The Texas Legislature once again has the opportunity to lead from the front
AUSTIN, Texas (Texas Insider Report) — To no one’s surprise, the 89th Legislative Regular Session has been a busy one. As of the middle of April, the Senate alone had passed over 392 legislative bills, including 32 of Lieutenant Governor Dan Patrick’s priority bills. The Texas Legislature often paces the nation on issues of great attention, and this session is no different, as lawmakers consider topics such as providing school choice, addressing ERCOT reliability concerns with regards to large load customers, and increasing teacher pay.
The Senate is also tackling issues that are not as widely publicized, but should garner significant interest – specifically Senate Bill 2337, introduced by Senator Bryan Hughes.
SB 2337 aims to counter a long-standing issue in the financial services industry – the outsized influence of the proxy advisory industry. Ironically, the “industry” in this case is more aptly described as a duopoly, as two proxy advisory firms. Glass Lewis and Institutional Shareholder Services (ISS), control roughly 90 to 97% of the advisory market.Even worse for Texas’ interests is that the duopoly is foreign-owned; Glass Lewis is owned by a Canadian private-equity firm, and Germany’s Deutsche Borse is the majority owner of ISS.
Glass Lewis and ISS’ power goes even further than market share.
The firms provide recommendations to investors and asset managers on how “best” to vote their shares – for matters such as management and shareholder resolutions. Simultaneously, Glass Lewis and ISS also provide Environmental, Social & Governance (ESG) consulting services to companies, creating an inherent conflict between their consulting practices and shareholder recommendations.
In other words, proxy advisers benefit from advocating for ESG initiatives at a corporate level and then turn around to advise shareholders on how to vote for these types of initiatives.
The proxy advisory duopoly is known for being some of the staunchest defenders of ESG, which Texas has led the nation in fighting back against.
The proxy advisory duopoly is known for being some of the staunchest defenders of ESG, which Texas has led the nation in fighting back against.
According to a report from ShareAction – which analyzes how asset managers vote on shareholder resolutions – the largest asset managers’ support for environmental and social shareholder resolutions dropped drastically when compared to years past. Of the 279 Environmental & Social Proposals reviewed, the big asset managers – which many in Texas have previously focused their ire towards – State Street Global Advisors supported 10%, BlackRock supported 5%, and Vanguard supported zero – dead last.
In contrast, ISS supported roughly 70% and Glass Lewis backed nearly 40%.In March, Florida Attorney General James Uthmeier announced an investigation into the proxy advisory duopoly for their ESG and DEI policies. While this is a welcome step in stopping the undue influence of these two ideologically rogue advisers, more can be done to curtail counterproductive and politicized shareholder recommendations – such as passing Sen. Hughes’ bill into law.
SB 2337 would require proxy advisers to provide services based solely in the best financial interest of the company’s shareholders. Unlike asset managers, they have no legal fiduciary duty, so this would ensure they rely on quantitative standards to maximize financial returns while managing potential risks. Should the proxy advisers provide services to shareholders that are not based solely on their financial interest, they must include a warning, obtain written acknowledgement, and publicly disclose it on their website.
Just as Texas combatted the boycotting of oil and gas by big Wall Street firms with Senate Bill 13 in 2021, we can now stand up to the proxy advisory industry.
Large financial institutions like Vanguard and BlackRock have walked back their support for ESG measures and climate initiatives, in large part due to Texas’ leadership and legislation.
Large financial institutions like Vanguard and BlackRock have walked back their support for ESG measures and climate initiatives, in large part due to Texas’ leadership and legislation.
The Texas Legislature once again has the opportunity to lead from the front – and provide the final blow to killing the left’s ESG Agenda.
