Morrow Sodali unveils groundbreaking FRC study on proxy advisors and ESG ratings agencies' impact

Morrow Sodali, in collaboration with Durham University Business School, is pleased to announce the release of a comprehensive research study commissioned by the Financial Reporting Council (FRC). The study sheds light on the profound influence and impact of proxy voting advisors and ESG rating agencies on actions and reporting by FTSE 350 companies, as well as their effect on investors, including asset managers and asset owners.

The research aimed to address critical questions surrounding the recommendations and ratings provided by proxy voting and ESG rating agencies. The study delves into the resulting impact on FTSE 350 companies' behavior, reporting, governance policies, and the so-called 'tick box' behavior. Additionally, it examines the engagement processes and outcomes over the past two years among FTSE 350 companies, investors, and proxy voting/ESG rating agencies.

The findings of the study challenge conventional assumptions about the clear-cut and direct impact of recommendations and ratings provided by proxy advisors and ESG rating agencies. While acknowledging the influence of these entities on behavior and voting decisions, the analysis reveals a more nuanced perspective, as observed from voting patterns and interviews with investors. This study aims to reflect the diverse range of perspectives expressed by companies, investors, proxy advisors, and ESG rating agencies during the extensive research process.

The research spanned from October 2022 to March 2023, during which Morrow Sodali and Durham University Business School obtained and analyzed survey responses, conducted interviews and roundtable discussions, and examined AGM resolutions and voting outcomes. The collaboration extends its gratitude to all participants, including the Chartered Governance Institute, GC100, and Minerva Analytics, for their support in facilitating the research.

As a global leader in shareholder services and corporate governance consulting, Morrow Sodali is committed to promoting transparency and understanding the intricate dynamics between proxy advisors, ESG rating agencies, companies and investors. This research study serves as a crucial contribution to the ongoing dialogue and will inform discussions on governance policies, practices and engagement strategies.

Please click here to read the full study.