By Meredith Jones
It’s proxy voting season again, when companies hold their annual shareholder meetings and let their investors vote on resolutions on everything from board candidates to diversity to parental leave.
This year, investors are gearing up to vote on 303 resolutions that touch on environmental, social and governance (ESG) issues. But if 2018 was any indication — environmental and social resolutions garnered just over 25% of votes cast — many of these initiatives are still doomed to fail, and your index fund may shoulder a fair amount of the blame.
For investors frustrated with the pace of corporate climate-change action, it may seem like divesting from fossil fuels is the best response. However, it may make more sense to keep the sector but “nag or bag” your fund manager.
There may be a “cost” associated with divesting from fossil fuels. Some studies estimate that cost can be as high as 12% of the portfolio over 20 years, while others assume a much smaller (and in fact decreasing) impact. Remember that most studies use historic data, while any investment-performance-related penalties (or rewards) will be driven by the sector’s future performance, which is obviously an unknown. As a result, it can be difficult to quantify what this cost may be.
Whatever the cost, many investors may be as yet unwilling to pay it. Just under 50% of Americans believe that climate change will actually harm them personally. While 57% of Americans are willing to pay a $1 monthly fee to help defend against global warming, only 23% would be willing to pay as much as $40 a month for that protection, according to a November 2018 AP-University of Chicago poll.
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