Growing Support for ESG Resolutions, but the Largest Lag Behind

Proxy Voting by 50 U.S. Fund Families Growing support for ESG Resolutions, but the largest lag behind.

Morningstar Equity Research Key Takeaways: 6 February 2020 × Asset-manager proxy voting support for ESG-related shareholder resolutions has increased considerably

over the past five years, with average support across 50 large fund families rising to 46% from 27%. Contents × Funds offered by Allianz Global Investors, Blackstone, Eaton Vance, and PIMCO were the most likely to 1 Key Takeaways support shareholder-proposed ESG resolutions in 2019, voting for these resolutions more than 87% of 1 Introduction 3 The Proxy Process and Asset-Manager the time. Stewardship × Five of the 10 largest fund families—Vanguard, BlackRock, American Funds, T. Rowe Price, and DFA 6 Five Years of Asset-Manager Voting Funds offered by Dimensional Fund Advisors—voted against more than 88% of ESG-related shareholder on ESG Resolutions 12 A Close-Up Look at Asset-Manager resolutions. Voting in 2019 × Large fund groups voting against ESG-related shareholder resolutions kept many of these initiatives from 24 Conclusion achieving majority support. Nineteen of 23 resolutions earning more than 40% support would have 26 Appendix A 27 Appendix B passed if supported by just one of the largest two asset managers. 29 Appendix C

Introduction Jackie Cook Investor concerns over sustainability issues have increased significantly in recent years, driven by the Director of Manager Research increasing risks of climate change, the need to better serve all relevant stakeholders in order to drive +1 778-227-8221 [email protected] long-term shareholder value, and the growing materiality of reputation, with swift and severe consequences for companies that violate their social license to operate. Jon Hale Director, Sustainability Research Global Manager Research One manifestation of investor concern over climate risk is the emergence of the Climate Action 100+ +1 312-696-6093 Initiative, or CA100+, a global coalition of investors representing $34 trillion in managed assets (as of the [email protected] end of 2019). Two years into its five-year action plan, this coalition has coordinated engagements with

the world’s most significant emitters of greenhouse gases. Members of the coalition have filed Important Disclosure shareholder resolutions at some of the largest emitters, both U.S. and international, calling for improved The conduct of Morningstar’s analysts is climate disclosures in line with the Taskforce on Climate-related Financial Disclosure, or TCFD, governed by Code of Ethics/Code of Conduct Policy, Personal Security Trading Policy (or an recommendations and, in the case of some U.S. electric utility and oil and gas companies, calling for equivalent of), and Investment Research transparency on lobbying activities. Policy. For information regarding conflicts of interest, please visit: http://global.morningstar.com/equitydisclosures Recent European stewardship code revisions place a stronger obligation on fiduciaries to actively vote proxies and disclose their voting records. The new U.K. Stewardship Code 2020 requires that asset managers must explain why they voted against a shareholder resolution (where the standard has been to explain votes against management’s position on an issue).

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Proxy voting has taken on a new level of importance for investors globally—as a tool for effecting

governance changes and as a visible indicator of how investment fiduciaries are positioning themselves

on increasingly urgent sustainability issues.

In January 2020 two highly significant announcements from the world’s largest asset manager,

BlackRock , catapulted both the CA100+ and proxy voting to the forefront of investor efforts to achieve a sustainable global economy. On Jan. 9th, BlackRock announced that it was joining the CA100+, and on Jan. 15th, BlackRock’s CEO, Larry Fink, shared the view that climate risk is changing the fundamentals of the financial system and that BlackRock would be aligning its investment approach with sustainability, including how it votes proxies.

Morningstar’s proxy voting coverage shows that investor support for resolutions addressing the governance of environmental and social risks, which we refer to here as ESG, concerns, reached a record high in 2019.1 ESG-related shareholder resolutions were supported, on average, by 29 percent of investor shares voted. The previous record high was 25% in 2018. These numbers belie the large number of successful engagements preceding proxy votes, resulting in many resolutions that would have likely garnered strong support not coming to a vote.2 In fact, far fewer climate-related resolutions appeared on company ballots in 2019 than the number withdrawn.3

1 ESG is the acronym for environmental, social and governance. As the term is applied, it is typically used to refer to the governance—via transparency, board oversight, incentives and policies—of risks related to the human capital, reputational capital, environmental stewardship, climate risk, and so on. We have not included in this analysis resolutions that address shareholder rights or corporate governance arrangements without reference to social and environmental risks, such as share class voting rights; rights to call special meetings or act by written consent; takeover defenses; independent board chair; board declassification; board independence; senior executive stock retention, and so on. All resolutions covered in this analysis reference social or environmental risks in recommending governance or transparency improvements. 2 Hale, J. and Cook, J. 2019. “Proxy Season Shows ESG Concerns on Shareholders’ Minds.” Morningstar’s Sustainability Matters Column, Aug. 22, 2019. https://www.morningstar.com/articles/943448/proxy-season-shows-esg-concerns-on-shareholders-minds

3 Welsh, H. & Passoff, M. (2019). Proxy Preview 2019. As You Sow, March 2019. https://www.proxypreview.org/?redirect_to=https://www.proxypreview.org/2019/report-cover

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Exhibit 1 16-Year Trend in Average Support for Resolutions Addressing Environmental and Social Issues

Source: Morningstar’s Proxy Voting Database. Data as of 07/21/2019.

Open-end and exchange-traded mutual funds collectively own a sizable portion of the U.S. equity market. As shareholders, the funds have the right, via the proxy process, to address issues with company managements that may affect shareholder value. They can do this by voting on management and shareholder proposals at company annual meetings, by proposing or cosponsoring shareholder resolutions, and by engaging directly with management about issues of concern. Through these forms of active ownership, the asset managers offering these funds have considerable power to promote sustainable corporate business practices.

This report takes an in-depth look at how these influential stewards of U.S. equity capital—the large asset managers offering mutual funds to U.S. investors—have voted on shareholder proposals focused on sustainability, or ESG, issues.

The Proxy Process and Asset-Manager Stewardship Proxy voting, engaging with corporate management, and filing shareholder resolutions are aspects of the stewardship ecosystem that defines how shareholder democracy works in the U.S. equity market.4

The Proxy Process Underpins Active Ownership The proxy process encompasses interactions between shareholders and investee companies enabled by the formal voting rights attached to shares. Leveraging their ownership and voting rights, shareholders may actively engage corporate management of investee companies in a dialogue about ESG risks. Many of these engagements are initiated or given greater focus when shareholders file resolutions.

