ETF sponsors still lacking in stewardship

Sponsors were graded on measures like ESG policies, proxy voting practices, and corporate engagement

ETF sponsors still lacking in stewardship

Given the significant amount of assets they represent, it’s clear that ETF sponsors have a responsibility to act in the interests of investors. And that duty goes beyond general fiduciary standards; true financial stewardship, it can be said, should be more than just about money.

That was the view of US-based Sage Advisory Services when it conducted its 2018 ETF Sponsor Stewardship Survey. Composed of 26 questions, the survey evaluated 14 US-domiciled ETF sponsors based on five core areas:

  • General policies concerning corporate governance and ESG issues;
  • Firm-wide proxy voting practices and history;
  • Corporate engagement policies, practices, and communication efforts;
  • Depth and breadth of research resources dedicated to stewardship and engagement; and
  • Level of disclosure regarding their voting practices and company engagements

“As of year-end 2018, [our respondents] represented 91.7% of U.S.-registered ETF assets under management, as well as a significant 93% of U.S. domestic equity ETF assets under management,” the report said. “Roughly 57% of the respondents were publicly listed investment service companies with the balance being privately held entities.”

When it came to general stewardship policies, an overwhelming majority of firms (93%) had firm-wide corporate governance policies in force. When asked whether they integrated ESG-related evaluations of their respective ETF portfolio companies, 86% of the respondents said they did so.

The responses on proxy voting policy and practices were varied, according to the report. While all respondents indicated that they had uniform firm-wide independent voting policies, there were notable differences in how they satisfied their voting responsibilities. Twelve of the respondents used an external proxy voting service, while two preferred to use their internal staff. Ten said they used the external proxy voting advisor only for research purposes; three employed a combination of internal and external advisory research and recommendation services. Only one firm said they relied solely on an external proxy voting advisor for their recommendations.

Turning to corporate engagement, the report found that ETF sponsors focused on a range of topics and issues, including board composition & competency, carbon emissions data, geopolitical issues and concerns, management succession planning, and workforce diversity and safety data. Out of the 14 firms, eight had a firm-wide engagement policy, four did not, and two addressed issues on a situational basis. In addition, while eight firms had a set corporate engagement schedule, two were inclined toward ad hoc scheduling, and the rest did not directly engage with companies.

The survey also assessed the history, size, and scope of professional staff each sponsor had dedicated to fulfilling their stewardship responsibilities. Of the respondents, some 30% said they did not have such a team in place, and four out 14 said they do not to expand their capabilities in that area.

Finally on disclosures, 12 of the sponsors Sage surveyed voluntarily disclosed all or most of their proxy voting records. As for corporate engagement, eight said they did not share information on their engagement activities with investors, four said they offer anonymous examples of their corporate engagement research, and just two had full-disclosure policies of their engagement research.

“Our survey found that 50% of the Sponsors scored well on most of the stewardship issues and achieved a solid overall grade of ‘A,’” the report said. “Unfortunately, 36% of the respondents did not score well and achieved weak, subpar assessments of ‘D.’”


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