When you invest in a fund, you are (indirectly) investing in the companies held by the fund. You are also aligning yourself with the fund managers' approach to engaging those companies.
Some funds take an active approach to encouraging better environment, social and governance (ESG) practices and policies. Other fund managers do not actively engage companies on their ESG practices.
Ethos' ratings of funds now include a score for shareholder advocacy, or how well fund managers advocate for improved ESG performance at companies held by the fund. Ethos scores funds on shareholder advocacy from 1 (lowest) to 5 (highest). The score is based on criteria including:
1. Proxy voting
Shareholders in publicly-traded companies can vote their shares on items presented for a vote at a corporation's annual meeting. As shareholders, funds can vote for or against ESG issues such as CEO compensation or pay links to ESG performance. Ethos considers the percentage of votes in favor of ESG issues.
2. Shareholder resolutions
A shareholder resolution is a non-binding recommendation to a public company’s board of directors. Anyone holding at least $2,000 worth of stock for at least one year prior to a filing deadline can introduce a resolution. While resolutions are non-binding, they can still be a powerful way to advocate for change at a company. Ethos considers fund activity related to shareholder resolutions.
3. Direct company engagement
As owners of large amounts of company stock, fund managers can directly engage with company executives to raise issues important to their investors (such as ESG issues). Ethos considers publicly-available information assessing how much a fund engages companies that it holds on ESG issues.
Ethos only scores funds on shareholder advocacy when we are able to find sufficient information on its shareholder advocacy record. When we have sufficient information, our fund ratings are based on shareholder advocacy scores (10% of the rating) and the weighted-average ratings of fund holdings (90% of the fund's rating).
When we do not have sufficient information to score a fund on its shareholder advocacy record, our fund ratings are based 100% on the weighted-average of fund holdings.
As an investor, consider a fund's track record on shareholder advocacy as well as the companies that it holds. Your money has the power to make a difference.