Pass-Through Voting Gains Traction as Banks Navigate ESG Pressures and Shareholder Activism

In the high-stakes world of corporate governance, a quiet revolution is reshaping how shareholder votes are cast. Faced with mounting regulatory pressure, a complex ESG landscape, and investors demanding greater transparency, financial institutions are increasingly adopting ‘pass-through voting’—a mechanism that allows end-investors to direct how fund managers vote their shares.

For years, the stewardship strategy for many large asset managers, particularly passive giants, relied on broad, board-aligned voting policies. This often meant sidelining shareholder proposals on environmental or social issues. However, as noted in recent analyses, this approach is being challenged. Regulatory filings, such as the SEC’s Schedule 13D, have highlighted the immense influence—and potential risks—these managers wield. The result has been a growing perception that the voice of the ultimate investor is being diluted.

“The era of rubber-stamping board recommendations is over,” says Michael Thorne, a governance analyst at Verity Insights. “Investors, especially in the private banking sector, are no longer satisfied with a one-size-fits-all approach. They want their specific values reflected in proxy votes, whether the holding is direct or wrapped in a fund.”

The urgency is amplified by a sharp rise in corporate ‘no-action’ requests to the SEC, which allow companies to omit shareholder resolutions from ballots. In the 2025 proxy season, such requests jumped 35%, with the SEC granting relief on nearly two-thirds of challenged proposals, many concerning climate and social issues. This regulatory trend has created an asymmetry, empowering companies to procedurally sideline debates on long-term risk.

Enter pass-through voting. Pioneered in Europe by firms like LGT Wealth Management, the technology enables clients to transmit voting preferences through their fund managers. Vanguard reported that client participation in its pass-through program is approaching 10%, covering roughly $1 trillion in assets. For banks, this isn't just a compliance exercise; it's a competitive differentiator. It tightens fiduciary alignment, improves transparency, and allows institutions to apply a consistent voting philosophy across all assets.

“This is a fundamental shift in fiduciary duty,” argues David Chen, a partner at a boutique wealth advisory firm. “It moves stewardship from the asset manager’s back office to the client’s forefront. Banks that master this can offer truly institutional-grade service.”

Not everyone is convinced. “It’s a fancy plaster on a gaping wound,” retorts Sarah Feldon, a veteran ESG campaigner and vocal critic. “Pass-through voting lets the big passive managers off the hook. They built this monolithic, unresponsive voting system, and now they’re selling us a tool to fix it? It’s governance for hire, not real accountability. The system needs an overhaul, not an opt-in feature.”

Despite the criticism, the data suggests impact. In the first half of 2025, LGT’s pass-through program voted on over 800 companies—600 more than its direct holdings would allow—and diverged from fund managers’ recommendations 17.5% of the time, often taking stronger stances on climate and board diversity.

As the market tilts further toward passive investing, the demand for active stewardship within these structures is paradoxically growing. Banks that invest in robust voting frameworks and clear reporting are finding this isn't just good governance—it's where clients see tangible value. In a landscape where scale often eclipses voice, pass-through voting is becoming a critical tool for reclaiming shareholder democracy.