Emma Harper
ETF Stewardship: How Providers Vote Your Shares
Emma Harper came to finance from a different world entirely. She had a career in retail management before going back to school for her MBA focused on finance. She landed at Sage Advisory, a firm managing about $20 billion in assets across institutional and smaller client relationships. Her focus has been research: everything from ETF due diligence to responsible investment and sustainable strategies. As a user of ETFs for client portfolios, Sage needs to understand what's happening underneath the hood, which is what led them to start producing the stewardship report six years ago.
On this episode of Behind the Ticker, Emma joins Brad to discuss Sage Advisory's 2024 Annual ETF Stewardship Report. It's a comprehensive survey of ETF provider practices around proxy voting, transparency, and corporate governance, and the findings have some uncomfortable implications for how the largest managers exercise their influence.
Why Stewardship Matters for ETF Investors
Here's the thing most ETF investors don't think about: when you buy an ETF, you're giving up your ownership rights to the ETF provider. They vote your shares. They decide whether to support or oppose management proposals, shareholder resolutions, and board elections. With the largest providers controlling trillions of dollars in assets, their voting behavior has real consequences for corporate governance. Sage's report exists because, as ETF users investing client money, they need to be comfortable with how those ownership rights are being exercised.
The report surveys ETF providers on their voting behavior, engagement practices, stewardship team composition, and governance policies. It examines whether providers have dedicated stewardship people doing this day in and day out, how they're engaging with companies on operational and strategic issues, their positions on climate risk, diversity and inclusion, corporate governance, and even political lobbying. "We're just trying to peel back the onion and look at providers from all these different aspects," Emma explained.
Big Managers Vote With Management
One of the report's key findings: larger managers are far more likely to support management than vote against it. Through self-reported data, large managers reported supporting management about 91% of the time, compared to 81-82% for medium and small managers. That 10-percentage-point gap matters enormously at scale. When the biggest asset managers, who collectively control the largest share of corporate voting power, consistently side with boards, the question becomes whether they're exercising independent judgment or just rubber-stamping management proposals.
Emma was direct about the stakes: "If ETF providers don't exercise their stewardship responsibilities diligently, there's a risk of harming long-term value and exacerbating broader market risks like corporate governance failures." The flip side is emerging: pass-through voting, where providers let individual investors vote their own shares. The largest providers have started rolling this out, though it's still early and comes with its own complications.
Declining Transparency
The report found a concerning trend over the past six years. In the early years, providers were becoming more aware that investors wanted stewardship information and were getting better at sharing it. But starting around 2022, there was a pullback. The language used to describe stewardship processes became much more legal in tone. Providers became more cautious about what they were willing to say they were or weren't doing regarding corporate influence. Emma attributed it to increased legal and political scrutiny, including regulatory backlash and political pressure around ESG-related voting.
In 2024 specifically, support for environmental shareholder proposals fell below social proposals for the first time, likely driven by scrutiny over asset managers' net-zero commitments. Proxy voting records are technically public through Form N-PX filings, but actually analyzing them is a challenge: you're looking at every decision for every vote for every fund. Some providers have built dashboards, but there's still significant work needed to make stewardship behavior genuinely accessible to investors and their advisors.
What's Next for Stewardship
Emma expects corporate governance to remain the primary focus area, as it's less politically contentious than environmental and social issues. Emerging topics like artificial intelligence's impact on portfolio companies and cybersecurity are becoming more important as governance issues. Regulatory and political pressures will continue to shape practices, but the core themes of transparency and accountability aren't going away. "Whether providers want to or not, I think there will be continued push," she said. The report is available at sageadvisory.com and is used not just by Sage but by advisors and institutions doing their own due diligence on ETF providers.
Key Takeaways
- Large ETF managers reported supporting management 91% of the time in proxy votes, compared to 81-82% for medium and small managers. That gap has real consequences for corporate governance.
- Transparency around stewardship practices has declined since 2022 as providers adopt more legal language and become cautious about disclosing their corporate engagement activities.
