On May 9, ACCF Vice President of Policy and General Counsel Timothy Doyle participated in a Capitol Hill panel discussion sponsored by the Savings and Retirement Foundation: “The Impact of ESG Investments on Retirement Wealth.”
Securities & Exchange Commissioner Mike Piwowar keynoted the event with a sobering message: The investment world has become infatuated with ESG issues to the point where we are starting to lose sight of the fundamental, basic principles that matter most – maximizing returns.
Ike Brannon, Founder of the Savings and Retirement Foundation moderated a discussion with Doyle and Capital Alpha Partners’ James Lucier. Doyle noted that one of the key factors in expanding ESG initiatives are the proxy advisory firms, who have a de facto monopoly on guiding how investors will vote on ESG shareholder proposals.
He pointed to a new ACCF paper detailing the increasingly conflicted role that proxy advisors are playing in investments. One concern is that ISS & Glass Lewis control 97% of the market and that their institutional clients rely, influence, and ultimately follow their voting recommendations 80% of the time. There is also concern regarding the inherent conflict of interests that arise when these firm offer consulting services on shareholders proposals for institutional clients as well as consulting services to the companies on the receiving end of those proposals. To compound the problem, these firms have little to no transparency or oversight of their changing policy positions for which their recommendations are based.
He also pointed to new Dept. of Labor regulatory guidance that clarifies that ESG proposals must be materially relevant for businesses, and not just products of a political or social agenda held by shareholders, asset managers, or proxy advisors. ESG factors are not per se economically relevant. Doyle applauded this as a step in the right direction given the expansive view the previous administration had regarding social policy goals.
James Lucier believes that proxy firms have basically become powerful by accident, through an unintended consequence of past legislation. He stressed that some ESG issues have good, relevant intentions; nobody wants a management team to be negligent or perform poorly. Shareholders are right to raise those issues if corporate boards are not conducting adequate oversight. That being said, the latest iteration of ESG proposals seem to be going too far, and the process has become politicized by activist investors like CalPERS. ESG should not be used as a driver of political initiatives. There is no consensus that ESG resolutions & greater disclosure will enhance value.