Institutional Asset Manager Newsletter 17.11.23

Some good news, some not so good

Any responsible investor who makes up the staggering USD10,212.4 billion of assets under management in the global ETF industry will be disappointed to learn that this sector is failing to live up to its stewardship responsibilities.
In particular managers are passing off proxy voting duties to third parties, which in and of itself is not especially unusual, but given there is significant opacity in ETFs’ corporate governance processes, reliance on advisory services seems less that optimum.
The disappointing assessment of the sector comes from Sage Advisory Services’ 2023 ETF Stewardship Survey, which covers 19 providers that collectively oversee more than USD28 trillion in assets.
Sage finds the commitment among ETF issuers to providing proxy voting "is fading", with 31 per cent of respondents seeing a decline in their participation scores.
This will be especially frustrating for some of the household name ETF providers – five of the biggest 10 are included in the research – which have been making concerted efforts this year to improve their ESG reputations.
This July BlackRock announced it would offer proxy voting choices to US retail investors of its biggest ETF in a bid to end criticism of how the firm considers corporate governance.
This followed a move by State Street Global Advisors in May which announced it will offer more investors, including those owning its US ETFs and US mutual funds, the power to choose a voting policy that directs the proxy votes of shares owned in the index equity funds in which they are invested.
The Sage analysis took a dim view of the sector’s voting efforts, with Emma Harper, Vice President, Senior Research Analyst and report author making clear: "It is the duty of the ETF provider to exercise these rights in the best interest of a fund and its shareholders."
Elsewhere we see a push towards impact investing from French business school EDHEC which has committed EUR20 million to a seed fund for entrepreneurial firms dedicated to making a societal difference.
EDHEC Dean Emmanuel Métais tells us there is considerable enthusiasm from investors to support projects that solve a variety of societal ills from climate change to health and wellbeing.
However, we note that overall global investment in impact startups has fallen this year, with research from Dealroom reporting that in 2023, the sector raised just over USD41 billion and is projected to reach USD48.1 billion by the end of the year representing a fall from nearly USD75 billion last year.
But perhaps more positively for EDHEC, which hopes to raise EUR40 million, Europe is the region with the highest share of impact funding as a total of VC investment at 18 per cent followed by the US (8 per cent) and Asia (4 per cent).
We will be keeping an eye on the fund’s progress with interest.
Gill Wadsworth, Editor
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