4 A term coined by Novick, B., Edkins, M., and Clark, T. 2018. “The Investment Stewardship Ecosystem.”Harvard Law School Forum on Corporate Governance and Financial Regulation. July 24, 2018. https://corpgov.law.harvard.edu/2018/07/24/the-investment-stewardship-ecosystem

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Engagement and proxy voting are complementary activities. Shareholder influence in company

engagements is enhanced by the willingn ess of shareholders to vote in favor of shareholder-initiated proposals that address ESG risks, as well as to vote against executive compensation arrangements or

board nominees in certain situations. The public nature of proxy voting has a broader impact, as it

communicates investor expectations to other companies facing similar ESG risks, thereby scaling the impact of each vote.

Large Asset Managers as Stewards of Capital Markets As ESG risks take center stage, expectations of investment fiduciaries are evolving. Asset managers are increasingly expected to be active owners, with respect to not only investee companies but also to the stability and resilience of the financial system itself. This expectation is articulated in the U.K.’s recently revised, and highly influential, stewardship code:

“… asset owners and asset managers play an important role as guardians of market integrity and in working to minimise systemic risks as well as being stewards of the investments in their portfolios.” 5

The ongoing shift to passive investing has important implications for the exercise of active ownership by large asset managers. 6 As long-term and diversified owners, large asset managers are well-positioned to capture the benefits of active ownership. This is especially true of asset managers focused on passive investments. With no way to exit a stock, the only way to influence shareholder value at the company or system level is through exercising active ownership rights. A failure to actively monitor investee companies and shape governance practices to address sustainability risks could lead to vulnerabilities across markets. Examples include transparency about climate resilience and decarbonization planning, executive pay alignment with key sustainability performance metrics, and board diversity.

Fund Proxy Votes Reflect Asset Managers’ ESG Stewardship Since 2004, U.S.-domiciled open-end and exchange-traded mutual funds have been required to report their annual proxy voting records in SEC filings. Each year at the end of August, asset managers must disclose—fund by fund, item by item—how they voted on portfolio company ballots for meetings held in the preceding proxy calendar year, which runs from July through June.

These records shine a light on how investment fiduciaries, managing trillions of dollars of assets on behalf of fund investors, exercise stewardship. Investors can use their votes on individual ballot items to strengthen investee company governance of emerging ESG risks with votes that shape board oversight, incentive structures, transparency, and company policies. Investors concerned about ESG risks often put

5 The Financial Reporting Council 2019. The U.K. Stewardship Code 2020. p. 4 https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a- d14e156a1d87/Stewardship-Code_Final2.pdf 6 Cook, J. & Sethi, J. 2019. “The Global Stewardship Movement Draws Passive Investors Into Active Ownership.” Oct. 11, 2019. Morningstar.com. https://www.morningstar.com/blog/2019/10/09/global-stewardship.html

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forward requests for greater transparency and stronger policies on how companies are overseeing and

addressing risks.

Exhibit 2 Asset Managers Mitigate Portfolio ESG Risks Leveraging Proxy Voting Power

Source: Morningstar.

Voting is executed by funds based on proxy voting guidelines set by fund advisors—the asset managers offering the funds. Generally, passive fund providers maintain a more centralized system of proxy voting administration, leveraging the resources required for researching and executing votes across multiple funds in a family of funds. Actively managed funds may be voted independently by fund managers. However, in practice, voting may be administered by asset managers in a variety of ways across the funds offered.

How Asset Managers Operationalize Proxy Voting Strategies Vanguard’s Investment Stewardship team currently administers proxy votes on behalf of the entire suite of Vanguard funds. However, starting in 2020, Vanguard’s actively managed funds, accounting for approximately 10% of assets under management, will be voted independently by their respective managers.7

The Proxy Committee of T. Rowe Price, provider of mainly actively managed funds, develops a set of positions on all major proxy voting issues, but leaves the ultimate discretion for proxy voting up to

7 Vanguard Investment Stewardship 2019. “Vanguard funds plan to grant proxy voting responsibilities to external managers.” https://about.vanguard.com/investment-stewardship/perspectives-and-commentary/proxy_ext_mgrs.pdf

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individual portfolio managers. In practice, this results in a high degree of voting consensus across 8 shareholder-sponsored ballot items.

Invesco’s mutual funds and PowerShares’ ETFs take guidance from a Global Proxy Advisory Committee

which “provides a forum for investment teams to monitor, understand and discuss key proxy issues and

voting trends within the Invesco complex” and assumes responsibility for voting proxies unless explicitly delegated to the respective investment management team. All investment teams track voting via 9 Invesco’s proprietary Fund Manager Portal.

BlackRock’s stewardship team, with members in various international offices, directs proxy voting across BlackRock’s global offering of non-ESG mutual funds and ETFs, which includes all iShares ETFs. BlackRock’s ESG funds vote independently.10

State Street’s full suite of funds—including its SPDR ETF offerings as well as its ESG funds—vote in unison according to a strategy administered by the asset manager’s Global Stewardship Team.11

Using Morningstar’s multiyear-fund voting data, we examine votes by large asset managers on shareholder-sustainability proposals voted at public-company annual general meetings (AGMs) over the past five proxy seasons, along with a more-detailed analysis of the 2019 proxy season.

Resolutions addressing sustainability risks are filed by shareholders under conditions regulated by the U.S. Securities and Exchange Commission. They request target companies’ management to make disclosures or implement policies or governance arrangements that address issues such as climate risk, environmental stewardship, diversity and inclusiveness, human and worker rights, corporate political influence, public health and product safety, animal welfare, ethical business conduct, cyber security, and online content governance.

Five Years of Asset-Manager Voting on ESG Resolutions Between 2015 and 2019, 1,033 shareholder-initiated ESG resolutions were voted at U.S. company AGMs, an average of 207 per year. In this section we examine the five-year voting record of 50 of the largest fund families that offer funds to investors in the U.S.