- Support for environmental shareholder proposals fell below social proposals for the first time in 2024, driven by scrutiny over net-zero commitments and anti-ESG political pressure.
- Sage Advisory manages about $20 billion and has produced the stewardship report annually for six years as part of their own ETF due diligence process.
- Emerging stewardship focus areas include AI's impact on portfolio companies, cybersecurity, and corporate governance. Pass-through voting is growing but still early stage.
Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.
Full Transcript
4,701 wordsMachine transcribed from Brad Roth's conversation with Emma Harper, with speakers identified automatically. Timestamps link to that moment on YouTube. Lightly cleaned, otherwise unedited.
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Welcome to Behind the Ticker. Today we have on Emma Harper. She is from Sage Advisory, and we are talking about their 2024 Annual ETF Stewardship Report. They release it every year. They do a survey about what is best practice in the ETF space. It's part of their own research that they do for their own clients when doing due diligence on funds. So we talk about a variety of different things, a bit about different topics. So without further ado, please welcome Miss Emma Harper.
Hey Emma, welcome to the show. Hi, thanks for having me. Glad to be here today.
So before we get started, why don't you give everybody a little bit about your background and how you eventually ended up over at Sage Advisory.
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Sure. Sure. So I went back to school after having a career in actually a different world. It was more retail management. And I decided to go back to school because I loved the financial aspects of the business that I was in. And so I went and got my MBA and focused in finance and then wound up finding a job with Sage. And I have been focused on research at Sage. So all things research on things like ETFs, like we're chatting about today, to responsible investment, sustainable strategies.
So it's been really interesting to see kind of the growth of all these different areas and be able to learn about all these different ETF providers and their stewardship practices has been a big focus for us and what we're chatting about today. So it's been a journey and it's been great to learn.
Yeah. Well, I reviewed, obviously we're going to talk about that stewardship report in DPR today. It was a great piece. And, but before we do that, I always like, before we get into the nitty gritty, any hobbies, what do you like to do when you're not behind the desk?
Hobbies. Um, I like to play with my 17 month old son. He is active and wild and keeps me going and running after him at all times. So, uh, I like to do anything that he wants to do, go outside, play or go for long walks with our dog or ride. He's learning to ride bikes now, a little, little mini bike. So, um, things like that. Yeah.
That 17 month area, 17 to like 24 months is the, they're starting to get active. They want to climb on everything. You don't want them to hurt themselves. It is probably the most anxiety inducing time of parenthood. And you're right in the middle of it.
Uh, I'm running after him constantly. All he's trying to do is find ways to, uh, to injure himself.
So, well, my, my son is three and he's starting to do front flips couch. So, it doesn't get any better, but, it is what it is. So, um, and also like sage advisory. I know you guys do a ton of research. I was on your website. You have a lot of think pieces. What else do you do to help clients? Is it a research-based firm? Do you guys manage money? Like what all the sage advisory do to help clients and people who work, you guys work
With? Yeah. So we manage money, uh, for a number of different clients, uh, institutional, uh, as well as, um, smaller clients as well. So we are on a number of platforms, um, where we're able to be accessed for clients that are not in the institutional space. And then we also have, uh, institutional relationships. I believe we're about, um, 28 billion in assets under management now. So, um, we think it's, it's important to keep abreast of all of the changes in the industry, what's going on. And so our research powerhouse, I would say is, um, we keep going and we keep thinking about what are the latest trends, what's going on, what's going to influence, um, investments overall.
And it's important for us to do that, um, to be, be the best stewards of our clients' assets. So, and that's where our research efforts, really come into play.
Yeah. So, for people who are long time listeners of the show, we've talked, you'll be, you'll be episode 75. So we do one doing this for a while. We've talked to, I don't know, of those 75, 70, 70 of them were probably ETF providers. Um, the rest are, white labelers or attorneys or accountants. So, um, it's going to be an interesting change of pace. And I think talking about the stewardship report is important. And I think there was a lot, like I said, a lot of really great information in it. So before we get into some of the details of the report and some of the findings, why don't you just explain overall the type of information this report is going to give
Somebody when they, when they go in and find it and, and review it.
