Opponents to such legislative and regulatory efforts include the Council of Institutional Investors, the Consumer Federation of America, and public sector pension fund managers.
Roundtable discussion on proxy voting process
While the official roundtable discussion is being finalized, stakeholders and members of the public can submit comments to the SEC here. The PRI will write to the SEC and encourages US and non-US signatories to do so as well.
The Corporate Governance Reform and Transparency Act
Legislation is currently pending in the Senate. PRI signatories can contact Senators to share their concerns.
Information to share with the SEC and lawmakers:
- shareholder proposals are a vital tool in helping companies manage new and emerging risks. By increasing the minimum threshold for ownership and limiting the resubmission of proposals, the important voices of many shareholders are omitted.
- the motivation behind the SEC action and legislation is misguided; institutional investors pursue ESG factors to reduce risk and build long-term shareholder value.
- US federal government reports prove the value of integrating ESG factors in investments:
- in May 2018, the GAO published a report that detailed its own meta-analysis of peer-reviewed academic journals between 2012 and 2017 on ESG investing. It found the vast majority (88 percent) of scenarios reported finding a neutral or positive relationship between the use of ESG information in investment management and financial returns.
- the GAO report also cited a 2015 meta-analysis, which reported aggregate evidence from more than 2,000 empirical studies, which similarly found that 90 percent of the studies reported finding a neutral or positive relationship between incorporating ESG factors and financial performance
- further, the GAO report cited a 2017 study commissioned by the Department of Labor that reported that, while some investors may believe that ESG investing will lead to lower returns, the GAO found in its literature review, that ESG investing typically leads to similar or improved performance compared to tradition strategies.
- proxy advisory firms play a vital role in providing an impartial analysis of and recommendations on corporate issues that are important to institutional investors. Proxy advisory firms follow institutional investors f stated priorities, which increasingly include recognition of ESG factors.
- the Corporate Governance Reform and Transparency Act threatens the ability of shareholders to receive impartial information on corporate governance issues by allowing corporations to lobby proxy advisory firms before a shareholder vote.
- the idea that retail investors are uninterested in ESG factors is false. In a 2017 study, the Morgan Stanley Institute for Sustainable Investing found that 75 percent of its individual investors are either somewhat or very interested in sustainable investing. Additionally, over 70 percent agreed that having sustainable practices can lead a company to higher profitability and make it a more lucrative long-term investment.
- an international meta-analysis by Deutsche Asset & Wealth Management of over 2,000 empirical studies found that most studies show a positive correlation between ESG standards and corporate financial performance.
- Fiduciary Duty in the 21st Century contributes to extensive evidence showing that fiduciary duty is not a legitimate barrier to the integration of ESG issues in investment practice and decision making. On the contrary, the study concludes that failing to consider long-term investment value drivers, which include ESG factors, in investment practice is a failure of fiduciary duty.
- proxy advisory firms conduct the important and necessary work of providing an impartial analysis of corporations, including ESG issues, based on institutional investors’ stated priorities. The efforts at the SEC and in Congress would make it harder to implement the vital work of proxy advisory firms in analyzing corporate ESG issues. Additionally, SEC efforts would weaken the strength of institutional investors’ voice by placing significant barriers to the implementation of ESG principles.
The midterm elections on November 6 have the potential to drive significant change in public discourse in Washington. Given this, the PRI will publish a short supplemental bulletin following the election to provide insights on how the results might impact the policy issues discussed in this document. For more information on the PRI’s work on active ownership, please this guide.