Mutual funds’ strategic voting on environmental and social issues

Abstract

We find that environmental and social (ES) funds in non-ES families adopt a strategic voting pattern: they are supportive of ES proposals that pass or fail by large margins, but unsupportive when their votes are likely to be pivotal. As such, these funds are able to show considerably high support for ES proposals on average, consistent with their stated objectives, while aligning with conflicting family preferences when their votes are likely to make a difference. This voting pattern is predominantly driven by actively managed funds. Our results highlight possible conflict of interest between ES funds and their families; showing that, when it matters the most, family preferences towards ES prevail over funds stated objectives, and perhaps with their fiduciary responsibilities.