8 T. Rowe Price Proxy Voting Guidelines. https://www.troweprice.com/content/dam/trowecorp/Pdfs/C35H15KRK_Final.pdf 9 Invesco’s Policy Statement on Global Corporate Governance and Proxy Voting. December 2019. https://www.invesco.com/corporate/dam/jcr:472ccfeb-b3cc-411e-9996-afd238caa7ad/Invesco-Global-Proxy-Policy-Statement-June-2019.pdf 10 BlackRock Investment Stewardship 2019. https://www.BlackRock.com/corporate/literature/publication/blk-profile-of-BlackRock-investment- stewardship-team-work.pdf 11 State Street 2018 Corporate Responsibility Report. http://www.statestreet.com/content/dam/statestreet/documents/values/2018_STT_CR_Report.pdf

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The universe that we considered for inclusion consists of those ranked in the Morningstar Fund Family 12 150 as of July 2019. These are the largest 150 fund families by fund assets under management in the

U.S. To identify the most influential fund groups, we selected the 30 largest fund families from the list, plus others on the list that also ranked among the world’s largest 100 asset managers according to the

Investment & Pensions Europe, or IPE, Global 400 Asset Manager Ranking.13 Based on these criteria we

identified 53 fund families. Three were screened out of the final list as they voted on fewer than 25 ESG resolutions in one or more years of the su rvey: AXA, Aberdeen, and Dodge & Cox.

Wellington Management ranks 13th on the IPE list. The funds it subadvises for Hartford are considered under the Hartford fund family. For two of the 50 fund families we split the votes into two subgroups. Fidelity’s index funds, subadvised by Geode Capital Management, are considered separately because Geode votes the proxies of the funds it subadvises and is itself ranked 55th in the IPE ranking of asset managers. Nuveen funds are considered separately from TIAA Funds as they continue to vote independently following the acquisition of Nuveen Investors by TIAA-CREF in 2014. The analysis is therefore based on the votes of funds belonging to one of 52 fund groups derived from 50 fund families.

Within fund complexes where voting is delegated to portfolio managers, and particularly within multimanager-fund complexes, votes on one resolution can differ from manager to manager. Of the 52 fund groups, 10 had mixed votes, on 10% or more of the resolutions voted where no consensus vote could be identified. There were no natural groupings in any of these cases (like TIAA versus Nuveen or Fidelity actively managed versus Geode) that would eliminate the variance.

The proxy voting decisions of the fund families selected for the survey reflect the voting preferences of large asset managers. The mutual funds offered to U.S. investors by these asset managers collectively control $16.9 trillion—or 88% of all U.S.-domiciled fund assets.14

The analysis is based on 516,788 votes cast (for, against, or abstain) across 1,033 individual ESG resolutions by more than 2,000 funds offered within the 52 fund groups. Funds with ESG mandates are excluded from the analysis because, in many cases, they follow a separate proxy voting strategy from the rest of the family of funds to which they belong. The five-year analysis includes ballots voted from July 2014 through June 2019 and reported in fund companies’ N-PX filings.

Growing Asset-Manager Support for ESG Resolutions Over the past five years, we observe growing asset-manager support for ESG-shareholder proposals reflected in aggregated votes across fund families. In fact, asset-manager support has increased every year since 2015. Average support across the 52 fund groups increased by 19 percentage points, to 46% in 2019 from 27% in 2015, and jumped by more than six percentage points in each of the two most

12 Laske, M. 2019. “Morningstar Fund Family 150.” Morningstar Research Services. July 2019 https://www.morningstar.com/lp/fund-family-150 13 Moreolo, C.S. 2019. “Top 400 Asset Managers: AUM grows 1% amid market volatility.” Investments & Pensions Europe. June 5, 2019. https://www.ipe.com/top-400-asset-managers-aum-grows-1-amid-market-volatility/10031518.article 14 Calculated to be $19.3 trillion according to Morningstar’s Fund Family 150 ranking.

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recent proxy years. Appendix B shows support by each of the 52 fund groups for resolutions voted across

the five-year survey period.

DWS, Allianz Global Investors, Blackstone , Nuveen and AQR Funds supported ESG-shareholder

proposals most often over the full five-year period. Fund group DWS led the way, supporting 89% of all

998 items voted. DFA, Voya, Lord Abbett, BlackRock, and Vanguard supported shareholder proposals least often. DFA only supported nine out of 1,004 ESG resolutions voted over the five years.

Exhibit 3 The 10 Most and Least Supportive Fund Groups Over Five Years

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2014 to 30 June 2019. Votes have been aggregated over 5 years. Support is calculated as percent of all votes cast ‘for’, ‘against’ and ‘abstain’.

Some asset managers significantly increased their support for ESG-related shareholder proposals in 2019. American Century had the biggest increase. After supporting only 2% (13 of 720) of ESG resolutions voted from 2015 through 2018, the fund group supported 56% (76 of the 135) of ESG resolutions voted in 2019.

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Eaton Vance, which acquired responsible investment asset manager Calvert Research and Management

in 2016, went from supporting 20% of ESG resolutions in 2015 to supporting 87% of resolutions in 2019.

Calvert’s funds themselves are not represented in Eaton Vance’s votes in this analysis because they follow explicit ESG-investing mandates and a separate set of voting guidelines.15

Pioneer supported only 1% of resolutions it voted from 2015 to 2018 and then jumped to supporting 28% in 2019. Pioneer Investments was acquired by Amundi, the largest European asset manager in IPE’s 2019 ranking, in July 2017. Full integration of Pioneer Investments into Amundi was completed early in 2019. The increase in support for ESG-shareholder resolutions by Pioneer-branded funds is consistent with Amundi’s strong focus on ESG investing. In addition to offering a range of specialized ESG- investment products, in 2018 Amundi embarked on a three-year plan to incorporate ESG criteria into all funds by 2021, including its ETFs.16

Exhibit 4 Fund Groups That Expanded Their Support of ESG Shareholder Proposals by at Least 20% in 2019

Source: Morningstar Direct.

Fifteen of the 52 fund groups expanded their support for ESG-related shareholder resolutions in 2019 by more than 20 percentage points over their respective previous four-year averages. Fidelity’s index funds (managed by Geode) unanimously abstained on all 431 resolutions voted in 2015 and 2016, before inching up to 7% of votes “for” in 2017 and then jumping to 30% and 53% votes “for” in 2018 and 2019.

15 Securities and Exchange Commission. 2018. Calvert Funds Proxy Voting Policy and Procedures. Adopted Oct. 10, 2017, as revised April 5, 2018. https://www.sec.gov/Archives/edgar/data/319676/000094039418001332/calvertcomplexsupp.htm 16 Fitzpatrick, N. 2019. “Executive Interview: Amundi Plans to “Stigmatise” ESG Laggards.” Funds-Europe. December 2019. https://www.funds- europe.com/dec-2019-jan-2020/executive-interview-amundi-plans-to-stigmatise-esg-laggards

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We also observe more asset managers casting a majority of their votes “for” ESG-shareholder proposals.