Sure. So this report looks over basically what are the stewardship practices? And when we're saying stewardship, we're looking at what are the voting practices, the engagement practices, these different ETF providers, um, or in these ETF providers practices, um, how are they voting on? Um, all kinds of decisions. Um, and how are they engaging with companies? Are they chatting with companies, um, about issues that they are concerned about in, what the company is doing in their operations or a strategy or, um, things of that nature. So we're actually looking at what is the focus of these different providers?
How are they doing it? And then who's doing it? So we look at their stewardship teams, um, and are there dedicated people that are, are doing this day in and day out? there's extensive amount of stewardship obligations when you're an ETF provider, given how many companies you're investing in at one time. Um, and then we're looking at other issues like, um, climate related issues, since that's been top of mind for a lot of people in the last several years. Um, do they look at things like climate risks? How are they incorporating that? Um, are they incorporating it in their stewardship practices? If so, how we're looking at things like D and I, that's been top of mind for people.
Um, from a company operations perspective internally, how do you look at that? Um, what are your focuses on that in your own operations and then, um, governance? So how are you governed, right? So we focus a lot on, company governance, corporate governance and investments that we're looking at, but turning it around to the actual providers themselves. How are they governed? What are their policies on things like corporate and political lobbying? Those kinds of things. Are they transparent on that? So we're just trying to kind of tear back the onion or peel back the onion and look at providers from all these different aspects to understand, what is going on from the actual stewardship activities to how these ETF providers are actually governed.
And then, um, it allows us to understand how money is being, utilized to influence or not influence corporate behavior. Um, and it's incumbent upon us since we are users of ETFs, um, for our clients assets to understand all these things to be the best financial stewards for our clients. So that is kind of where it all came from is we need to know what's going on underneath the hood. Um, because we as ETF holders are giving up our ownership rights to ETF providers. So we want to be sure that we're comfortable with how those ownership rights are being handled and, uh, that we're comfortable investing our client dollars in these ETFs.
Yeah. It makes a lot of sense to me. And I'm sure this has to do with a lot of the, bigger providers as well that have a lot of sway and influence. We're going to talk about that a little bit, but going through your 2024 report, um, what are some of the most significant trends you observed this year compared to maybe previous
Years? Yeah. So we've been doing this for six years. Um, and so we've definitely seen a lot of changes over that time. Um, in the first couple of years, we had fewer questions. It was more of a nascent kind of, um, question set, basically just asking basic, do you have voting principles? Do you, do you engage those kinds of things? And over time, we're able to expand our questions that learn more, um, and providers were becoming more aware that investors were wanting to give this or wanting to get this kind of information and understand this kind of information. So they were getting better at giving more information on what they were doing.
Um, and so we saw this kind of upward trend and ability to understand. And then we saw in about 2022, where there was a really kind of pullback in, in the types of, of language even used, um, to describe processes. It became much more legal in nature, um, in tonality, in terms of what they were willing to say they were doing or not doing, um, whether there was influence exerted on company management or not. Um, and so we really kind of attribute that to increased caution around things like regulatory or political backlash, that kind of thing.
Um, so, um, it's something that we have seen over the last couple of years. I continue to see in terms of what providers are willing to say or they, they do or don't do in terms of stewardship practices. Um, we've also noticed a shift towards things like direct client driven proxy voting, um, or pass through proxy voting. Um, that has really been more in the larger provider ETF provider zone in terms of who's actually doing that. But there are some smaller ones saying that they're thinking about the topic or kind of taking it in as far as maybe they're wanting to potentially thinking for their clients. Um, and I know the larger ones are also rolling it out or trying to roll it out to more and
More, uh, ETF investors. Right. So it's for us, that trend we've been watching really carefully because it's kind of been, we might talk about it later, but more of a double-edged sword for us, right? It has the potential to let investors, actually vote with their principles in mind, but also has the potential to lead in the reduction of the depth of stewardship services provided by these ETF providers. So, um, yeah, those are some.
