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Prominent ESG investor objects to US legislators' plans to curb proxy advisers

Walden Asset Management has added its voice to those criticising the proposed Corporate Governance Reform and Transparency Act of 2016 (HR 5311) passed last month by the US House of Representatives’ Finance Services Committee.

In a letter to  Jeb Hensarling the chairman and Maxine Waters, a member of the committee the ESG-focused asset manager Walden agreed with other opponents of the bill believing that it undermined proxy voting providers whose services provided research and guided the proxy voting decisions of institutional investors. It supports the belief expressed in a letter from the Council of Institutional Investors and backed by 27 institutional investors that the bill would weaken the fiduciary duty of investors. The Act proposes mandatory SEC registration for proxy advisory firms such as Manifest wishing to operate in the US.

Timothy Smith

Timothy Smith

The author of the letter from Walden, Timothy Smith director of ESG shareowner engagement said that there has been criticism of proxy voting advisers by the U.S. Chamber of Commerce and past Securities and Exchange Commissioners such as Paul Atkins and Daniel Gallagher. These critics have also opposed ESG investing, Smith wrote noting that the Chamber was a vocal advocate of the 2008 Department of Labor interpretative bulletin that discouraged investment fiduciaries from considering ESG factors in investment decisions or shareholder advocacy.

These critics argued that such investors violated their fiduciary duty under the false assumption that ESG matters are detached from long term financial performance, Smith wrote but he believes that “investors, who are members of Principles for Responsible Investing (PRI) with $62 Trillion in assets, have argued convincingly that ESG matters have a significant impact on financial performance. And they believe fiduciary duty compels them to consider these issues with companies in which we invest.”

Smith suggested that it was a convenient “myth” that proxy advisers control votes, there had not been any credible research that shows that investors blindly follow their recommendations. “Thus a central premise of the bill is fatally flawed” he said and added that “In light of the fact that leading voices in the investor community are opposing HR 5311, we urge the Committee to further review the problems with the proposed bill and withdraw it from the calendar.

The International Corporate Governance Network has also written to the Committee to oppose the bill.

What do you think?