In 2015, only 12 fund groups supported most of the resolutions voted. In 2019, 25 fund groups supported

more than half of the ESG resolutions on which they voted. Those numbers include 11 fund groups that voted in support of more than 75% of ESG proposals in 2019. In 2015 only DWS voted in support of more

than 75% of ESG resolutions.

Exhibit 5 Asset Managers Supporting at Least 75% of ESG-Shareholder Proposals in 2019

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2014 to 30 June 2019. Support is calculated as percent of all votes cast ‘for’, ‘against’ and ‘abstain’.

Comparing votes across the largest five, the largest 10, and the remainder of the fund groups in our analysis shows that support has increased for each group over the past five years. However, funds offered by the largest asset managers continue to lag those of their smaller peers by a wide margin. As a group, the largest of the asset managers are the least likely to support ESG shareholder-sponsored ballot initiatives.

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Exhibit 6 Five-Year Vote Trend: Average Fund Family Support for ESG Shareholder Resolutions:

2015-2019

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2014 to 30 June 2019. AUM based on Morningstar Fund Family 150 ranking as of 07/01/2019

American Funds, BlackRock, DFA, T. Rowe Price, and Vanguard are all among the 10 largest fund managers in Morningstar’s Fund Family 150 ranking, and all but DFA also ranked in the largest 15 asset managers in IPE’s 2019 global ranking. Each supported fewer than 12% of ESG resolutions voted in 2019, bringing average support across the largest five and largest 10 asset managers to below that of the remainder of the fund groups in the study.

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Exhibit 7 Five of the Largest 10 Fund Groups Supporting Less Than 12% of Resolutions in 2019

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2014 to 30 June 2019.

In almost all cases, a vote in support of a shareholder resolution is opposed to management’s recommended vote, as corporate boards typically recommend that shareholders vote down the measure proposed. As a group, large asset managers have historically been reluctant to vote against management both on shareholder- and management-sponsored ballot items. The upward trend in asset- manager support for shareholder-initiated ESG resolutions reflects rapidly changing investor attitudes toward the materiality of the sustainability issues that these resolutions address. It shows that asset managers, as a group, are becoming increasingly willing to use their proxy votes to support transparency and better governance of sustainability concerns.

A Close-Up Look at Asset-Manager Voting in 2019 Turning to 2019 proxy votes, we explore asset managers’ votes on the spectrum of ESG issues and provide deeper context for each issue. Some issues receive more support than others. Some asset managers support one issue but not another. Differences in voting profiles point to differences in voting strategy. Proxy voting guidelines articulate asset managers’ voting strategies, but most of the time these are too vague to be instructive. For fund investors, an issue-by-issue breakdown of fund providers’ votes can help to align values with investments. For asset owners, voting breakdowns can help with the selection of managers that offer value-adding stewardship services.

Because the very largest asset managers have been among the least likely to support shareholder resolutions addressing ESG risks, actual vote outcomes may understate broader investor concerns about the issues that the resolutions address. To illustrate this, in the second part of this section we will explore the impact of the two largest asset managers’ votes on whether a subset of resolutions pass or fail.

For our in-depth analysis of 2019 fund-group votes, we identified 12 broad ESG issues and examine how fund groups voted across each. Exhibit 9 provides a general description of the issue types into which we grouped the 2019 ESG resolutions.

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Exhibit 8 2019 ESG Resolutions in 12 Broad Issue Types

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2014 to 30 June 2019.

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Exhibit 8 2019 ESG Resolutions in 12 Broad Issue Types (Continued)

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2014 to 30 June 2019.

An issue-by-issue breakdown of each fund group’s voting support on 2019 ESG-shareholder resolutions can be found in Appendix C. Exhibit 10 shows this breakdown for the 11 fund groups comprising the largest 10 fund families.

Exhibit 9 Largest 10 Fund Families Support for 2019 ESG Issue Types

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2018 to 30 June 2019.

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Some issue types consist of a more homogenous set of resolutions than others. For example, political-

spending resolutions mostly follow a model -resolution template, whereas requests for disclosures

relating to environmental stewardship or human rights raise a variety of concerns within each of those broad categories.

While each resolution was assigned to only one of 12 issue types, the issue types may show similarities with respect to the voting decisions of individual asset managers. These similarities reveal overlap in the underlying issues addressed by resolutions. For example, the environmental stewardship category addresses water stewardship and the human right to water of those living in water-stressed regions where a company operates. Two resolutions assigned to the political-spending category call for disclosure of both political campaign spending as well as spending on lobbying by trade associations. Resolutions in the sustainable-governance category call on boards to nominate director candidates who have climate expertise, to establish committees to oversee human rights, or to link executive pay to sustainability metrics. They address ESG issues by recommending a governance strategy. Resolutions addressing the governance of online-search censorship or surveillance technologies share features with resolutions asking for human rights reports on the implications of doing business in conflict-affected regions or of contracting to governments.

To describe asset-manager votes across the 12 issues, we first computed an issue-by-issue correlation matrix. The matrix shows the correlation in voting support between each issue type pair across the 52 fund groups. As expected, this indicates that some issue type pairs are more closely related than others. In the discussion that follows we use the revealed clusters of issues to discuss 2019 asset-manager voting patterns.

Exhibit 10 Correlation Matrix Showing Strength of Relationship Between ESG Issue Types in Fund-Group Voting Patterns

Source: Morningstar’s Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2018 to 30 June 2019.

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Harmful Products Create Reputational and Financial Risks

The four shareholder proposals bearing on the reputational risks of products attracted the unanimous

support of most of the fund groups that voted on them. Three addressed risks related to the opioid epidemic and one addressed gun safety. All called for tighter governance of products causing harm to

society, citing the significant reputational and liability risks for companies that manufacture, market, and

sell these products. All four companies targeted with these resolutions have been named in class-action 17 lawsuits, which focuses investors’ attention on the link between reputational and financial risk.

Thirty-four of the 48 fund groups voting on one or more of these issues supported all resolutions voted.

