Stewardship and institutional investor engagement

6. Market service providers

While institutional investors remain the primary holders of stewardship responsibilities, the quality and objectivity of supporting services can materially influence their voting decisions and engagement practices.

Conflicts of interest may arise in several circumstances, including where a provider of analysis, proxy advice, data, or ratings seeks to supply other remunerated services to the same issuer which it assesses; or where the provider or its owners have a direct material interest in the issuer concerned or its competitors. In response to such risks, many jurisdictions have adopted regulatory requirements and/or voluntary codes of conduct, or have encouraged self-regulatory arrangements, with the aim of strengthening integrity and accountability without unduly constraining different business models in the provision of analysis.

To make these expectations operational, stewardship frameworks may need to encourage market service providers to implement written policies and procedures designed to ensure that their analyses are independent, free from undue political or economic interference, and appropriately address conflicts linked to organisational structures and business activities. Such frameworks may need to encourage timely and sufficiently detailed disclosure of conflicts and of the measures applied to avoid, eliminate, mitigate or manage them, including disclosure of relevant business relationships with covered entities and consulting arrangements.

6.1. Human and technological resources

Stewardship frameworks may encourage market service providers to maintain sufficient human and technological resources to gather relevant information, conduct analysis, and ensure quality assurance, and that individuals involved in their services are professional, competent, and of high integrity. Increased transparency on the total headcount and senior staff qualifications may help institutional investors assess the depth of expertise of market service providers. Likewise, disclosure on the use of temporary or seasonal staff during peak seasons, including their qualification requirements, training, supervision, and the roles performed, may strengthen confidence in the robustness of the recommendations and analyses performed.

6.2. Transparency of methodologies and benchmark policies

Market service providers would ideally adopt written procedures and defined methodologies that promote consistent, high-quality analysis, which supports an informed use of their services and may strengthen trust in outcomes. Where feasible, methodologies may rely on publicly disclosed information; where non‑public or proprietary sources are used, providers could disclose the nature of those sources and the circumstances in which they are employed. Stewardship frameworks could encourage disclosure of whether inputs are issuer-reported, obtained from third-party providers, industry averages, or estimates when data are unavailable or not publicly disclosed. Providers could also be transparent, where reasonably possible, about the timeliness and coverage of data used, including relevant time periods, update cycles, and any material limitations, approximations, or assumptions.

Transparency should consider whether methodologies and benchmark policies are accessible and intelligible to clients and issuers, while protecting legitimate proprietary or confidential information. When issuing advice or analysis on contentious or evolving issues, providers may consider whether to apply evidence‑based approaches wherever possible and seek to verify factual information with issuers.

Stewardship frameworks may recommend that proxy advisors publish revised voting policies sufficiently in advance of the proxy season to improve predictability for institutional investors and issuers. Where advice recommends voting positions that go beyond legal requirements, providers should consider whether to disclose the underlying rationale, including how the local market context has been considered. Proxy advisors may also share their reports with issuers without undue cost and provide mechanisms for appending issuer commentary to final reports, enabling institutional investors to consider the issuers’ perspective.

Policymakers and regulators should also consider pursuing policies and requirements for increased transparency of recommendations and methodologies, while avoiding prescriptive methodological requirements or substituting their judgement for that of market service providers. Institutional investors are best placed to assess the fitness‑for‑purpose of different methodologies, and overly rigid national rules may inhibit legitimate, scalable global business models valued by certain institutional investors.

6.3. Communication with the issuers

Transparency regarding communications between issuers and market service providers may help clients understand how factual information is collected and verified, support confidence in the integrity of products and services, and reduce the risk that errors or misstatements influence institutional investors’ voting, engagement, or investment decisions.

Market service providers should ideally publish clear terms of engagement that describe how and when they typically interact with covered issuers. These terms could explain the circumstances in which information may be requested from issuers, the channels through which requests will be made, and provide opportunities for issuers to review factual information prior to publication. Market service providers could be encouraged to maintain a clear and consistent contact point for covered issuers to raise queries related to the services provided, recognising that many issuers engage with multiple providers under tight timelines.

Stewardship frameworks may further encourage efficient and proportionate information-gathering practices. Where providers anticipate requesting information, they may communicate sufficiently in advance, seek to limit duplicative requests, and make reasonable efforts to rely on publicly disclosed information where appropriate. At the same time, transparency in communications should not be construed as implying endorsement of issuer views or compromising the independence of analysis.

Stewardship frameworks could also recommend that market service providers maintain clear procedures for promptly alerting clients to any material factual errors or significant revisions to research, analysis, or voting recommendations identified after publication. Where feasible and appropriate, market service providers should ideally consider and respond to issues raised by covered issuers, while preserving the objectivity and integrity of their services, including by being receptive to issuer-initiated engagement aimed at correcting factual inaccuracies and allowing sufficient time for issuers to identify and highlight errors in underlying data or information. Stewardship frameworks may encourage accessible mechanisms for reporting complaints or alleged misconduct, including concerns related to independence, transparency, or integrity.