Missouri Attorney General Launches Investigation

Missouri Attorney General Andrew Bailey has initiated investigations into two major proxy advisory firms, Glass Lewis and Institutional Shareholder Services (ISS). These firms are accused of prioritizing ideological agendas over investor returns, potentially violating state consumer protection laws. Bailey’s actions come amid growing concerns about the influence of environmental, social, and governance (ESG) criteria on investment decisions.

Allegations of Misleading Practices

Bailey alleges that both firms have misled consumers by claiming their proxy voting recommendations are based solely on objective data and research. However, he argues that internal documents reveal a focus on advancing diversity, equity, and inclusion (DEI) and environmental causes, regardless of their impact on investor returns. This alleged discrepancy between public statements and internal practices forms the basis of Bailey’s investigation.

Impact on U.S. Proxy Advisory Market

Glass Lewis and ISS dominate the U.S. proxy advisory market, controlling approximately 97% of it. They provide voting recommendations to institutional investors such as pension funds and mutual funds during corporate shareholder meetings. These recommendations often influence decisions on board member elections, executive compensation, and company policies.

Legal Actions and Industry Reactions

In an effort to compel compliance with the investigation, Bailey has filed an enforcement petition in state circuit court. He highlights statements from both firms’ websites that promise objective offerings based on research and data. Yet, internal documents suggest a commitment to DEI and ESG initiatives. The investigation seeks to uncover whether these practices constitute a violation of consumer protection laws.

Broader Implications for ESG Investments

The investigation reflects a broader debate over the role of ESG criteria in investment decisions. Critics argue that prioritizing these factors can undermine financial returns and mislead investors. Will Hild, Executive Director at Consumers’ Research, supports Bailey’s actions, emphasizing the need for accountability in the proxy advisory industry.

Response from Glass Lewis and ISS

Neither Glass Lewis nor ISS has responded to requests for comment regarding the investigation. This silence follows similar scrutiny from other states, including Florida, where Glass Lewis faced a civil investigative demand earlier this year.