A "noticeable decline" in the level of ETF manager disclosure and transparency — likely tied to increased regulatory scrutiny — was among trends cited in Sage Advisory Services' latest annual exchange-traded fund stewardship report released Wednesday.
Twenty-three ETF providers participated in this year's survey, a record number, according to Sage's "2022 Annual ETF Stewardship Report." Participants ranged from larger providers — including BlackRock and Vanguard Group — to medium-size and smaller providers.
"This year, we felt that there was a little bit of backpedaling if you will," said Robert G. Smith, president, chief investment officer and managing partner at Sage, which uses ETFs in managing money for its institutional clients — which include public pension funds, corporate retirement plans and insurers — as well as for its private clients.
The backpedaling — a reference to the more conservative responses Sage received regarding respondents' environmental, social and governance capabilities as well as this year's more generalized responses on disclosure and transparency compared with prior years — occurred amid what has become a "much more guarded environment," said Mr. Smith, who said he believes the regulatory environment's "prevailing weather" has changed over the past 12 to 24 months.
In a portion with the heading "Unintended Consequences," the 2022 report cited a "distinct change in tone" compared with responses received in prior years. Companies that had once "waxed poetic" about their voting and engagement strategies were offering more guarded answers, the report said.
Regulators in the U.S. and abroad have been fining asset managers deemed to be overselling their environmental, social and governance credentials, the report said, adding that the new wave of regulatory action involves both positive and negative consequences.
While "greenwashing" within the industry is likely to decrease and managers likely will become more accurate in their ESG and stewardship capability descriptions, lack of transparency could become a problem, the report said. Providers might become wary about providing a full picture for fear of having regulators scrutinize every detail, according to the report, the fourth such annual ETF stewardship report that Sage has released publicly.