In the evolving landscape of investment stewardship, institutional investors are increasingly recognizing the need to harmonize proxy voting and corporate engagement. Historically treated as distinct activities, these disciplines are now seen as complementary levers that, when aligned, can enhance outcomes and long-term value.
In this article, you’ll learn
- Why proxy voting and engagement are often disconnected, and the potential risks this creates.
- What regulators and standards like the UK Stewardship Code and PRI now expect.
- About challenges and best practices to integration, and how to create a more cohesive and streamlined strategy.
The Current Landscape: Disconnected Efforts
Traditionally, proxy voting and engagement have operated in silos within investment organizations. Voting decisions are often made by investment or governance teams, while engagement is handled by ESG or stewardship departments. This division can result in inconsistent messaging to portfolio companies and dilute the overall impact of stewardship efforts. Engagements may occur without corresponding shifts in voting behavior, and proxy votes may be cast without the context of ongoing or past engagements.
Add to this the use of proxy advisory firms. While some institutional investors utilize the benchmark voting policies offered by these firms, research now indicates that around 80% of investors actually use customized proxy voting recommendations. This trend reflects an effort to better align voting behavior with institutional priorities and values. In practice, customization fulfills two crucial roles: it allows shareholders to express their own views through their votes, and it helps investors manage limited resources by directing analytical attention to high-impact or contentious proposals.
However, this also raises practical questions. With resource and capacity constraints, how can institutions credibly implement voting strategies that are meaningfully informed by engagement insights and vice versa? This challenge underscores the need for a more integrated strategy – one where voting and engagement are part of a single, coherent stewardship process rather than parallel but disconnected efforts.
Market Drivers: Encouraging Alignment
Policymakers and standard-setters are increasingly promoting transparency and alignment between voting and engagement.
In the UK, the FRC’s 2024 consultation on revising the Stewardship Code puts clear emphasis on the need for investors to demonstrate how engagement outcomes influence proxy votes, and vice versa. The aim is to create a more transparent and accountable stewardship cycle, where internal coordination across teams ensures consistency of message and intent.
Similarly, the PRI’s 2025 Reporting Framework requires signatories to explain how they operationalize integration between engagement and voting. This includes describing supporting internal governance mechanisms, and how stewardship teams collaborate with portfolio managers and ESG analysts to support consistent outcomes.
Both initiatives reflect a broader elevation of expectations in this area, moving from reporting on activities in isolation to demonstrating coherence between them – backed by governance structures, data management and workflows. The signal is clear: investment stewardship is no longer defined by volume of activity, but by the alignment and credibility of actions taken.
Challenges in Integration
Despite evolving expectations, several challenges impede the seamless integration of proxy voting and engagement:
- Data Silos: Disparate systems and lack of centralized data hinder the ability to track and align engagement activities with voting decisions.
- Resource Constraints: Investors may lack the resources to develop integrated stewardship strategies.
- Complex Stakeholder Interests: Balancing the diverse priorities of stakeholders, including clients with varying ESG preferences, complicates unified decision-making.
Moreover, the rise of "pass-through voting," where investors in pooled funds can vote their shares directly, adds complexity to coordination efforts.
Best Practices for Cohesive Stewardship
To overcome these challenges, institutional investors can adopt several best practices:
- Unified Governance Structures: Establish cross-functional teams that include members from governance, ESG, and investment departments to ensure cohesive decision-making.
- Integrated Technology Platforms: Leverage technology solutions that centralize data on engagements and voting records, facilitating transparency and alignment.
- Clear Policy Frameworks: Develop and communicate clear policies that outline engagement and voting coordination, ensuring consistency and accountability.
- Stakeholder Engagement: Engage with clients and beneficiaries to understand their priorities, ensuring that stewardship activities reflect their values and expectations.
The Vision: A Harmonized Approach
The future of investment stewardship lies in the seamless integration of proxy voting and engagement. By breaking down silos and fostering collaboration across departments, institutional investors can enhance their influence on corporate behavior and drive sustainable value creation.
Technological advancements offer promising avenues to streamline processes and improve transparency. However, the human element—clear communication, shared objectives, and collaborative culture—remains paramount.
Glass Lewis: Facilitating Integrated Stewardship
Recognizing the imperative for more effective investment stewardship, Glass Lewis has taken strategic steps to support institutional investors in this journey. The acquisition of Esgaia, a technology platform specializing in investment stewardship data and workflow, underscores this commitment.
By integrating Glass Lewis's expertise in proxy voting and engagement with Esgaia's capabilities in stewardship tracking, clients can access a unified solution that streamlines workflows, enhances transparency, and aligns engagement activities with voting decisions.
Through these innovations, Glass Lewis aims to empower institutional investors to execute cohesive stewardship strategies that drive meaningful corporate change and deliver long-term value to clients.