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Proxy Voting, ESG and the Future of Fund Disclosure

SEC Reporting
Disclosure Management
A look at what's ahead on fund disclosures on proxy voting
4 min read
Arthy Kumar
Industry Principal
Published: 24 March 2021
Last Updated: 21 September 2023

Socially conscious investing may soon affect investment fund providers in a whole new way.

At the ICI Mutual Funds and Investment Management Conference, Acting SEC Chairwoman Allison Herren Lee noted that many millennials and other sustainability-minded investors are putting their money where their hearts are, in funds with environmental, social and governance (ESG) investment strategies. She suggested funds still have work to do to more fully disclose how they’re using their shareholder votes to reflect ESG preferences—if funds are using their voices in proxy voting at all. 

I came away from the speech with three thoughts:

  • The growing interest in ESG investing will continue to influence the regulatory world in new ways when it comes to funds. We’ve already seen it with the Sustainable Finance Disclosure Regulation (SFDR) that applies to asset management firms that market funds in the European Union.
  • The acting SEC chairwoman is pushing for more standard, timely disclosures to provide investors with better, more digestible information so they can make more informed decisions. Funds that can deliver may gain an edge with investors.
  • The need for strong regulatory and supervisory systems, and the rise of chief compliance officers (CCOs) that we predicted for this year will likely extend beyond 2021.

We were already watching what meme stocks like GameStop would mean for fund disclosures around volatility, market conditions and investment strategies. Now we’re seeing what it could mean for funds that lend shares, as they give away voting power and the right to express shareholder preferences. 

The evolution of regulations won’t stop here: The more regulation you have, the more you need a robust system for compliance.

Chairwoman Lee made many points in her speech, which included her concern about the economic pressures funds face to lend out shares rather than vote them. She also questioned whether Form N-PX is as helpful to investors as it could be as a means of disclosure on fund voting. In fact, she has already asked SEC staff to review options for updating the form.

“A new rule could, for example, standardise voting disclosures, structure and tag the data, provide more clarity in the description of issues voted on, provide the number of shares voted versus shares available to vote, and facilitate more timely disclosure so investors can act quickly to reward fund managers that best match their needs and expectations,” she said at the ICI event. 

While it could take time for the SEC to update Form N-PX or adopt new rules and guidance around voting disclosures, fund compliance teams may want to be ready with systems that let you:

  • Link information on how your funds are handling shareholder voting across internal documents, Form N-PX and marketing materials so all are consistent
  • Link that information across multiple funds if those funds handle voting in the same way
  • Tag and structure data so investors can more easily consume the information and compare funds
  • Quickly update information when the number of shares voted or available to vote changes
  • Handle the work of updating the disclosures in house, so you don’t need to rely on a vendor or outside counsel to shorten turnaround times for updating investors

Flexibility is key, because being able to adapt is going to be critical as new regulations go into effect.

If you don’t already have SEC reporting processes, software and templates that help you adapt, now is the time to make a change. Find efficiencies in maintaining disclosures on fund voting, so that if and when a new regulation is implemented you can act on it. You don’t want to be left scrambling.

The Workiva team is prepared to help on all fronts, so reach out if you have concerns. 

If clearer disclosures can give funds an edge over competitors, it’s best to enable compliance teams now to create, update, review and approve disclosures as efficiently and accurately as possible. 

About the Author
Arthy Kumar
Arthy Kumar

Industry Principal

Arthy Kumar is an Industry Principal at Workiva. She drives the go-to-market strategy, execution, and success of reporting and compliance solutions for banking, investment, and insurance companies. Arthy’s previous roles at Workiva include Director of Program Management for Investments and Subject Matter Expert. Before joining Workiva in 2012, Arthy spent 14 years at Vanguard and MetLife. Her experience includes financial planning, portfolio analysis, relationship management of large institutional clients, and people management. She is a CFP® (Certified Financial PlannerTM) professional and a Chartered Financial Consultant (ChFC).

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