Norges Bank Investment Management, which manages the world’s largest sovereign wealth fund, has called for regulation of the proxy advisory industry, saying self-regulation will not resolve conflicts of interest.
Norges, which manages Norway’s $882 bn oil fund, also says in its letter to the European Securities and Markets Authority (ESMA) that a series of best practices recommended by the authority to guide self-regulation has shown ‘a lack of immediate and demonstrable effect’ and ‘lacks elements of detail in key areas’.
The written comments come in response to an ESMA request for feedback on the best practices document, the Best Practice Principles for Providers of Shareholder Voting Research (BPP), which was intended to help the proxy advisory industry regulate itself to increase transparency and decrease potential conflicts of interest.
‘Given the lack of adequate self-regulation set out in the BPP, voting advisory services are an area where regulation is warranted,’ write Petter Johnsen, CIO of Norges equity strategies and Gavin Grant, Norges’ head of active ownership, in the letter to ESMA. ‘The BPP lacks elements of detail in key areas such as conflict of interest. We continue to see clear conflict-of-interest risk when voting advisers sell services to both shareholders and issuers. The practice introduces an unavoidable question about the independence of the resulting analysis and recommendations provided to investors.’
In June ESMA called for feedback ‘on how stakeholders perceive the most recent proxy seasons to have evolved and to assess the extent to which new trends or changes in proxy advisers’ approaches have developed’ as part of its assessment of the BPP.
When ESMA issued its final report on the BPP in 2013, it said no binding regulations were needed to govern the proxy advisory industry but proxy advisers should self-regulate to guide behavior in areas such as transparency and disclosure.