Diversity and Gender Pay Equity Voted as Two Distinct Issues The 11 diversity-related resolutions also stood relatively independently as a group and were also strongly supported by asset managers. On average, fund families supported these 72% of the time. Fourteen fund groups supported all 11 and only TCW failed to support any resolutions in this issue category. Five resolutions addressed board diversity, one asked for details of senior management diversity, and five asked for disclosure of companies’ workforce diversity, referencing EEOC job categories. Of the largest fund families, PIMCO supported all seven resolutions it voted in this category, while Fidelity, Fidelity- Geode, and Franklin Templeton each supported more than 85% of the diversity resolutions on which they voted.

Resolutions requesting companies to disclose their global median gender pay gaps and steps taken to reduce gender-based pay differences earned an average 48% support from asset managers. Of the 10 largest fund groups, PIMCO voted almost unanimously for gender-pay equity resolutions—but for one vote cast against pay-equity disclosure at TJX Companies TJX by the PIMCO Global Core Asset Allocation Fund. Two other PIMCO funds voting on this resolution supported it. Of all fund groups, only Allianz Global Investors and Blackstone supported gender-pay equity resolutions with 100% of votes cast. Five failed to support any of the resolutions: DFA, Hartford (Wellington), Northern Trust, TCW, and Vanguard.

Given that gender-pay equity resolutions share an emphasis on gender and inclusivity with diversity resolutions, it is surprising to note that they are less strongly correlated with diversity than with several other issue types. Equitable pay considerations likely underpin the correspondence in voting between gender pay equity and ESG governance arrangements—three of which addressed the link between senior executive pay and sustainability metrics, and two specifically focused on workplace and senior management diversity as a sustainability metric.

17 See the following articles for more information on the opioid crisis, litigation, and Investors for Opioid Accountability, as well as litigation of a large gun manufacturer: Cook, J. 2019. “Investors Pressure Firms on Opioid Crisis.” May 2, 2019. https://www.morningstar.com/articles/925563/investors-pressure-firms-on-opioid-crisis. 2019. “Supreme Court Won't Hear Gun Maker Challenge to Lawsuit by Sandy Hook Families.” The Wall Street Journal. Nov. 12, 2019. https://www.wsj.com/articles/supreme-court-won-t-hear-gun-maker-challenge-to-lawsuit-by-sandy-hook-families-11573569589

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Emerging Concerns: Workplace Sexual Harassment Complaints, Online Content, and

Tech Governance

In 2019, 10 resolutions that came to vote addressed how companies manage workplace sexual harassment complaints. Funds run by MFS and Allianz supported all resolutions voted in this category.

Three resolutions were directed at tech giants—two at Google parent Alphabet (GOOGL) and one at

Amazon.com (AMZN). Others were directed at companies in hospitality property management, and retail. On average, fund groups supported these 10 resolutions 41% of the time.

The governance of allegations of workplace sexual harassment and discrimination at tech companies has become an important reputational concern for investors, as it emerges that nondisclosure and settlement agreements prevent employees from talking about their cases.

Overlap in companies at which resolutions were voted seems to underlie the strong correlation in fund- family proxy voting between this category and an issue category addressing cyber, online content, and privacy concerns directed mostly at companies commonly referred to in the business media as the ‘FANG’ stocks—a collective acronym for tech giants Facebook (FB), Amazon.com, Netflix (NFLX) and Google, and sometimes extended to Apple (APPL), with the variation FAANG.

Social media companies and telecom giant Verizon were targeted with resolutions addressing concerns over online content, citing election interference; fake news; online child sexual exploitation; and hate speech. Companies developing cutting-edge facial-recognition technology were targeted with resolutions addressing privacy concerns and the potential for government abuse. One resolution asked for an assessment of the board’s oversight of cybersecurity and protection of customer data.

While this category received an average of 37% support from funds in the large fund families surveyed, new high-profile content scandals or cybersecurity breaches could significantly increase the perceived investment risk, especially in the context of an upcoming presidential election. Nine fund groups failed to support a single resolution voted in this issue category. Five of these—BlackRock, DFA, Fidelity, T. Rowe Price, and Vanguard—are among the largest 10 fund families and each voted against all nine resolutions in the cyber, online content, and tech-governance category.

Resolutions in this category also share some commonality with resolutions in the human rights category requesting reports from companies doing business in conflict-affected regions or with governments that might abuse surveillance technologies or that fail to enforce antislavery measures (more on this below).

Support for Corporate Political Accountability Divides Fund Families Political-spending resolutions received a surge in support from shareholders in 2019 and were supported, on average, 53% of the time by the fund groups surveyed. Eleven fund groups, however, failed to support a single political-spending resolution, including six that also did not support any of the lobbying-related resolutions.

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Overall, support for political spending and lobbying disclosures were the most correlated of all issue type

pairs, suggesting that asset managers are generally voting on the transparency and accountability of

companies’ political influence when voting across the combined 62 resolutions in these two issue types. Vanguard was one of the six fund groups voting against all 62 political influence resolutions. The others

are American Century, Federated, Lord Abbett, Northern Trust, and Russell Investments. American

Century otherwise supported more than 80% of ESG resolutions voted.

By contrast, eight fund groups supported more than 90% of resolutions in each category. A notable exception is TIAA Funds, which supported 56% of resolutions overall, and 79% of the political-spending resolutions it voted, while opposing every one of the 24 lobbying resolutions it voted. TIAA/Nuveen’s proxy voting guidelines state that “[w]e would generally not support shareholder resolutions seeking disclosure of a company’s lobbying expenditures.”18 This contrasts with proxy votes cast by Nuveen funds, owned by TIAA, which supported 89% of political-spending resolutions and all but one of the lobbying resolutions it voted.

For more than three decades, large and politically influential trade associations, such as the American Petroleum Institute, American Fuel and Petrochemical Manufacturers, the U.S. Chamber of Commerce and the National Association of Manufacturers have lobbied against climate policy at both federal and state levels. Strategies include setting up lobbying front groups, funding climate-denial commentary, writing model legislation that preempts or rolls back state-level climate policies, and attacking state-led climate liability lawsuits.19 Climate-policy inaction threatens trillions of dollars in investments by 2050. Lobbying transparency is, therefore, becoming an increasingly important part of the investor agenda to push companies to reduce their carbon footprints and plan for low-carbon-policy scenarios.

