Pass-through voting: from long-held ambition to reality

The challenge

Long regarded as a technical matter, it has become a strategic issue as topics such as governance, climate change, executive remuneration and corporate strategy have taken on increasing importance in the dialogue between companies and their shareholders.

This evolution has prompted regulators to strengthen shareholder engagement requirements. In Europe, the Shareholder Rights Directive II (SRD II)¹ marked a major milestone. It requires institutional investors and asset managers to provide greater transparency regarding their engagement policies and the exercise of voting rights. Its objective is clear: to encourage long-term share ownership and strengthen the relationship between investors and the companies in which they invest.

At the same time, collective investment has continued to grow steadily, driven by the success of index funds and ETFs. This trend has enabled a growing number of investors to access financial markets while delegating portfolio management to professional asset managers. It has also reinforced the role of asset managers in exercising the voting rights attached to these investments.

Under this model, asset managers vote at shareholder meetings on behalf of their clients. While this approach offers many advantages, it also raises an increasingly important question: to what extent do these votes truly reflect investors’ preferences?

From transparency to participation

According to a survey conducted by Vanguard² among more than 1,000 investors, 83% believe it is important for asset managers to take their preferences into account when exercising voting rights associated with their investments. More notably, 57% stated that they would participate in a mechanism allowing them to directly influence those voting decisions.

These findings reflect a broader trend. Having first called for greater visibility into voting policies, investors now seek a more active role in decisions taken on their behalf. The demand is therefore no longer limited to transparency; it increasingly extends to ensuring that shareholders' views and convictions are more accurately represented.

Giving investors a greater role in voting decisions

Against this backdrop, pass-through voting, also referred to as the transmission of voting rights, is attracting growing interest. The concept allows investors to express voting preferences rather than fully delegating that responsibility to their asset manager. Depending on the framework in place, investors may select from a range of predefined voting policies or directly communicate their preferences on specific resolutions.

Pass-through voting can therefore be seen as a natural extension of the momentum initiated by SRD II. While the regulation helped investors better understand how voting rights are exercised, this new approach aims to bring them closer to the decisions made using their capital. In doing so, it strengthens alignment between investors' objectives and the votes cast at shareholder meetings.

The potential benefits extend across the entire ecosystem. Investors can gain greater assurance that their convictions, responsible investment policies and long-term commitments are reflected in voting outcomes. Asset managers retain their essential role in portfolio management while offering clients greater influence over decisions that matter to them. Companies, in turn, can benefit from shareholder engagement that more accurately reflects the diversity of views within their investor base.

However, this evolution depends on robust infrastructure. Collecting, consolidating and transmitting voting instructions from thousands of investors across the custody chain requires significant technological and operational capabilities. As a result, custody and securities services providers are playing a strategic role in the development of pass-through voting. By ensuring the secure and efficient transmission of voting instructions, they form a critical link between investors, asset managers and financial markets.

Why it matters

As the industry continues to explore new ways of enhancing shareholder participation, pass-through voting represents a significant step towards more personalized, transparent and engaged corporate governance.

Turning concept into practice

Thus, SGSS actively supports this transformation by providing its clients with pass-through voting solutions. Leveraging its recognized expertise in securities services, SGSS enables investors and asset managers to strengthen alignment between investment objectives, governance policies and the effective exercise of voting rights, thereby contributing to more transparent and engaged corporate governance.

Fouad Massabni, Head of ESG Offer, SGSS

Maroline Lam Van Ba, Product Engineer – Custody Services, SGSS