Author: Jonathan Smalley, Co-Founder and COO, Proxymity
Boardrooms can often be transformed into echo chambers when it comes to the discussion of ESG. Much like the Microsoft logo bouncing against the walls of tired computer screens and never falling quite into place, so too has ESG often reverberated from skyscraper to skyscraper across the Square Mile or Wall Street, never quite settling down into the tangible, actionable and transparent practices which investors are increasingly demanding.
At a global level, the World Economic Forum’s Climate Governance Initiative has put forward principles and guidance for companies on integrating climate strategy into corporate governance and climate reporting frameworks, with an increasing number of asset managers now incorporating ESG considerations in their voting guidelines on director elections and pay practices. Investors are also recognising that tackling climate change demands a new strategy on corporate governance, particularly with evidence showing that many boards lack the ESG expertise to effectively navigate the Net Zero transition.
Arguably the most significant risks and, conversely, opportunities, facing investors are now revolving around ESG, with no indication of this trend abating over the upcoming proxy season or indeed years to come. The volume and breadth of ESG risk exposure continues to rise, and with it so do the number of investors utilising proxy voting to navigate this terrain, at times voting against company management to essentially communicate through corporate ballots.
2023: from dark clouds to positive digital transformation
Fraught with added macro-economic risks, the 2023 proxy season will no doubt see shareholders asking far more pointed questions of the companies in which they invest, and proposing far more transformative resolutions. Investor wish lists might include requests for companies to adopt and report on emission reduction targets and Net Zero transition plans, with advisory firms such as the Institutional Shareholder Services (ISS) recommending that shareholders vote against incumbent directors it finds lack emissions reduction targets.
Of course, it is not only shareholders who see the merits of a clear company focus and strategy on ESG. 75% of global executives from capital markets firms believe ESG offers an opportunity to improve competitiveness in the market. With a further 67% also stating that ESG offers an opportunity to attract further investment, the time is ripe for companies to enhance the ways in which they manage their corporate governance, increase transparency, and boost investment.
Within this environment, proxy voting takes on increased importance in determining the direction of travel for companies with regards to ESG. Digital proxy voting in particular comprehensively boosts the quality and frequency of communication by sending votes in real-time to issuers or their agents, without the need for manual intervention, and provides verifiable digital proof that their vote has been cast, thereby increasing trust between companies and investors eager to contribute to and vote on ESG proposals.
In fact, Proxymity’s research has revealed that when participants adopt its digital proxy voting solution, Vote Connect, votes arrive with issuers more than 48 hours earlier and usually show a deadline improvement of up to six days on average. The added time gained allows investors much needed breathing space to research voting decisions and make properly informed choices, with further opportunity to make their voice heard on ESG proposals well in advance of actual meetings. Digital proxy voting also removes the necessity of travelling to meetings in person and reduces the need for paper, thereby significantly cutting a company’s carbon footprint.
Unleashing the benefits of a digital investor communication ecosystem
For digital proxy voting to truly empower issuers and investors alike, a fast-moving, real-time, fully connected ecosystem, which embraces shareholder democracy, accountability, and transparency, must be in place. Rapidly increasing cost pressures amidst an unpredictable economic environment also necessitate a reliable, intuitive solution to investor demand for increased transparency around ESG.
The inefficient and disjointed infrastructure of traditional channels has seen a growing number of businesses reassess how they manage proxy voting, as they look to implement innovative digital proxy voting solutions that offer near instant communications between issuers and investors, through fully transparent and accurate electronic channels.
Proxymity Vote Connect, backed by most major global custodian banks and adopted by over 60% of FTSE 100 companies, provides an end-to-end digital connection that allows businesses to take control of investor communications and proxy voting processes, with real-time accurate distribution of meeting announcements, passed automatically and error-free through the full chain of ownership, and true vote confirmation for investor ballots.
While activist shareholders and disgruntled boards continued to battle it out in boardrooms across the globe in 2022, mainstream and retail investors will become increasingly keen to engage with companies in debates over corporate governance in 2023.
While digital proxy voting might never be a silver bullet for resolving conflict between investors and issuers, enhanced communication will provide an essential vehicle through which frustrations can be expressed in a constructive, clear, and timely manner, at a time when it is needed most, and for building and sustaining trust in corporate governance in the years to come.
