First-of-its-kind Benchmarking Offer for Sustainability Experts & Investors
In addition to our software offering for asset owners and asset managers' ongoing stewardship activities, rezonanz provides a first-of-its-kind service to benchmark proxy voting records. While our flagship "Voting for Sustainability" ranking uses a benchmark of proxy voting recommendations provided by Swiss responsible investing pioneer Ethos, the methodology can be applied against multiple "sustainability benchmarks" of proxy voting positions, enabling full customization.
Building on rezonanz's large collection of proxy voting records from investors worldwide, this benchmarking provides a transparent quantitative measure of alignment between voting records and sustainability benchmarks.
Data Collection and Standardization
The ranking process begins with the meticulous collection, standardization and collation of disclosed proxy voting records. Our team compiles complete proxy voting records to create a uniform dataset.
Customizable Benchmarking Methodology
Sustainability is a broad concept, which means different things to different stakeholders: for some climate is what matters most, while for others it means long-term oriented incentive structures and executive compensation, while still others place a focus on human rights and labor relations. A key feature of our ranking methodology is our enabling of flexible definitions of the "sustainability benchmark." This means the approach is adaptable and can incorporate recommendations from various sustainability experts: votes "for" and "against" across shareholder and management proposals of all topics. The flexibility of this benchmarking process allows us to tailor the assessment to different sustainability criteria, making the ranking versatile and applicable across diverse contexts.
Quantitative Approach
"Sustainability orientation" is something that is not directly measurable, or self-reportable. In economics, "revealed preference theory" posits that consumers' true preferences are better revealed by what they do ("revealed preferences") rather than what they say ("stated preferences"). This concept has been applied across many disciplines to measure revealed preferences. Based on this framework, rezonanz employs advanced statistical techniques adapted from political science to assess voting behavior.
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Get StartedIdeal Point Estimation: Concept and Application
Ideal point estimation techniques, rooted in political science, psychometrics, and related fields, model and measure latent preferences, behaviors, or decisions. These techniques are instrumental in understanding complex decision-making processes by capturing unobservable dimensions from observable behaviors. For instance, in political science, these models reduce the complexity of voting records to reveal latent dimensions such as political ideology.
Conceptual Framework
The foundation of ideal point estimation lies in the notion that each decision-maker (voter) has an "ideal point" within an abstract multidimensional space. This ideal point represents the most preferred position or the point of maximum utility for the decision-maker. The objective is to position both subjects (e.g., legislators, asset managers) and objects of choice (e.g., legislative bills, shareholder proposals) in this space, where distances indicate preferences or decisions. This provides insights into the underlying dimensions of decision-making and preferences.
Several techniques are integral to ideal point estimation:
Multidimensional Scaling (MDS): This technique analyzes the similarity or dissimilarity of data, positioning items in a multidimensional space to reflect perceived or observed similarities. In ideal point estimation, MDS helps visualize preferences as points in space, with distances indicating preference strength or dissimilarity.
Item Response Theory (IRT): IRT models the probability of agreement with an item based on the characteristics of both the subject and the item. It estimates positions in a latent trait space, where an individual's ideal point maximizes their utility or satisfaction.
Bayesian Estimation: Bayesian methods incorporate prior knowledge and uncertainty about preferences. Bayesian ideal point models, using techniques like Markov Chain Monte Carlo (MCMC), estimate the posterior distributions of ideal points, allowing for flexible modeling of complex preference structures.
NOMINATE Scores: Common in political science, NOMINATE (Nominal Three-Step Estimation) scores estimate legislators' ideal points on dimensions like the liberal-conservative spectrum based on voting records, reflecting ideological similarity or difference.
Application to Proxy Voting
To adapt ideal point estimation for our ranking methodology, we employ a two-step modeling process using Optimal Classification (OC) and Bayesian IRT (IDEAL) modeling:
Optimal Classification (OC)
Initial Estimation: OC provides preliminary ideal points for asset managers by analyzing voting patterns without strict parametric assumptions. It generates initial voter positions from agreement patterns among votes, estimates decision boundaries separating 'Yea' and 'Nay' votes, and refines these positions for optimal classification accuracy. This non-parametric technique ensures robust initial classification.
Bayesian IRT Modeling (IDEAL)
Refinement: Following OC, the IDEAL model uses Bayesian IRT to refine these initial points. Normalized OC scores serve as priors in the Bayesian framework, enhancing robustness and providing nuanced estimates. Through MCMC simulations, IDEAL iteratively updates estimates, resulting in probabilistic interpretations of managers' sustainability stances. This model also estimates the distance between each manager's ideal point and the sustainability benchmark, facilitating a clear comparison on a scale from 0 to 1.
Impact and Vision
By providing a clear, quantitative analysis of investors' voting behaviors and what they reveal in relation to sustainability benchmarks, our ranking methodology enhances transparency and accountability in the investment community. This initiative empowers investors and the public to make informed decisions: providing differentiation to those investors showing greater alignment with sustainability benchmarks and promoting closer connections between like-minded investors committing time and resources to guiding their portfolio companies towards sustainable long-term value creation through stewardship.
Investor voices in resonance
Our mission is to amplify responsible investors' influence. By quantifying stewardship's impact, we aim to enable values alignment and impactful investing.
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