The Shareholder Commons (TSC), a US-based NGO advocating for a “systems-first” approach by business and investors, is seeking investor backing for a request for proposals (RFP) for “universal owner-based proxy advisory-only services”.
According to the organisation, most proxy advisers and governance professionals only consider the effect of a proxy vote on the individual security and ignore the broad systemic effects of company behaviour.
It says that for diversified investors’ portfolios, returns are primarily determined by overall market returns, with this “beta” depending on the long-term health of the economy, which in turn depends on the productivity of social and environmental systems.
In its overview of the proposed RFP, the NGO said that proxy voting intended to reduce cost externalisation by portfolio companies would improve these underlying systems, increasing returns for all diversified investors.
“Diversified investors need advice that recognise the importance of beta,” it said.
“If the actions of an individual portfolio company may cause financial harm to the other companies in an investor’s portfolio, the negative financial impact of those actions to the investor may outweigh the benefit created at the individual company level.”
TSC is looking for investors to put their name to the proposed RFP, not to negotiate as a group but to “combine in order to demonstrate interest and elicit information as to the willingness and ability of service providers to provide an unmet need”.
According to the NGO, the advice the RFP is seeking would not be used to replace the standard advice that proxy firms issue on a company-by-company basis, but to “enhance the analyses performed to ensure that fiduciaries are fully informed as to the manner in which voting decisions can enhance the long-term financial performance of their portfolios”.
TSC’s current deadline for collecting signatories on the proposed RFP is 31 August.
LGIM perspective
This proxy season TSC provided support for 24 shareholder resolutions. One of those was a proposal at McDonald’s about antimicrobial resistance that was co-filed by Amundi and Trinity College, Cambridge.
It gained a 12% ‘For’ vote, with Legal & General Investment Management (LGIM) having come out publicly in support of the resolution in advance of the vote.
John Hoeppner, head of US stewardship and sustainable investments, at LGIM America, is a member of the TSC board in an independent capacity.
He told IPE LGIM had not yet decided about putting its name to the RFP as there were some commercial implications that needed to be considered. However, he said the asset manager supported the spirit of the RFP.
“Do we want our proxy advisor and many other proxy advisors to really understand how diversified owners can be impacted by a single company, absolutely,” he said.
“My individual view is that there is momentum among major investors that this is a reasonable ask of proxy advisors,” he added.
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