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Tech to drive ESG proxy voting
Exercising rights via proxy voting will be more significant post COVID-19 and technology will play a role in this, according to JP Morgan.
JP Morgan global pensions executive, securities services, Benjie Fraser, told Super Review, that technology was critical to the advancement of proxy voting. Technology would play a role in the accessibility of issuer environmental, social and governance (ESG) information, data, transparency and communication, the ESG impact of voting, and benchmarking.
On information accessibility, Fraser said this would guide how investors voted as currently there was no uniform way for issuers to publish information due to a lack of standards and investors were relying on vendors or had to source information themselves.
Data wise, Fraser said: “The use of technology tools such as machine learning and natural language processing, supported by the use of API’s, can convert unstructured information (ESG reports or prospectuses) into more meaningful portfolio insights”.
He also said that technology could support transparency on voting behaviour, identify trends, and benchmark portfolios against peers and between sectors, along with analysing compliance with investment guidelines.
Currently, Fraser said, there was no way to determine whether an investors’ proxy vote had made a direct impact on a company’s behaviour but that “technology could help by creating a tool that links input (votes) with output and effects. For example, changes in issuer behaviour, such as increasing targets in reducing carbon emissions, increase gender diversity, and so on”.
“Benchmarking could be useful to help standardisation but it still too early to predict how asset owners will want to measure vote transparency,” he said.
Fraser noted that JP Morgan was progressively integrating ESG score data from multiple vendors and business involvement data into investment exposure analytics to help investor stewardship activities.
“Our clients are able to drill down into the themes that are used for determining the E, S and G scores for each issuer in their portfolios,” he said.
“These new additions to our analytical tool-kit complement existing investment screening capabilities measured against investment mandate criteria and ESG attributes.”
Commenting on superannuation funds that preferred to “talk behind closed doors” on ESG issues, Fraser said it was harder to demonstrate firms had achieved something to clients and members through this process.
“If companies were more open with their investors, this also helps to create critical mass with others,” he said.
“Technology may not assist in changing the preference for a closed doors approach – which has its benefits as well – but it can help to promote the use of an open door approach by addressing the closed door issues.”
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