Contrary to popular belief, passive ETFs which track indices do make active decisions when it comes to proxy voting elections.
Proxy votes are collective ballots cast on behalf of investors at company annual general meetings. Examples include proposed changes to share ownership, the structure of the board of directors, merger or acquisition approvals, and executive salary and benefits.
Passive strategies continue to grow in Australia and globally. In the US, assets managed under passive strategies overtook active strategies in 2019. As passive investment strategies continue to grow, the power of proxy votes and corresponding manager elections will become more forefront to investor decisions. Ultimately, investment managers have a fiduciary duty to act in the best interest of investors facilitated by taking an active position regarding proxy votes.
At VanEck we have chosen to use a proxy agent who votes on our behalf. We have chosen to use the proxy voting company Glass Lewis which have developed a specific set of Environmental, Social and Governance (ESG) proxy voting guidelines which closely align with our views.
Some examples of the proxy voting guidelines include:
Evaluation of a company’s policies and actions with respect to board refreshment and diversity. Glass Lewis will vote against members of the nominating committee in the event that the board has an average tenure of over ten years and the board has not appointed a new nominee to the board in at least five years; or vote against the male members of the nominating committee in instances where the board is comprised of fewer than 30% female directors for large-cap companies, or against the nominating committee when there is not at least one woman on the board at mid- and small-cap companies.
The guidelines generally support proposals regarding the environment, in particular, those seeking improved sustainability reporting and disclosure about company practices which impact the environment.
Labour and Human Rights
The guidelines generally support enhancing the rights of workers, as well as considering the communities and broader constituents in the areas in which companies do business.
Health and Safety
The guidelines support proposals calling for the labelling of the use of genetically modified organisms (“GMOs”), the elimination or reduction of toxic emissions and use of toxic chemicals in manufacturing, and the prohibition of tobacco sales to minors.
We always have the option to override the Glass Lewis recommendation. We will vote against recommendations if we review major material proxy votes and deem they are not in the best interest of investors.
Even though passive funds do not actively select securities, they can influence the way companies are operating by actively voting.
Issued by VanEck Investments Limited ACN 146 596 116 AFSL 416755 (‘VanEck’). This is general advice only, not personal financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Read the PDS and speak with a financial adviser to determine if a fund is appropriate for your circumstances. PDSs are available at www.vaneck.com.au. No member of the VanEck group of companies guarantees the repayment of capital, the payment of income, performance, or any particular rate of return from any fund.