Well, over just more recently, right, we've seen so many active ETFs being filed compared to what the industry previously was, was mostly just passive. So can you elaborate kind of on the findings regarding that growing divide between active and passive ETF managers in terms, and how do their stewardship practices maybe differ? Sure.
So we actually did this analysis this year because of some responses that we've gotten previous years in that, um, we send it out to a wide net of ETF providers and then we'll get responses back in terms of, oh, we want to participate or we don't want to participate because X. Um, and, and this last year or two, we've gotten some providers actually respond back to us and say, we don't want to participate because we are passive managers. So, we don't really have any active ownership practices. And so that was an interesting kind of like aha moment of why some, or the fact that some providers that are more passively managed style versus actively managed style, there actually might be a difference in stewardship practices.
Um, and what we found was actually a pretty good gap in stewardship practices between those that were more skewed towards active management versus passive management. Um, with the active managers generally outperforming the passive managers in terms of stewardship practices, basically, um, the largest factors affecting the disparity were the absence of engagement activities overall at passive managers. And then also the lack of a dedicated stewardship team at some of the passive, passive managers. So, um, the fact that they don't at all do any sort of engagement or have any stewardship team, that's where that has them developed between the two.
Um, and we noticed that passive managers were more likely to rely on things like external proxy voting advisors, your ISS or glass Lewis, and potentially show less independence in their decisions. Now this is a broad stroke. Right. So there are some passive managers, obviously that have a dedicated team, they engage, they're, focused on it. Um, but as a broad stroke, we did see a difference in active versus passive managers.
So when I was kind of going through the report too, as I saw kind of the highlighted concern about concentration of voting power among a few large providers, we don't know who they are, your Vanguard, your BlackRock, your State Streets. Yeah. what are, what are the risks for investors there and how should they be evaluating kind of the stewardship quality of those big providers?
Sure. So I think the role of stewardship in the ETF industry has become a differentiator, um, for ETF providers, as you were saying, there's a huge amount of influence, trillions of dollars under management. And in 2024 ETFs saw global inflows of 1.88 trillion US dollars. it is growing. Um, and so the concentration of voting power among few large ETF providers raises concerns about the alignment of their voting and stewardship practices with the interests of individual investors, because they do have such a large influence on things like voting matters that shape outcomes on proxy voting decisions. Um, whether these decisions are binding or advisory, there's still influence exerted.
Um, and so if, ETF providers don't exercise their stewardship responsibilities diligently, we think there's a risk in harming long-term value and exacerbating broader market risks, um, like corporate governance failures or, um, ignorance to other risks such as like client-related risks. And from our data, actually the larger manner managers are far more likely to support management than vote against management. Um, and through self-reported stats, we found that large managers on average reported supporting management about 91% of the time versus media managers or small managers, the groups that we have, um, reporting more 81, 82% of the time.
Um, so we think it's, investors really need to evaluate whether their ETF providers are taking these responsibilities seriously and are prioritizing or should prioritize those that demonstrate a commitment to transparent stewardship activities, transparent stewardship practices. Um, and especially with those investors that are more sustainable focused, um, support levels of a dropping for significant shareholder resolutions even are remotely related to ENS issues. Um, and so it's more important than ever for those who are wanting to invest in that way to really be diligent in understanding support levels of these types of resolutions for different ETF providers.
So, well, the other thing the report showed too, is kind of a decline in transparency, as you just mentioned, uh, from some of these providers, what factors do you think you're contributing to this and how can we as investors kind of push for more transparency?
Yeah, sure. So we've noticed it among some ETF providers. Now it's not all, um, but it's definitely a worrying trend that at least some of them, um, are having this decline in transparency and really reattribute it to this increased legal and political scrutiny. Um, and it's really led to this more cautious approach in publicly available information about their stewardship practices. Um, so, in 2024, as I said, we, we actually set a support for things like environmental proposals fall below social proposals for the first time. And according to Morningstar, it's likely due to scrutiny over asset managers, net zero commitments, which I think is fascinating.