Climate, Environmental Stewardship, and Human Rights Share the Vote Climate-action failure, biodiversity loss, and extreme weather are among the top five most likely and most impactful risks in this year’s WEF Global Risks Report, released on 15 January 2020.20 Overall, climate-action failure is seen as the most significant risk facing humankind—sitting squarely at the center of the nexus of global environmental, geopolitical, technological, societal, and economic risks— water crises, food crises, social instability, and global governance failure, to name a few.21

Across the 52 fund groups, votes on climate risk, environmental stewardship, and human rights were strongly correlated, averaging 51%, 42%, and 41% average support, respectively, across the 52 fund groups.

The investor case for addressing climate change overlaps with the case for protecting natural capital and human rights. Climate change impacts on ecosystems are compounded by environmental contamination and depletion. Ecosystems degradation impacts local communities and exploitation of

18 TIAA policy statement on responsible investing: https://www.tiaa.org/public/pdf/ri_policy.pdf 19 Savage, K. 2019. “Battling for Big Oil: Manufacturing Trade Group Leads Assault on Climate Suits.” Climate Liability News. Feb. 26, 2019. https://www.climateliabilitynews.org/2019/02/26/national-association-manufacturers-oil-climate-liability/ 20 World Economic Forum. 2020. The Global Risks Report 2020. Jan. 15, 2020. (Page 2) https://www.weforum.org/reports/the-global-risks-report-2020 21 World Economic Forum. 2020. The Global Risks Report 2020. Jan. 15, 2020. (Page 5) https://www.weforum.org/reports/the-global-risks-report-2020

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natural resources and vulnerable communities often go hand in hand. For example, two environmental

stewardship resolutions requesting supply chain deforestation transparency noted that deforestation

“…contributes to climate change, biodiversity loss, soil erosion, disrupted rainfall patterns, community land conflicts and forced labor.”

A resolution voted at Chevron’s 2019 AGM requests the company to report on the “human right to water” with respect to company-owned operations and its value chain, as enshrined in the UN Guiding Principles on Business and Human Rights, which extends the United Nations’ declaration on the human right to water. It asks Chevron to share “plans to track effectiveness of measures to assess, prevent, mitigate, and remedy adverse impacts on the human right to water.”

Nine of 16 climate-change resolutions ask companies to set goals for GHG emissions reduction, with a typical request for the company to “…adopt company-wide goals for the reduction of greenhouse gas (GHG) emissions, in light of the goals of the Paris Climate Agreement, and issue a report… [on] …plans to achieve these goals.” At least five similar resolutions were omitted from company ballots after target companies sought and received a no-action assurance from the SEC on the grounds that the proposal was an effort by shareholders to micromanage the company.22

Four climate resolutions asked for an assessment of the public health consequences of climate change, given the company’s continued involvement in either petrochemical operations or in coal-fired power generation. Two others requested a two-degree climate-policy-impact report and one resolution requested company-wide renewable energy-sourcing targets.

Allianz Global Investors, Blackstone, BMO, PIMCO, and UBS each supported 100% of the climate-related resolutions on which they voted. Sixteen of the 52 fund groups supported at least 75% of resolutions voted in this category and 25 of the fund groups supported at least half. DFA and JP Morgan’s funds supported none.

BlackRock and Vanguard each supported four of the 16 climate disclosure-related resolutions. BlackRock supported GHG emission-reduction goals disclosure at Ross Stores and Flowserve; physical climate change public health-risk disclosure filed at Exxon; and two-degree climate-policy-impact reporting at Continental Resources. These resolutions earned 41%, 28%, 25%, and 14%, respectively. BlackRock’s proxy voting guidelines endorse the TCFD and the Sustainable Accounting Standards Board, or SASB, as reporting frameworks and, where companies are highly exposed to climate risk, boards are expected to have demonstrable climate fluency:

“We believe that climate presents significant investment risks and opportunities to many companies….Where a company receives a shareholder proposal related to climate risk, in

22 For further discussion see Hale, J. and Cook, J. 2019. “Proxy Process Opens Door to Constructive Engagement on Climate.” Morningstar.com. Sept. 5, 2019. https://www.morningstar.com/articles/945007/proxy-process-opens-door-to-constructive-engagement-on-climate. For an example of a favorable SEC response to no-action a petition by Devon Energy see: https://www.sec.gov/divisions/corpfin/cf-noaction/14a- 8/2019/georgegundrecon040119-14a8.pdf

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addition to the factors laid out above, our assessment will take into account the robustness of

the company’s existing disclosures as well as our understanding of its management of the issues

23 as revealed through our engagements with the company and board members over time.”

Resolutions addressing human rights and environmental stewardship also were strongly correlated with

each other. Eightee n of the 27 resolutions across these two issue types request companies to address concerns in their supply chains—whether deforestation, nonmedical antibiotic use, pesticide use, or forced labor.

Both in the U.S. and around the world, legal requirements that companies disclose efforts to eliminate modern slavery in their operations and supply chains, or that require supply chain due diligence, have proliferated24 alongside international standards and guidance25 and the UN commitment to SDG 8.26 The U.K.’s Modern Slavery Act, 2015, lists forced prison labor as a form of modern slavery. Four of the supply chain human rights resolutions call for assessments of how prisoner and detainee labor is used in supply chains.

The highest supported of all ESG resolutions that came to vote in 2019 called on GEO Group, a private operator of prisons and correctional facilities, to report annually on how it implements its own human rights policy; in particular, the portion of it addressing “Respect for Our Inmates and Detainees.” Filed by a group of faith-based funds and the Service Employees International Union Pension Plan, the supporting text cites official investigations finding security breaches at facilities as well as forced labor, improper treatment, and inhumane living conditions of immigrant detainees.27

GEO’s board initially recommended a vote against the resolution. However, in a special amended proxy filing two weeks prior to the AGM, GEO Group management changed their recommended vote from “against” to “for,” citing ongoing engagement efforts with shareholders.28

Resolutions in the sustainable-governance category request that boards adopt specific governance measures to ensure that sustainability is part of board oversight and senior management incentive arrangements. For instance, two resolutions in 2019 asked that the board set up a committee with climate change oversight. One requested a board committee on human rights. Another requested that,

