The Corporate Citizenship Project Asks SEC to Regulate Proxy Advisors on ESG in Western Journal Op-Ed
The op-ed, penned by Corporate Citizenship Project National Chairman Terry Branstad, asks the Securities and Exchange Commission to increase the transparency requirements needed from proxy advisors’ on ESG ratings.
DES MOINES, Iowa, July 27, 2022 /PRNewswire/ — The Corporate Citizenship Project (www.CorporateCitizenshipProject.com), a think-tank focused on a data-driven approach to corporate governance issues, released an op-ed in The Western Journal asking the SEC to adopt new regulations on proxy advisors on their Environmental, Social, Governance (“ESG”) ratings. The op-ed was written by Corporate Citizenship Project National Chairman Terry Branstad, who previously served as Governor of Iowa and US Ambassador to China.
In the op-ed, Branstad discusses how ESG ratings have morphed from being a Public Relations issue to one with material impacts on shareholder value, given that many investment firms refuse to invest or limit their investments in public companies with poor ESG ratings. Branstad notes that ESG ratings often do not reflect a company’s environmental and social impact because proxy advisors have a significant potential conflict of interest. Proxy advisors are currently allowed to have ratings businesses and provide consulting services for public companies to improve their ratings. These businesses, said Branstad, are in a direct conflict of interest.
“Investors may suffer from wrongly investing in companies that have high ESG ratings because they paid for consulting rather than because they are good corporate citizens,” he warned.
As evidence of this, Branstad cited that proxy advisor Institutional Shareholder Services (“ISS”) appeared to award prime certification to Anglo American Plc, parent of the De Beers Group, which suffered from controversies over “Blood Diamonds” and indentured servitude.
On behalf of The Corporate Citizenship Project, Branstad calls on the SEC to adopt two regulations on proxy advisors.
First, proxy advisors should be required to spin off their ESG consulting businesses, which present a significant conflict of interest detrimental to investors and public companies that do not engage them. Short of that, proxy advisors should be required to disclose clearly, when releasing ESG ratings, how much money was paid to them by the public company.
Second, proxy advisors should be required to publicly disclose their quantitative and qualitative methodology in calculating ESG scores.
“Given the significant amount of money run under so-called sustainable investment strategies, the SEC must take appropriate action to protect American businesses and investors from being victimized by an arbitrary and conflict-of-interest-ridden ESG system enforced by proxy advisors,” wrote Ambassador Branstad.
The op-ed can be found here: https://www.westernjournal.com/branstad-time-end-pay-play-esg-movement/
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SOURCE Corporate Citizenship Project
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