network’s (ICGN) Global Stewardship Principles and Global Governance Principles as overarching guidelines on best practice.
Why Sustainalytics?
A Single Market Standard
Consistent approach to ESG assessments across the investment spectrum.
Award-Winning Research and Data
Firm recognized as Best ESG Research and Data Provider by Environmental Finance and Investment Week.
End-to-End ESG Solutions
ESG products and services that serve the entire investment value chain.
30 Years of ESG Expertise
800+ ESG research analysts across our global offices.
A Leading SPO Provider
As recognized by Environmental Finance and the Climate Bonds Initiative.
Related Insights and Resources
The Cost of Climate Indifference: A Pragmatic Look at the Climate and Emergency Preparedness of US Companies
This article explores the climate and emergency preparedness of US businesses, including some of its highest emitting sectors, and the readiness of US companies to mitigate the associated risks.
Say on Pay: CEO Compensation and the Long Tail of Shareholder Dissent
This article explores say on pay voting on CEO compensation, with the aim of illuminating pay practices that lead to low levels of shareholder support. It also identifies opportunities for shareholder engagement based on say on pay voting outcomes.
How Unequal Shareholder Rights Influence Proxy Voting Outcomes and Corporate Governance
This article explains how dual class share structures can distort key governance signals, limiting the influence of minority shareholders on issues ranging from executive compensation to environmental, social, and governance (ESG) resolutions.
Related Solutions
Thematic Engagement
Engage on the most challenging ESG issues, from climate change to human capital.
Material Risk Engagement
Engage on the most material ESG risks identified by the ESG Risk Ratings.
Global Standards Engagement
Engage with companies that breach international norms and standards as identified by our Global Standards Screening research.