ESG Mutual Fund Voting on Executive Compensation Shareholder Proposals

We investigate how mutual funds with environmental, social, and governance (ESG) objectives vote on shareholder proposals related to executive compensation. Using a sample of 94,695 votes by 2,354 mutual funds from 2012 to 2021, we find ESG funds are 9.4 percent more likely than non-ESG funds to vote in favor of such proposals, and the likelihood increases to 19.2 percent for proposals aligning executive compensation with environmental and social (ES) objectives. ESG funds are also 14.9 percent more likely to support proposals to improve transparency, but only 7.0 percent more likely to support proposals about redesigning compensation. Our results are consistent with ESG funds perceiving greater net benefits from supporting shareholder compensation proposals, particularly those related to ES objectives and transparency. Additionally, funds committed to ESG objectives in regulatory filings are more likely to support such proposals than fund families that voluntarily signed the United Nations’ Principles of Responsible Investment. JEL Classifications: G23; G30; M12; M14.