23 BlackRock’s Proxy Voting Guidelines for U.S. Securities. (Page 13) January 2019. https://www.BlackRock.com/corporate/literature/fact-sheet/blk- responsible-investment-guidelines-us.pdf 24 Business & Human Rights Resource Centre. 2017. “Modern Slavery in Company Operation and Supply Chains: Mandatory transparency, mandatory due diligence and public procurement due diligence.” (Pages 4-5) September 2017. https://www.business- humanrights.org/sites/default/files/documents/Modern%2520slavery%2520in%2520company%2520operation%2520and%2520supply%2520chain _FINAL.pdf 25 Such as the 2014 ILO Protocol to the Forced Labour Convention. 26 Sustainable Development Goal 8: “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.” See Target 8.7: “Take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and by 2025 end child labour in all its forms.” https://sustainabledevelopment.un.org/sdg8 27 The GEO Group, Inc.’s proxy circular. March 28, 2019. https://www.sec.gov/Archives/edgar/data/923796/000119312519090420/d691911ddef14a.htm#toc691911_26 28 The GEO Group, Inc.’s amended proxy circular. April 25, 2019. https://www.sec.gov/Archives/edgar/data/923796/000119312519119626/d718922ddefa14a.htm

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at the company’s next AGM, the board put forward a candidate with human rights expertise. Because

these resolutions request governance interventions, as opposed to transparency, many asset managers

have been less likely to support them. Average fund-group support of 27% for resolutions in this category is lower than the other categories, yet strongly correlated with votes on environmental

stewardship, human rights, and climate change resolutions.

Large Fund-Group Opposition Damps Impact of Surging Overall Support for ESG Resolutions PIMCO and Allianz registered the highest support across all ESG resolutions in 2019 out of the 52 fund groups. Of the largest 10 fund families— analyzed in 11 distinct fund groupings—only PIMCO and Fidelity-Geode supported more than 50% of the ESG resolutions they voted in 2019.

Unweighted average asset-manager support for ESG resolutions across the 52 fund groups offers strong evidence of changing investor attitudes. However, the overall impact on actual vote outcomes of this growing asset-manager support is tempered somewhat by the less-supportive voting of the largest asset managers.

The largest asset managers are generally far less inclined to vote for sustainability resolutions and yet they have many times the impact on the vote than their smaller peers—and their impact is growing. The 25 largest fund groups in Morningstar’s Fund Family 150 ranking accounted for 82% of investors’ assets in U.S. funds mid-way through 2019, which was up from 79% one year earlier. The largest five— Vanguard, BlackRock, Fidelity, American Funds, and State Street—controlled 56% of fund assets, or $10.7 trillion in assets.

Of fund families surveyed, fund company giants Vanguard, BlackRock, American Funds, T. Rowe Price, DFA, and JP Morgan supported between 1% and 11% of ESG resolutions. Despite the growing and widespread asset-manager support for ESG resolutions, opposition by some of the largest asset managers keeps overall voted totals low; in some cases, holding resolution support below 50% of shares voted.

In a significant number of cases a vote by just one large asset manager would have tipped the vote outcome on a resolution to a majority vote for the motion. For many public companies, a large fund group may hold (on behalf of fundholders) 10% or more of shares outstanding. In 13 out of the 23 cases where an ESG resolution failed by 10% or less in 2019, Vanguard held a stake in the company of more than 10%. For BlackRock, this was true in four instances.

Of the 23 ESG resolutions that achieved between 40% and 50% support, 19 would have passed if supported by Vanguard, and 15 would have passed if supported by BlackRock. Four would have passed if supported by T. Rowe Price, and one would have passed if supported by JP Morgan. In at least three cases where Fidelity controlled more than a five percent stake, Geode voted Fidelity’s index funds ‘for’ the resolution, whereas Fidelity’s actively managed funds voted ‘against’.

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In the many other cases where a resolution failed to win a majority by more than 10 percentage points,

most of the shares cast by managers other than BlackRock and Vanguard were cast “for” the proposal.

For example, had BlackRock and Vanguard voted their stakes in support of lobbying transparency at

Exxon’s annual meeting in May 2019, that proposal, which earned 37% support, would have passed.

Thirty one of 46 other fund families with a consensus vote on this item supported it.

Similarly, had the two largest fund providers supported a resolution calling for a workforce diversity report at Charles Schwab, it would have passed with three percentage points to spare. As it is, the motion received just short of 40% of the votes yet 30 out of 40 fund groups with a consensus vote on this resolution, supported it.

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Exhibit 11 Votes and Significant Beneficial Holdings by BlackRock and Vanguard on

Resolutions Failing by 10% or Less

Source: Morningstar Proxy Data. Data as of 11/07/19. Based on all environmental and social resolutions, voted 1 July 2018 to 30 June 2019. Holdings data sourced from beneficial holding disclosures in proxy statements.

Shareholder resolutions are almost always advisory, which means that company management is not legally obliged to act on a resolution that earns majority support. However, strong or trending shareholder support often induces management to provide the requested disclosure or address an ESG risk identified in a shareholder proposal and very often encourages more-committed engagement between proponents and management or board members. Where resolutions earn majority support, company management is under significantly increased pressure to respond to shareholder concerns. It therefore matters a great deal how the largest asset managers cast their votes on resolutions that most other investors have supported.

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Conclusion

Shareholder-vote outcomes point to growing investor concern about material ESG risks and the need for

transparency and governance strategies to address them. Heightened investor interest in sustainable business practices in general, and the urgency of addressing climate risk in particular, are driving a

global investor stewardship movement—the gathering pace at which investors are organizing into

coalitions, undertaking engagements with companies, and supporting shareholder resolutions that address how companies are governing environmental and social risks.

As investment fiduciaries, asset managers are using their voting power and other stewardship strategies to advance sustainable business practices at investee companies. They are doing this to enhance long- term shareholder value while also responding to growing pressure from clients, peers, and regulators. We find that, across 50 fund families analyzed in 52 fund groupings, average support for ESG shareholder resolutions rose from 27% in 2015 to 46% in 2019.

Much of the pressure for more active voting is coming from the world’s largest asset owners, who are growing increasingly assertive in calling on asset managers to address climate risk and related sustainability concerns. They are also filing shareholder resolutions and joining forces with other investors in coalitions focused on shared concerns.

Yet, because the largest asset managers have been reluctant to vote against management on sustainability issues, only a few sustainability-focused resolutions pass with majority support each year. This number reached a record of 14 in the 2019 proxy year but represents less than 10% of resolutions that came to vote. Of the 10 largest U.S. fund families, five supported ESG resolutions less than 12% of the time. The largest and second largest fund providers in the U.S., Vanguard and BlackRock, respectively, each only supported 7% of ESG resolutions that came to vote.