Um, so I think it's, it's really, investors need to continue to push for greater transparency, um, demand regular publication of stewardship, public commitments, um, and stewardship reports, and also demand easily, easily deciphered proxy voting records. Um, if you have done any sort of analysis of proxy voting, you'll know that going through every decision and trying to understand general trends can be really tough because you're looking at every decision for every vote, um, for every fund. And so actually putting that together has been a challenge. Now, some of the, the providers have gotten better, um, in providing dashboards, um, to understand voting behavior, but there's still work to be done in terms of aggregating what general trends are and what their votes are generally on different topics.
Um, and so it's more important than ever to understand what your manager's doing and doing in terms of their voting and their engagement and evaluating if it's in alignment with their expectations of how their assets are being managed and should be managed.
So you've mentioned climate and sustainability ESG a few times. So related proposals have seen kind of like fluctuating support. ESG was really hot. I can remember back like 17, 18, 19, 20, and it seemed to, uh, 21, two, that was the biggest year. Yeah. 21. And it would seem to kind of fizzle out a little bit. So like what key insights did, this particular survey uncovered regarding ETF providers stance on sustainability?
Sure. So for us, we want to understand basically overall how providers are operating, right? So we're looking at stewardship practices in general, voting engagement on all topics, not just ENS related, but since ENS was such a big topic and such a big explosion, and then it kind of fizzled, right? We wanted, we wanted, want to make sure we understand what's happened in practices with that as well as overall. So that's why we, we focus on both, um, overall stewardship practices as well as ENS practices to understand in totality what's going on. Um, and so, the survey shows that most ETF providers have guiding principles on climate issues and demonstrate how these principles or issues are integrated into their investment process.
But some managers really express caution when discussing, discussing their voting support for climate change initiatives or climate, climate disclosure. Um, so oftentimes they'll reference poorly designed or overly detailed shareholder proposals as a reason for lack of support. Um, but, having a significant fall in support for environmental proposals this year, even below social proposals was an interesting finding. Um, and, and from our data, 90% of providers have climate principles, but only 67% cited an inclination to vote in favor of things like climate disclosure.
Um, which was really interesting too, was that our smaller providers were more likely to have robust climate principles and site support for things like climate disclosure. Um, and we found that many in that smaller peer group actually have dedicated funds and teams focusing on climate-related issues. So that's why that kind of happened. Um, also another trend we're seeing is a growing emphasis on things like biodiversity, although it's still an emerging area. It's an area that I think providers have identified as client interest. Um, there might be client interest behind that. And so, um, that's another trend we're seeing in that climate area.
So like the million dollar question that advisors or investors are always asking is like, how do you find, how do ETF providers find that balance between, broader social environmental or stewardship priorities versus delivering the best financial performance? And so when you're looking at that or you're analyzing that or researching that, how, how would you recommend kind of these ETF providers balance those two things?
Okay. So this is a, this is a, an interesting question because look, ETF providers and all fiduciaries must prioritize the long-term financial interests of their clients, right? And it's been thoroughly assessing all material financial risks that may affect a given company. And these areas represent potential sources for companies, risks for companies within ETF portfolios. So all things are analyzed, right? To, to make sure that they are safeguarding the long-term financial interests of their clients. That's number one. Um, so just kind of wanted to, to put that out there. Um, but as far as products, um, there are products that have a very specific focus on a particular E and S issue, um, where you can get more of that focus on maybe a particular E goal or S goal.
And that's something that we've seen as a creation of more niche products aimed at very specific issues like climate transition or clean tech, or even kind of nuclear focused things, SMR focused things. Um, so they have products that are catering to those investors looking for ETFs that align with their particular priorities. Um, but overall as fiduciaries, they have to prioritize the long-term financial interests of their clients.
Yeah, I would agree with that. Um, so engagement with portfolio companies, I think is probably one of the key elements of stewardship. What differences do you notice in engagement strategies amongst different ETF providers and even by size?
Sure. So I would say engagement strategies among ETF providers vary, right? Some don't even engage, right? So we're talking that about that passive group where they just, they just don't engage at all. That's not part of their strategy. That's not something they do. So that's one group. And, and then you have another group that, um, are really focused on engaging, really have a focus on talking with company management, having metrics and metrics and targets for success for their conversations. They have a concern. They talk with company management. They have metrics lined up of, things that they want to achieve in their discussions. Um, actual metrics that they want to hit as far as, um, what the goals are for the changes they're looking to see from company management, et cetera.
