My firm, Institutional Shareholder Services (ISS), has over recent months been subject to a growing chorus of partisan attacks meant to malign our work and brand us as “woke activists” and “social engineers” pushing an ESG agenda. It is time to set the record straight and to stop politicizing proxy advice.
ISS is not an activist or advocacy organization. Rather, we are an impartial, federally regulated service provider to institutional investors who direct and control their own proxy voting decisions. Our mission is to provide high-quality, independent, and timely proxy research and advice based on the voting guidelines our clients, not we, select.
For the majority of shares which we vote on behalf of our clients, our recommendations are dictated by custom-made policies that are tailored to specific clients’ unique circumstances and preferences. For those investors who choose not to use custom policies, ISS offers a wide array of house policies, including our general “benchmark” policy and a host of specialty policies that range from one largely aligned with board recommendations to another for faith-based investors. By offering these choices, we respect the fact that our clients are not monolithic, but have diverse, sometimes conflicting perspectives and investment strategies that require different approaches to voting and other forms of capital stewardship. This is how free markets, normally championed by many who criticize us, are supposed to work.
Our proprietary benchmark policy, which often garners media attention, is developed with market input and takes a case-by-case approach to evaluating shareholder proposals, including those seen as ESG. In 2022, a record year for environmental and social shareholder resolutions in the U.S., and for S&P500 constituents, ISS’ benchmark policy supported just 52 percent of all shareholder proposals characterized as “environmental” or “social” while supporting more than 96 percent of management resolutions. This is hardly the track record of an activist or advocacy organization pushing an ESG agenda.
The narrative being spun about ISS is part of a broader, highly partisan attack on ESG investing. This attack includes state-level legislation to impede consideration of ESG factors by state pension systems and the investment managers and other providers that support them, as well as by financial institutions and insurance companies. As it relates to proxy advisers, these well-funded and concerted efforts have included assertions that proxy advisers’ recommendations in support of certain ESG proposals, though based on investors’ proxy voting choices, violate investors’ fiduciary duties.
As a federally registered investment adviser, ISS understands what it means to be a fiduciary, which is why our proxy vote recommendations and other advice are tailored to the preferences and interests of our clients. Many of our clients recognize that environmental and social factors can be financially material to their investment decisions. These clients view the incorporation of relevant ESG factors into the investment and capital stewardship processes, including proxy voting, as entirely consistent with their fiduciary obligations. ISS’ clients who are long-term investors are particularly keen to understand each portfolio company’s long-term financial viability and seek to analyze the universe of relevant factors and metrics that can drive long-term financial impact, whether from the vantage of risk mitigation, financial opportunity, or a combination of both. Ignoring these factors could result in imprudent risk-taking to the detriment of the retirement savers and other investors our clients serve.
Certain state legislatures and regulators, however, want to limit or eliminate the use of ESG factors, whether in the investment process or in proxy voting, regardless of the impact of such factors on shareholder value and investment returns. These proposals seek to “cure” alleged improprieties in the use of ESG considerations without providing evidence that such considerations are being misused. Imposing heightened duties on investors, investment managers, and proxy advisers who consider ESG criteria and thwarting investors’ access to research and analysis that incorporate such criteria may further a political agenda, but they do not encourage fiduciary conduct.
ISS recognizes that any proxy vote recommendation that includes a consideration of ESG factors will continue to be attacked, just as any failure to support an ESG proposal may be attacked by an unsuccessful shareholder proponent. But we are not engaged in a popularity contest. ISS will continue to operate independently and thoughtfully in a manner that best serves our clients, as we have done for more than thirty-five years.
Gary Retelny is President & CEO of Institutional Shareholder Services Inc.
Editor’s Note: The foregoing was submitted on May 26 to the Wall Street Journal editorial board, which characterizes its opinion-editorial section as a “forum for debate on the issues of the day” but which continues to feature partisan misinformation about ISS that is debunked in this commentary. Regrettably, ISS has to date received no reply or acknowledgment of the submission.