The analysis of fund-family votes across issue types shows a wide variation in voting patterns. For instance, the distribution of fund-family support for resolutions on political spending and lobbying is quite polarized—a large proportion of fund managers either strongly supported or strongly opposed these measures. Based on their voting patterns, asset managers have different assessments of what factors constitute material ESG risks. While less polarized, votes on climate risk, human rights, environmental stewardship and ESG governance arrangements are strongly correlated—potentially tied together via concerns about supply chain risk, potential liability, and suitability of business models to the low-carbon economy. Future class-action litigation could lead to a reassessment of the materiality of emerging ESG risks like online-content governance and data privacy.

BlackRock’s recent commitment to using proxy voting to advance TCFD- and SASB-aligned financial disclosures and to an unprecedented standard of proxy voting transparency, will very likely create new energy in the “stewardship ecosystem.”29 Votes by BlackRock in support of sustainability measures

29 BlackRock’s CEO, Larry Fink’s, letter to CEOs: “A Fundamental Reshaping of Finance.” Jan. 15, 2020. https://www.BlackRock.com/corporate/investor-relations/larry-fink-ceo-letter

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would amplify the impact of others’ votes and potentially cause more resolutions to pass. Other large

asset managers who, in the past, have routinely sided with management may realize that the time has

come to take a more active approach to proxy voting.

BlackRock’s signaled willingness to vote against management would give engagements on sustainability

issues more teeth, particularly engagements conducted via the CA100+. This is likely to lead to a larger number of ESG resolutions being withdrawn as corporate management becomes more open to engaging with shareholder proponents.

Furthermore, setting a precedent by being the first large U.S asset manager to offer quarterly disclosure of full vote records and timely disclosure of key votes and vote rationales would challenge the SEC to update the 17-year-old proxy voting disclosure rule to meet rising expectations for proxy voting transparency.30

More transparency in proxy voting and engagement disclosure will afford better insight into how well investment fiduciaries are fulfilling their stewardship responsibilities, stimulating a new kind of competition in the provision of fund-management services.

BlackRock’s Global Executive Committee letter to clients: “Sustainability as BlackRock’s New Standard for Investing.” Jan. 15, 2020. https://www.BlackRock.com/corporate/investor-relations/BlackRock-client-letter 30 U.S. Securities and Exchange Commission. 2003. Final Rule: Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies. Jan. 31, 2003. https://www.sec.gov/rules/final/33-8188.htm

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Appendix A: Calculation of Vote Summaries

Within a family of funds offered by an asset manager, the same set of ballot items may be voted

multiple times where individual funds hold the same stock. While, typically, there is a high degree of voting consensus, it is not necessarily the case that all funds within a group of funds offered by the

same fund company vote uniformly across all ballot items. Where individual fund managers or

subadvisors within a su ite of funds have voting discretion, votes may be cast at odds on the same ballot item.

For the purpose of calculating summary votes at the level of fund provider, or asset manager, this report computes the percent of funds voting “for” out of all votes cast “for,” “against,” or “abstain” with respect to each ballot item for each fund group. Where voting is centrally administered, the vote with respect to an individual ballot item is either 0% (against) or 100% (for). If, however, three out of four funds cast votes ‘for’ with respect to a single ballot item and the other votes “against” or “abstain,” the support for this ballot item across the fund group is calculated at 75%.

Support across a category of ballot items—for instance, political spending transparency shareholder resolutions—by an individual fund provider is calculated by computing the average of the support for each ballot item voted across the funds within a fund family.

The vote averages shown in charts depicting voting trends (see Appendix B) and votes by issue type (see Appendix C) are not weighted by assets under management and are therefore indicative of shifting sentiment or relative priority assigned to ESG issues, but do not depict the relative impact of asset- manager votes on the shareholder-vote outcomes on specific resolutions.

Where we represent an asset manager’s voting profile by individual ballot item (see Exhibit 12), the vote assigned at the fund-provider level is the 75% consensus vote. So, if seven funds within a family of funds offered by an asset-manager vote on an item, and at least six of those funds vote “against,” then the consensus vote assigned is “against.” However, if five or fewer funds vote against that ballot item, the vote assigned is a “mixed vote.”

For example, 22 Eaton Vance funds voted on each of the three resolutions that came to vote at Amazon.com. Each voted “for.” So, Eaton Vance’s effective vote for each of these three resolutions is “for” and the average support for each is 100%. Perfect agreement across a suite of funds with respect to each ballot item is not always the case. Across the 17 T. Rowe Price funds that voted on the methane disclosure resolution at Atmos Energy, five voted “against” and 12 voted “for.” The average support for this ballot item is therefore 70.6% across T. Rowe Price’s funds. Since this does not reach the threshold for a consensus vote of “for,” it is considered a “mixed vote.”

We identified mutually exclusive voting blocs of funds for two of the 50 fund families, where a fund’s subadvisor or subsidiary asset manager within a fund family votes distinctly and uniformly, and where a minimum of 25 votes per proxy year is voted within each bloc. In the case of Fidelity and TIAA we disaggregate fund-family level votes into two blocs (Fidelity/Geode and TIAA Funds/Nuveen,

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respectively). Where no meaningful, mutually exclusive blocs can be discerned from the voting patterns,

we retain the fund-family level aggregation.

Of the 52 fund groups, 10 fund groups’ votes were calculated to be “mixed votes” on 10% or more of the

resolutions voted. These are: AMG (Affiliated Managers Group), Eaton Vance, Jackson National, Janus

Henderson, John Hancock, Legg Mason, Natixis, Macquarie (Delaware Funds), Principal Funds, and PGIM Funds.

Appendix B Fund-Family Support—5-Year Voting Record

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Appendix B Fund-Family Support—5-Year Voting Record (Continued)

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Appendix C Fund-Family Support—2019 ESG Category Breakdown

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Appendix C Fund-Family Support—2019 ESG Category Breakdown (Continued)

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About Morningstar Manager Research Services Morningstar Manager Research Services combines the firm's fund research reports, ratings, software, tools, and proprietary data with access to Morningstar's manager research analysts. It complements internal due-diligence functions for institutions such as banks, wealth managers, insurers, sovereign wealth funds, pensions, endowments, and foundations. Morningstar’s manager research analysts are employed by various wholly owned subsidiaries of Morningstar, Inc. including but not limited to Morningstar Research Services LLC (USA), Morningstar UK Ltd, and Morningstar Australasia Pty Ltd.

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