Pass-through voting: The solution to the profits vs principles divide?

By Will Goodwin, co-founder of Tumelo
At the time of writing, the differences between American and European investment philosophies couldn't be more clear. From Donald Trump’s withdrawal from the Paris Agreement on his first day in office, to the recent departures of US asset managers from the Net Zero Asset Managers Initiative, the gap continues to widen. Adding to the controversy; a landmark lawsuit against American Airlines found the pension plan in breach of its fiduciary duty (specifically, for failing to question its asset manager's non-pecuniary ESG activities).
In the US, shareholder value maximisation remains a cornerstone of corporate governance, with roots in Milton Friedman’s philosophy that the sole responsibility of business is to increase profits within legal limits. Recent cases, like ExxonMobil’s 2024 lawsuit against Follow This over a greenhouse-gas-emissions resolution, highlight the tension between ESG activism and profit-driven priorities.
Across the Atlantic, Europe has embraced stakeholder capitalism. Here, investment philosophies are shaped by the interests of employees, customers, and society. Regulatory initiatives like the EU’s Sustainable Finance Disclosure Regulation (SFDR) further underscore Europe’s commitment to sustainability and inclusivity.
This difference in approach poses a challenge for asset managers operating in both markets. A one-size-fits-all voting policy risks alienating clients, particularly when their values diverge from the asset manager’s dominant philosophy. A US-based vote against a climate proposal, for instance, might align with domestic preferences but contradict European expectations, eroding trust and jeopardising business relationships.
Pass-through voting: an innovative solution
Pass-through voting — a system that allows both retail and institutional investors to express their individual preferences on governance issues — could offer a way to bridge this divide and for asset managers to reconcile these conflicts. By allowing clients to customise their voting preferences, it ensures that individual values and priorities are reflected in corporate governance decisions.
Organisations like LGT, Brunel, and Valero pension scheme are already tailoring voting strategies to meet specific requirements. Rather than sidelining asset managers, these firms work collaboratively to implement customised voting options while maintaining oversight. This approach enhances alignment between client values and institutional priorities, fostering trust and engagement.
Broader impact on the investment ecosystem
The adoption of pass-through voting could transform the asset management industry, with wide-ranging benefits:
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Client engagement: Direct involvement in voting builds trust and loyalty.
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Strategic alignment: Clients influence corporate behaviour in line with their specific investment goals.
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Transparency: Direct voting introduces greater accountability, setting new governance standards.
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Global harmonisation: By accommodating diverse philosophies, pass-through voting bridges the gap between competing investment approaches.
Practical considerations
Despite its promise, pass-through voting comes with challenges:
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Technological infrastructure: Developing seamless platforms for client voting demands significant investment.
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Costs: Additional administrative requirements may increase expenses, potentially passed on to clients.
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Education: Many investors lack the expertise or inclination to participate in proxy voting, requiring robust education efforts.
These hurdles can be addressed through industry collaboration, innovation, and economies of scale. Companies like Tumelo are already leading the charge with advanced platforms that simplify the process and offer accessible, customised voting tools. By integrating such technologies, asset managers can reduce costs, educate clients, and enhance the overall experience.
Conclusion
Pass-through voting represents a significant opportunity for asset managers to reconcile the conflicting priorities of their international clients. By empowering investors to shape corporate governance, this approach strengthens trust, transparency, and alignment between financial systems and societal values.
As the investment landscape evolves, pass-through voting could set a new benchmark for accountability and engagement—bridging the gap between profit and principle.