Compliance November 27, 2019

Parties in Invesco Self-Dealing Suit Plan to Settle

The court docket shows that, prior to the Notice of Settlement, the court had granted the plaintiff extended time to file his amended complaint.

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Parties in a lawsuit accusing Invesco of self-dealing in its 401(k) plan have filed a Notice of Settlement.

It may seem strange that Invesco has agreed to settle the case since a U.S. District Court Judge previously granted summary judgment in favor of Invesco. However, in that opinion, the court also allowed the plaintiffs 20 days to file an amended complaint.

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In the previous opinion, the judge wrote: “The Court does not agree with defendants that leave to amend the complaint should be denied as futile. Plaintiff’s allegations that during the class period, between 55% to 68% of all plan investments were affiliated with Invesco, and that by December 31, 2016, 81% of investments made by plan participants were in Invesco-affiliated funds, give the Court pause when it takes into consideration the allegation that the bonus performance criteria under the Invesco Executive Incentive Bonus Plan includes assets under management, net revenue yield on assets under management, operating revenues, and net asset flows.”

These allegations are further concerning, the Court states, considering the plaintiff’s allegations regarding the limitation of access to non-Invesco affiliated funds.

Invesco was granted summary judgment, though, because the judge felt the plaintiff’s claims were lacking sufficient strength to state plausible claims. The court docket shows that, prior to the Notice of Settlement, the court had granted him extended time to file his amended complaint.

The Notice of Settlement says, “The parties will work diligently on a written settlement agreement and prepare and submit a motion for preliminary approval of the anticipated class settlement under Rule 23(e) of the Federal Rules of Civil Procedure. The parties anticipate they will be in a position to make that submission to the Court within 60 days.”

Data & Research November 27, 2019

How Large Asset Managers Are Acting on ESG Issues

Morningstar examines 2019 proxy voting data in the emerging age of ESG.

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During a media roundtable hosted by Morningstar, the market research company summarized the 2019 proxy voting season among some of the largest asset managers, dissecting how shareholders and their proxies voted on environmental, social and governance (ESG) issues.

Jackie Cook, director of sustainability stewardship research for Morningstar, said asset managers and investors are talking a lot more these days about ESG, with a particular focus on climate risk, the gender pay gap and human rights challenges. Notably, many of the actual votes that occurred spoke to the reputational risk that companies face while addressing—or ignoring—ESG topics. In fact, this category of risk came up as a term in 45% of the 177 environmental and social resolutions that came to vote in the past proxy season, says Cook.

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“Investors are seeing real risk when companies lose or jeopardize their social licenses to operate,” she adds. “When companies are perceived as exploiting one or more stakeholder groups, they can lose the social license to operate.”

As more firms and investors are understanding how reputation can be jeopardized by ESG complacency, they are committing themselves to supporting the issue. For example, Allianz Investors cast 81% of votes in favor of pro-environmental and social initiatives in 2018, and 87% in 2019. Nuveen and MFS increased their support by large margins. The former grew to 81% pro-ESG initiative votes in 2019, up from 68% in 2018, and the latter rose to 74% pro-ESG votes cast, up from 59% last year.

According to Morningstar, some asset managers had smaller increases in votes, such as T. Rowe Price, with 11% pro-ESG votes, a slight growth from 9% in 2018. American Funds/Capital Group made pro-ESG votes 11% of the time this year, up from 5% in the 2018 season. Other companies saw a decrease, while others remained flat.

The Morningstar data also tracks votes on greenhouse gas goals and climate resilience plans made by the shareholders of large companies including Amazon.com, Chevron, Michael Kors and more. Across all resolutions, all had earned more than 30% support by asset managers, according to the data. The Renewable Energy Goals Plan of designer Michael Kors and the Greenhouse Gas Emissions Reduction Goals from engineering company Fluor received the widest support at 46% “for.”

“There are a lot of statements and reports that have come out from the largest asset managers, and their voting sends mixed signals as to how vigilantly they’re addressing some of these risks that have potentially systemic impact,” Cook explains. “This situation also sends mixed signals to the investee companies. Overall, we know there is more engagement in climate risk, diversity and other ESG topics, but the voting doesn’t always back up the engagement.”

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