As it becomes increasingly clear that climate change and other societal challenges come with potential financial risks, leading investors in Canada and around the world are ramping up their stewardship efforts.
CFA Institute defines stewardship as “the use of investor rights and influence to protect and enhance overall long-term value for clients and beneficiaries, including the common economic, social and environmental assets on which their interests depend.”
Proxy voting is a key component of stewardship, as it represents the only formal channel through which both retail and institutional investors have a right to exert influence over a public company. Stewardship and proxy voting are particularly important to institutional asset owners, according to survey data:
- A 2023 Amundi survey of 158 pension plans found 65% of respondents expected their external asset managers to have a good track record on stewardship and proxy voting.
- In the same survey, 68% of the polled pension plans cited stewardship and proxy voting as their top approach to incorporating ESG issues into investment decisions.
- Similarly, a 2022 Morningstar survey of 500 asset owners found that 69% said stewardship and proxy voting play a somewhat or very significant role in their ESG programs.
So, a sizable portion of asset owners consider proxy voting to be of great importance. However, emerging academic research shows that asset managers’ votes are not always aligned with owners’ preferences.
Voting misalignment
A 2023 study of 10 climate-conscious asset owners and 12 managers in the U.K. by Andreas Hoepner, a financial data scientist and professor with University College Dublin, found that the asset managers were not voting in alignment with owners’ voting instructions for oil and gas companies.
“Empirically, we observe misalignment between U.K. asset owners and asset managers to varying degrees,” the study said. Hoepner noted the misalignment is more pronounced in recent years, and among shareholder proposals.
A forthcoming doctoral thesis by Oxford doctorate candidate Ian Robertson points to similar misalignment across almost 1,000 institutional investors. Robertson’s thesis, which is expected to be submitted later this year, found that on aggregate asset owners are much more likely than managers to vote in favour of shareholder proposals. The misalignment between asset owners and managers is most pronounced among large passive managers, who tend to vote more in alignment with corporate management.
This misalignment is a problem because it reduces overall support for shareholder proposals to improve companies’ oversight of ESG issues, which in turn hinders ESG outcomes for shareholders and society.
To be clear: There are asset managers who vote their proxies very thoughtfully, and in alignment with owners’ preferences. But emerging evidence shows a disconnect across a material segment of the asset management industry.
While many causal factors could explain this misalignment, the general lack of transparency, accessibility and comparability of voting information surely doesn’t help, since obscurity limits accountability.
To be sure, many asset managers disclose their proxy voting records, either voluntarily or to comply with regulations in certain jurisdictions. The problem is these disclosures are hard to find unless you know exactly where to look. And even if you know where to look, the information is often incomparable and difficult to navigate due to a lack of standardization in voting disclosures.
A public database of voting records
The difficulty of accessing and comparing voting records led to the creation of OxProx, the social venture that Robertson founded and I now lead, the mission of which is to amplify investor stewardship. We have a few things in the works to amplify stewardship, but our first order of business is to build the world’s first publicly accessible database for investors, advisors, researchers and others to easily access and compare institutional investors’ voting records — free of charge.
We envision this database as a public good that ushers in a new era of voting data transparency and accessibility. Hopefully, enhanced transparency will contribute to more thoughtful voting practices and narrow the gap between asset managers and owners over time. We also hope it can be a step toward greater participation in the voting system.
A public database of proxy voting records will benefit investors in several ways. It will:
- Strengthen shareholder democracy by fostering a more informed, active and equitable market. Proxy voting databases are typically accessible only to those who can afford to pay corporate rates, which creates a significant information asymmetry between large and small investors. By increasing access to voting information, a public database enables all market participants to make more informed investment and voting decisions, regardless of their size.
- Promote accountability by increasing access to voting information. A public database enables asset owners and beneficiaries to hold fund managers accountable for their votes, and to verify whether fund managers are voting in alignment with their stated policies and principles. Investors can track how their proxies are voted and take action if they find discrepancies or conflicts of interest.
- Support investor stewardship by facilitating collaboration among stewardship leaders. With voting records more accessible, investors can more easily identify and collaborate with like-minded shareholders on ESG issues. This ability to form coalitions enhances the power of shareholders to promote corporate policies and practices that reduce risk and drive positive change.
All the above are beneficial to investors and contribute to healthy, functioning markets more broadly.
A call to action
It is still early days for the OxProx public database, but you can check out a prototype of it on our website now. We’ll be adding more investors and companies in the weeks and months ahead.
For now, we seek feedback and collaboration from market participants, particularly institutional investors who support the concept of a public database. While some investors may not want public scrutiny of their voting records, our hope is that leaders will stand up and champion this initiative, since transparency bodes well for them. By supporting proxy voting transparency, investors can contribute to a more accountable, efficient and equitable financial market, which is a form of stewardship in and of itself.
Dustyn Lanz is CEO of OxProx, a social venture with a mission to amplify investor stewardship through proxy voting.