Even tiny variations in global warming levels can result in exponentially worse impacts on natural and human systems, as the Intergovernmental Panel on Climate Change‘s 2018 report confirmed.

Taking the scientific evidence into consideration, large investment managers are gradually giving more attention to climate change issues. Their regard has been reflected through proxy voting and shareholder engagement figures, according to sustainability leadership adviser Ceres.

In its annual assessment of behavior on climate-related issues among the 48 largest money managers in the US, Ceres found that:

• Firms voting for more than half of climate-related shareholder proposals grew from 33% to 46% in 2017.
• Ten firms supported at least 80% of the climate-related votes they participated in, although 11 supported less than 20%.
• Only one asset manager supported zero climate-related shareholder votes—a drop from five in 2017.

But these numbers don’t necessarily tell the whole story. Here’s a look at the proxy voting process and why some asset managers choose other means of ensuring their voices are heard on environmental issues and beyond.

Shareholder Proposals and Proxy Voting

For most publicly traded companies, each share of common stock represents one vote on select company decisions. Since these votes occur at the company’s annual meeting, management must allow for votes made by proxy—either online, by telephone, or via mailed ballots.

Generally, proxy ballots include the approval of board of director candidates and the company’s auditing firm, other management proposals, and shareholder proposals. In theory, the latter is a key tool for investors seeking changes to company processes and procedures. Yet the Investment Company Institute notes that while management-generated board and auditor nominees account for 80% of all proxy matters, shareholder proposals account for just 2%. According to the Interfaith Center on Corporate Responsibility (ICCR), shareholder proposals may be filed by single shareholders—or groups of shareholders—who have owned at least $2,000 worth of the company’s stock for more than a year.

The shareholder proposal process is overseen by the US Securities and Exchange Commission (SEC), which allows management to request a no-action letter on issues it wishes to keep off the ballot. When granted, a no-action letter ensures that the SEC won’t investigate the omission of the shareholder proposal from the proxy ballot. The SEC granted 72% of no-action letters it received between 2007 and 2016, according to University of Chicago research.

Should a shareholder proposal survive this obstacle course, passage still isn’t guaranteed.

Large institutional investors such as mutual fund companies, exchange-traded funds, and foundations own roughly 78% of the market capitalization of the Russell 3000 Index, according to Bloomberg data. The ICCR reports that many of these large investors look to proxy voting advisers for guidance and therefore defer to management on most issues.

Of late, however, select climate change proposals have found success, including a 2017 resolution at ExxonMobil that urged the company to increase disclosures around climate change and its ability to transition to a low-carbon economy—as well as a 2018 resolution at Anadarko Petroleum that called for reporting on business risks related to the Paris Agreement.

Gaining Traction through Dialogue

While such high-profile wins hint at the possibility of a philosophical shift in the investment community, some of the largest asset managers in the US—such as BlackRock, State Street, and Vanguard—have emphasized a different method.

Each of the investment companies explained to Fast Company that they prefer to approach change by meeting with company management and directors to discuss issues through private dialogue instead of proxy voting. So while some have seen BlackRock’s 2018 voting record as an unwillingness to take action on climate change, the organization reported 142 engagements on environmental issues.

A 2017 report from PricewaterhouseCoopers notes the potential benefits of director-shareholder engagement, including an increased awareness of shareholder concerns within the company and its board and a better understanding of a company’s strategy and plans among shareholders.

However, some are wary of the lack of disclosure around what is addressed and resolved in such discussions. For example, Jackie Cook, founder of institutional investor proxy voting analysis firm FundVotes, told CNBC that “no one shows any granularity to the engagement. . . . We want more transparency from the fund managers.”

Furthermore, other critics stress that management discussions don’t convey the urgency that climate change proposals require. “We don’t have a calm five-year waiting period,” said Tim Smith, director of environmental, social, and governance (ESG) shareowner engagement at Walden Asset Management.

The approaches are not mutually exclusive—in numerous cases a sponsor has pulled a proposal in response to a company’s agreement to engage directly. For example, in exchange for the withdrawal of a proposal earlier this year, General Electric agreed to discuss how its plans for fossil fuel projects in emerging market countries are consistent with the Paris Agreement’s global warming goal.

Forcing corporate responsibility on climate change remains a formidable challenge, but proxy voting and dialogue have become part of an increasingly powerful toolbox of shareholder engagement strategies that allow investors to shine a light on the issues that concern them the most.