Institutional Investors Are Flying Blind When It Comes to ESG Data

A lack of standards on environmental, social, and governance (ESG) issues and irregular data submission by investment managers are preventing institutional investors from getting a clear picture of their ESG investments, according to a new report.

Despite having a desire to track ESG metrics in their private portfolios, 72% of allocator professionals are currently not doing so, according to a survey conducted by software and data firm Backstop Solutions Group.

“The top reason they cited was the lack of a universal standard for measuring and reporting on ESG,” Maryling Yu, chief marketing officer of Backstop Solutions Group, said in a statement. “Allocators and private portfolio managers alike are wrestling with how to capture ESG metrics.”

When asked why they weren’t measuring ESG factors, nearly 50% cited the lack of any universal standards to measure and report, while over one-third of respondents said it was too hard to find the relevant data. At the same time 45% said ESG is not a priority. “It’s simply not included or requested with the performance report prepared by our organization’s financial adviser,” answered one respondent.

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The report also cited an unnamed large institutional investor that said, in addition to a lack of universal standards, ESG investing is being held back by multiple factors, such as no definition of “responsible,” or the fact that ESG falls down the priority list for short-staffed, under-resourced managers. However, the firm said it is not waiting for universal standards, noting it is not trying to track all ESG factors, just the ones that are important to it and its clients.

Recognizing the dearth of consistent ESG metrics, the US Securities and Exchange Commission (SEC)’s Investor Advisory Committee approved recommendations last year urging the regulator to update reporting requirements to include material, decision-useful ESG factors. And earlier this year, the SEC announced that it is considering rules that would require “sustainable” fund managers to disclose the criteria and data they use when making investment decisions. The SEC requested public input from investors, registrants, and other market participants on climate change disclosures.

However, the report indicated that investors should not wait for financial regulators to establish rules or for universal standards to emerge, and suggested managers and investors get prepared to act quickly as standards and guidelines evolve.

“Regardless of what formal processes are available, it’s time to get started,” the report said. “Tackle the lowest-hanging fruit. Spark conversations between allocators and managers about shared values and how to move forward. And be ready to change course as standards and guidelines evolve.”

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Tags: Backstop Solutions, Data, environmental social and governance investing, ESG, Maryling Yu, metrics, sustainable investing, universal standards

The Securities and Exchange Commission (SEC) has voted to adopt rules requiring contested elections to use universal proxy cards that include all director nominees presented for election at a shareholder meeting. The changes will allow shareholders voting by proxy to vote just as if they were voting in person.

Unlike shareholders voting in person, shareholders voting by proxy in contested director elections are currently unable to vote for a combination of director nominees from competing slates. The SEC’s adopted final rules require voters to use universal proxy cards by management and shareholders soliciting proxy votes for their candidates in director election contests, essentially allowing them to mix and match their choices. The regulator also amended the current proxy rules so each side can list the other side’s director candidates on its universal proxy card. The new rules also establish new notice and filing requirements for all soliciting parties, as well as formatting and presentation requirements for universal proxy cards.

Additionally, the final rules require shareholders presenting their own director candidates in the contest to solicit holders of a minimum of 67% of the voting power of shares entitled to vote in the election. Registered investment companies and business development companies are not subject to the universal proxy rules.

The universal proxy amendments will apply to all shareholder meetings involving contested director elections held after Aug. 31, 2022, and the rule amendments regarding voting options will be applicable to all shareholder meetings involving director elections held after the same date.

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“These amendments address concerns that shareholders voting by proxy cannot vote for a mix of dissident and registrant nominees in an election contest, as they could if voted in person,” SEC Chair Gary Gensler said in a statement. The “amendments will put these candidates on the same ballot. They will put investors voting in person and by proxy on equal footing. This is an important aspect of shareholder democracy.”

To help facilitate shareholder voting in director elections, the SEC also voted to adopt amendments to the proxy rules to ensure that proxy cards clearly specify the applicable shareholder voting options in all director elections, and to require proxy statements to disclose the effect of a shareholder’s choice to withhold their vote.

In a dissenting vote, SEC Commissioner Hester Peirce said that while she supports universal proxy voting, the SEC’s final rule may advance special interests rather than enhancing corporate value “by serving as a tool for frivolous, as well as serious, activists.” She said she “might have been able to support the rule if I felt we had explored thoroughly the potential that the rule could afford activists without a demonstrated commitment to the company an opportunity to meddle in the company’s affairs. I do not believe we have done this work so I cannot support the rule.”

Editor’s note: CIO is owned by Institutional Shareholder Services (ISS), a proxy advisory firm.

Tags: contested election, Gary Gensler, Hester Peirce, SEC, Securities and Exchange Commission, Shareholder Meetings, universal proxy