And then you have some that are taking a more cautious approach and focusing on information seeking engagements with minimal suggestions on improving company practices. So some remain consistent with their engagement practices and highlighting the long-term value gained from sustained positive dialogues with metrics and targets. And then others have really gone back and just focus on more information seeking. Um, also we've seen this idea of client driven engagement being put out there. Um, basically saying they're holding separate sessions or joint sessions, but basically saying, this engagement priority is for this subset of clients focused on this particular issue.
Doesn't represent the broader engagement priorities of the firm, but we have a particular client set that wants to engage on this. And so we are engaging on this. We think that has potential for maybe some confusion in terms of what's the priority or not the priority for, um, engaging companies and, what they should be focusing or not, uh, focusing on or not. Um, so we're, we're, we're, we're watching that one definitely very closely to see, what the, what that will actually look like in practice. Um, so, some trends, but I would say those are the main differences.
Sure. So you've gone through, all the data you've, you've seen the trends over the last handful of years. what are the major improvements you would like to see overall from ETF providers in terms of, their stewardship disclosures and practices? Yeah.
So there's still room for improvement and transparency, uh, particularly right now, such a, a time of flux, things like stewardship, things like collaborative engagements. And that's been, we have a lot of flux this last year and voting stats on things like politically sensitive topics and things like that. So I would say investors have become increasingly interested in knowing whether ETF providers are consistently voting in alignment with the principles that they publicly endorse. Um, and if they are engaging meaningfully with companies or, what that actually looks like and, and seeking transparency on these different activities.
So I, we feel that improvements in transparency, improvements in understanding voting records, making them easy to understand and decipher, making engagement records easy to understand and decipher improvements in these areas would help build trust. Um, and ensure that ETF providers are taking their stewardship responsibilities seriously, but also ensuring that investors can understand what's going on easily. Um, it isn't enough to have your, form MPX, uh, providers should be making their stewardship behavior easier to understand so that investors can make the most informed decisions on how and who they want to invest their dollars with. simply put it's that.
So are those types of improvements kind of similar to what you think will be key areas of focus for ETF stewardship in the coming years? Like do those, do those two things align or do advisor or I'm sorry, do providers maybe have a different focus, um, than what, where you hope improvement will come from?
I think there is going to be continued push towards things like accountability, um, and transparency. I think whether providers want to or not, I think there will be continued push, right? Um, I think key areas of focus for ETF stewardship and, and their teams will be on things like corporate governance, which has been a big part, but continues to be a big part, right? So it's, it's less politically contentious maybe than EMS, but it, governance is still going to be a focus. Um, and, and also things that are newer to the scene, like artificial intelligence and how that could influence portfolio company operations, things like cybersecurity, all these kind of emerging topics that are becoming really much more important are going to be, focus areas for ETF stewardship.
I think going forward. I think going forward. Um, also I think regulatory and political pressures will continue to shape stewardship practices, um, and ETF providers are going to be mindful, um, of current regulatory and political landscape. And they're going to, have to navigate any changes on that front. But I think overall transparency, accountability are still going to be big and important for ETF providers.
Well, Emma, I thank you so much for your time. The report, um, is, very informative. And before I let you go, where can people find this report and also learn more information about Sage Advisory?
Yeah. So, uh, you can look us up online, uh, Sage Advisory, um, I think it's sageadvisory.com. And, um, our research is available on the website. You can find this report on the website under our research tab. And we have, uh, as you said, research on a number of different topics. So, um, you can, you can find things from where we think the market's going generally to comments on things like the Fed to, um, things that are like this more, focused on broad topics of stewardship or broad topics on, things under responsible investment.
So we have a lot of research out there, um, and it's available all online on our website.
Well, again, Emma, thank you so much for spending some time with me.
Thank you. Appreciate your time.
Thank you. Thank you. Thank you.
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