Values Based Investing

Investors face many head winds in shifting their investment portfolios to meet personal environmental and social goals, plus companies need time implement changes.

Collectively the DOL’s and SEC’s proposed proxy voting rules create an opportunity for plan fiduciaries to exercise greater influence over corporate governance issues, including ESG matters. With these proposals ERISA fiduciaries may come under greater scrutiny for how they develop, monitor and implement corporate governance and proxy voting. Once there is greater transparency around how fiduciaries are exercising their governance responsibilities, participants may want greater say on what is in their best interests.

Advisor / investors can create custom values-based metrics on which to build a portfolio or fund-level profile against which they can judge whether an investment is more or less aligned with their objectives – financial and non-financial

Given proxy advisors’ monopolistic position and because no one is publicly measuring or tracking the impact of their recommendations means that proxy advisors are generally protected from backlash associated with the potential downside risks and losses shareholders may face, creating a moral hazard.

Regardless of legislative points of view, standard disclosures across sustainability and ESG topics, regardless of materiality in a specific company’s instance, is necessary to provide a foundation for evaluation across firms and time.  Allowing companies to provide contextual guidance about how such disclosures fit into risk management activities or long-term strategy also provides useful information upon which investors and other market participants can base decisions.

The investment process starts with understanding highly-specific values not focusing on generic ESG labels or assumptions.

Will they or won’t they vote?  If they do, how will they vote? Retail shareholders are generally not engaged in corporate governance.  As noted previously, in 2020, US retail investors owned c. 29% of shares outstanding, but only voted 28% of their proxies.  Millennials, however, are more motivated: 46% of retail investors aged 25-40 said […]

Transparency is creating retail shareholder proxy voting apathy Last week’s blog post briefly discussed the decline in retail shareholders voting proxies and why corporate issuers might want to engage retail shareholders.  Several papers have documented and explored reasons for retail shareholders proxy voting apathy and the apparent indifference to exercising their rights in corporate governance.  […]

Public pension funds present a principal-agent conflict of interest in voting proxies. Adopting pass-though voting is a potential solution.

ESG ratings are attracting increasing scrutiny. Not every investor has the same views about the underlying issues nor do they place the same weight on them. Fractional trading now allows investments aligned with an investor’s values.