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 Companies (ISS) and Glass Lewis, specifically, present essential steerage, and shareholders who wish to vote their proxies rely on 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 data 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 file protecting, 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 further consideration to particular points that align with their experience and pursuits.
Are Two Platforms Sufficient?
Regulators, lecturers, and traders have acknowledged that the preeminence of ISS and Glass Lewis, could result in a dearth of different 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 concern by subscribing to both or each ISS and Glass Lewis and incorporating their steerage as an data enter moderately than a default vote. They’ll then layer in their very own analysis and views on sure proxy votes over and above what ISS and Glass Lewis present or what can be doable by a regular voting coverage method. Resulting from time and price constraints, nevertheless, many small- and medium-sized corporations haven’t any selection in most situations however to defer to the 2 dominant gamers.
A Useful Step
With OxProx‘s publicly accessible and searchable database of worldwide proxy voting data, traders and analysts can evaluate how traders voted their proxies and what their voting rationales have 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 assist administration or shareholder proposals? OxProx makes such knowledge accessible and findable.
Vote disclosure necessities and practices are ruled on the nationwide degree, 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 US, and SHARE in Canada, amongst different stakeholder and shareholder advocacy teams, are all doing essential work on ESG points. However these organizations don’t view proxy voting by a shareholder or monetary materiality lens. That’s, they don’t seem to be overly influenced by whether or not shareholder returns will likely be materially affected by sure ESG choices. Fairly, they interact 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 might scale back shareholder earnings.
OxProx knowledge can assist inform these group on how you can 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 living proof. 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 can assist 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 choices, platforms like OxProx can assist 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 issues 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 commonplace apply for energetic managers and thought of a part of their fiduciary obligation. For some managers, partaking 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 might 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 internet current worth (NPV) have larger assist.
In case you favored this put up, don’t neglect to subscribe to the Enterprising Investor.
All posts are the opinion of the creator(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 creator’s employer.
Picture credit score: ©Getty Photos / 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 file credit simply utilizing their on-line PL tracker.
