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ETF issuers fail in stewardship practices

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ETF providers continue to overlook stewardship responsibilities with proxy voting “muddled and concentrated”, new research reveals.

The Sage Advisory Services 2023 ETF Stewardship Survey, which covers 19 ETF providers that collectively oversee more than USD28 trillion in assets, 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. 

Bob Smith, President of Sage Advisory, said: “Using our proprietary scoring system, 50 per cent of repeat participants saw a notable improvement in their overall stewardship score, while 31 per cent saw a decline. Clearly, this is an industry in growth mode but one that has not yet aligned around best practices when it comes to stewardship.”

Sage points to “relatively opaque proxy voting policies” and a reticence to provide public company voting records, while there is an undue reliance on third-party proxy voting advisors which is increasing the sector’s influence; an issue already raised by regulators in the US. 

Further, Sage finds that some passive ETF managers are too often taking a pass on voting decisions, citing their passive management style as a reason to defer voting decisions to proxy advisors or to exempt themselves from active ownership practices. 

Emma Harper, Vice President, Sage Senior Research Analyst and author of the report said: “While the industry’s growth and innovation are commendable, how these assets are managed from a stewardship perspective is a critical, and too often overlooked, aspect of monitoring the space.”

She added that all ETF investors need to be aware of the importance of proxy voting calling it a “critical aspect of stock ownership”.

“It is the duty of the ETF provider to exercise these rights in the best interest of a fund and its shareholders.”

Harper said the decline in stewardship transparency is partly down to the “punitive political environment, confusion over regulatory guidance, and concern over adverse business outcomes”.

However, she noted: “While all are certainly real concerns, none exempt an ETF provider from its stewardship responsibilities.”

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