The proxy voting system has taken on added significance amid rising curiosity in environmental, social, and governance (ESG) points and the way traders vote on associated shareholder proposals. Institutional Shareholder Services (ISS) and Glass Lewis, specifically, present important steerage, and shareholders who wish to vote their proxies rely upon them to execute their proxy votes in a considerate and clear method. However with solely two gamers dominating the area, are traders actually getting the range of views they should make knowledgeable proxy votes?
That’s the place a brand new database, OxProx, is available in. Based by Ian Robertson, CFA, who co-authored this text, OxProx is a social enterprise spin-off with the College of Oxford and is the primary publicly accessible service that gathers, examines, and compares proxy voting information amongst asset house owners and asset managers from throughout the globe.
The Significance of ISS and Glass Lewis
To make certain, by providing analysis, steerage, and report maintaining, ISS and Glass Lewis are important pillars of the proxy voting system. Buyers with hundreds of shares of their portfolio can hardly analysis every proxy vote. They’re higher off instituting a coverage to information their voting whereas paying extra consideration to particular points that align with their experience and pursuits.
Are Two Platforms Sufficient?
Regulators, teachers, and traders have acknowledged that the preeminence of ISS and Glass Lewis, could result in a dearth of other views on how shareholders ought to vote, and which will compel traders to default to the advice of the proxy advisory service they subscribe to.
Pension plans and different massive traders have the capability to mitigate this duopoly subject by subscribing to both or each ISS and Glass Lewis and incorporating their steerage as an data enter reasonably than a default vote. They will then layer in their very own analysis and views on sure proxy votes over and above what ISS and Glass Lewis present or what could be potential by way of a typical voting coverage method. As a consequence of time and price constraints, nevertheless, many small- and medium-sized corporations haven’t any alternative in most situations however to defer to the 2 dominant gamers.
A Useful Step
With OxProx‘s publicly accessible and searchable database of world proxy voting information, traders and analysts can examine how traders voted their proxies and what their voting rationales had been if and when they’re disclosed. When does an investor’s proxy vote align with ISS and Glass Lewis steerage? When does it differ? Does an investor at all times help administration or shareholder proposals? OxProx makes such knowledge out there and findable.
Vote disclosure necessities and practices are ruled on the nationwide stage, in order a worldwide database, OxProx facilitates extra sturdy comparisons.
Who Advantages from Proxy Information Transparency?
ShareAction in the UK, As You Sow in the USA, and SHARE in Canada, amongst different stakeholder and shareholder advocacy teams, are all doing necessary work on ESG points. However these organizations don’t view proxy voting by way of a shareholder or monetary materiality lens. That’s, they don’t seem to be overly influenced by whether or not shareholder returns will probably be materially affected by sure ESG selections. Moderately, they have interaction with corporations and industries on greenhouse fuel emissions and different ESG points to advocate for modifications that may profit all stakeholders and society at massive even when they could scale back shareholder earnings.
OxProx knowledge may also help inform these group on tips on how to method and maintain corporations and traders accountable when their coverage voting runs counter to each long-term shareholder and stakeholder pursuits. The contested director elections at Exxon Mobil in 2021 is a case in point. Skeptical of the corporate’s carbon-transition technique, funding agency Engine No. 1 led a profitable activist marketing campaign for seats on the board.
The Investor and the Adviser
The proxy voting system is a vital conduit for public corporations and their traders, with ISS and Glass Lewis main the way in which. However the transparency and accountability challenges are actual and OxProx may also help tackle these deficits by offering correct and well timed knowledge on how completely different traders have voted.
As ESG components turn into more and more integral to funding selections, platforms like OxProx may also help promote accountable funding and drive optimistic change in company outcomes.
For a few years reconciling ESG points with funding efficiency posed a problem to fiduciaries who equated ESG concerns with screening shares from portfolios. All issues being equal, a screened portfolio is much less diversified. Absent market mispricing of the screened investments, such a portfolio will yield decrease risk-adjusted returns. Incorporating materials ESG points into funding evaluation and safety choice is now normal follow for lively managers and thought of a part of their fiduciary responsibility. For some managers, participating with choose corporations on ESG points can present additional analytical perception and encourage investee corporations to pursue higher shareholder and stakeholder outcomes.
Stakeholders and advocacy teams could in flip nudge funding managers to hunt higher ESG outcomes. Whereas these could not enhance monetary returns, they could not detract from them both.
Certainly, the transparency OxProx supplies could persuade traders to enhance their proxy voting on ESG points — to the purpose the place there are not any diminished monetary returns and ESG proposals with optimistic web current worth (NPV) have larger help.
If you happen to preferred this submit, don’t neglect to subscribe to the Enterprising Investor.
All posts are the opinion of the writer(s). As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially mirror the views of CFA Institute or the writer’s employer.
Picture credit score: ©Getty Pictures / deeaf
Skilled Studying for CFA Institute Members
CFA Institute members are empowered to self-determine and self-report skilled studying (PL) credit earned, together with content material on Enterprising Investor. Members can report credit simply utilizing their online PL tracker.