Today, Attorney General James Uthmeier announced an investigation into proxy advisors Glass Lewis & Co. and Institutional Shareholder Services Inc. (ISS). The inquiry focuses on potential misrepresentations related to their Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) investing policies. These actions are alleged to violate the Florida Unfair and Deceptive Trade Practices Act. Additionally, there is concern about possible unlawful collusion in adopting these policies under the Florida Antitrust Act of 1980.
Attorney General Uthmeier emphasized the importance of not allowing ESG goals to limit Florida businesses or threaten investments: “We won’t allow ESG goals to handcuff Florida businesses and threaten Floridians investments,” he stated. He added that if proxy advisors misuse their market power for partisan agendas rather than shareholder value, they will be held accountable.
Glass Lewis and ISS play a significant role in providing vote recommendations to institutional investors, controlling up to 97% of the proxy-advisory market according to some estimates. Their influence extends over how major American companies are managed as many institutional investors depend on their guidance for voting shares.
Both Glass Lewis and ISS have communicated that their decisions are based on economic factors rather than political motivations. Glass Lewis claimed its evaluations focus on long-term shareholder value through environmental and social issues, while ISS stated its research maintains a “neutral and analytical perspective” prioritizing clients’ interests.
Despite assertions that ESG strategies enhance financial performance, data shows otherwise. ESG funds have consistently underperformed against the market, trailing behind the S&P 500 with notable losses in 2022 continuing into 2024.
The investigation suggests that these advisors may have promoted ESG strategies for ideological reasons rather than purely economic ones. Given their control over a large portion of the market, shareholders faced limited options for alternative services without risking negative impacts on corporations’ ratings from rejecting advice or dropping services.
