The Financial Reporting Council (‘FRC’) has published an analytical report on detailed research undertaken into the impact of proxy voting advisors and ESG ratings agencies on actions and reporting by FTSE350 companies and investor voting decisions.
The research, conducted by Durham University and Morrow Sodali, was commissioned in early 2023 to help progress the conversation on this complex and challenging topic.
The FRC was pleased to see the number of its stakeholders who agreed to participate in this research which it believes will be a valuable tool for the various consultations underway about the impact of proxy voting agencies’ activities on corporates, particularly on key issues such as remuneration policies.
During the course of the research some themes emerged that were common to both proxy advisors and ESG rating agencies, for example, the quality and timeliness of their research and the extent to which they were willing or able to take account of each company’s specific circumstances.
However, there are also notable differences in the use made of the research by investors, the nature of the agencies’ relationships with their investor clients and companies, and the structure of the markets for proxy voting and ESG research. For these reasons, this Report assesses the influence of proxy advisors separately from that of ESG rating agencies.
The research will also be shared with the FCA and CMIT to aid their ongoing consultations on how proxy voting agencies interact with corporates and investors as part of corporate governance programmes.
Mark Babington, Executive Director of Regulatory Standards at FRC, said:
“There’s an ongoing debate on the role of proxy advisors and increasingly ESG ratings agencies and it’s clear from the research we’re publishing that the topic is a more complex and nuanced one that some have led us to believe.
“Proxy advisors, voting agencies, and ESG ratings agencies are an important resource for fund managers; however, there are always ways to improve engagement, stewardship, and shareholder communications for a better, more efficient, and competitive market.
“This is a timely piece of research which provides some interesting insights from our stakeholder universe on this important topic. We’re grateful to our many stakeholders for their contributions.”
To read the FRC Report click on the link above.