September 30, 2023

The proxy voting system has taken on added significance amid rising curiosity in environmental, social, and governance (ESG) points and the way buyers vote on associated shareholder proposals. Institutional Shareholder Services (ISS) and Glass Lewis, particularly, 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 buyers 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 homeowners and asset managers from throughout the globe.

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The Significance of ISS and Glass Lewis

To make certain, by providing analysis, steerage, and file 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 further consideration to particular points that align with their experience and pursuits.

Are Two Platforms Sufficient?

Regulators, lecturers, and buyers 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 that will compel buyers to default to the advice of the proxy advisory service they subscribe to.

Pension plans and different giant buyers have the capability to mitigate this duopoly challenge by subscribing to both or each ISS and Glass Lewis and incorporating their steerage as an info enter quite 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 could be attainable by means of a regular voting coverage strategy. Because of time and price constraints, nonetheless, many small- and medium-sized corporations haven’t any alternative in most cases however to defer to the 2 dominant gamers.

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A Useful Step

With OxProx‘s publicly accessible and searchable database of worldwide proxy voting data, buyers and analysts can evaluate how buyers 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 all the time help administration or shareholder proposals? OxProx makes such knowledge out there and findable.

Vote disclosure necessities and practices are ruled on the nationwide degree, in order a world database, OxProx facilitates extra strong comparisons.

Who Advantages from Proxy Information Transparency?

ShareAction in the UK, As You Sow in america, 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 means of a shareholder or monetary materiality lens. That’s, they don’t seem to be overly influenced by whether or not shareholder returns might be materially affected by sure ESG selections. Moderately, they interact with corporations and industries on greenhouse fuel emissions and different ESG points to advocate for modifications that can profit all stakeholders and society at giant even when they might scale back shareholder earnings.

OxProx knowledge can assist inform these group on methods to strategy and maintain corporations and buyers 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.

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The Investor and the Adviser

The proxy voting system is a vital conduit for public corporations and their buyers, with ISS and Glass Lewis main the best way. However the transparency and accountability challenges are actual and OxProx can assist deal with these deficits by offering correct and well timed knowledge on how completely different buyers have voted.

As ESG elements turn into more and more integral to funding selections, 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 customary apply for lively managers and regarded a part of their fiduciary responsibility. For some managers, participating with choose corporations on ESG points can present further 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 improve monetary returns, they might not detract from them both.

Certainly, the transparency OxProx offers could persuade buyers to enhance their proxy voting on ESG points — to the purpose the place there aren’t any diminished monetary returns and ESG proposals with optimistic internet current worth (NPV) have better help.

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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 replicate the views of CFA Institute or the creator’s employer.

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