Oecd legal Instruments

III.C. 
Institutional investors acting in a fiduciary capacity should disclose how they manage 
material conflicts of interest that may affect the exercise of key ownership rights regarding their 
investments. 
The incentives for intermediary owners to vote their shares and exercise key ownership functions may, under 
certain circumstances, differ from those of direct owners. Such differences may sometimes be commercially 
sound but may also arise from conflicts of interest which are particularly acute when the fiduciary institution 
is a subsidiary or an affiliate of another financial institution, and especially an integrated financial group. 
When such conflicts arise from material business relationships, for example through an agreement to 
manage the portfolio company’s funds, they should be identified and disclosed. 
At the same time, institutions should disclose what actions they are taking to minimise the potentially negative 
impact on their ability to exercise key shareholder rights to the extent applicable under a jurisdiction’s law. 
Such actions may include the separation of bonuses for fund management from those related to the 
acquisition of new business elsewhere in the organisation. Fee structures for asset management and other 
intermediary services should be transparent. 
III.D. 
The corporate governance framework should require that entities and professionals that 
provide analysis or advice relevant to decisions by investors, such as proxy advisors, analysts, 
brokers, ESG rating and data providers, credit rating agencies and index providers, where regulated, 
disclose and minimise conflicts of interest that might compromise the integrity of their analysis or 
advice. The methodologies used by ESG rating and data providers, credit rating agencies, index 
providers and proxy advisors should be transparent and publicly available. 
The investment chain from ultimate owners to corporations involves not only multiple intermediary owners 
but also a wide variety of professions that offer advice and services to intermediary owners. Proxy advisors 
who offer recommendations to institutional investors on how to vote and sell services that help in the process 
of voting are among the most relevant from a direct corporate governance perspective. In some cases, proxy 
advisors also offer corporate governance-related consulting services to corporations. Credit rating agencies 
rate companies according to their ability to meet their debt obligations and ESG rating providers rate 
companies according to various environmental, social and governance (ESG) criteria. Analysts and brokers 
perform similar roles and face the same potential conflicts of interest. 
Considering the importance of – and sometimes dependence on – various services in corporate governance, 
the corporate governance framework should promote the integrity of regulated entities and professionals that 
provide analysis or advice relevant to decisions by investors, such as proxy advisors, analysts, brokers, ESG 
rating and data providers, credit rating agencies, and index providers. These service providers, particularly 
ESG rating and index providers, can have significant impact on companies’ governance and sustainability 
policies and practices given their rating methodologies and index inclusion criterion. Therefore, the 
methodologies used by regulated service providers that produce ratings, indices and data should be 
transparent and publicly available to clients and market participants. This is particularly important when they 
are also referenced as metrics for regulatory purposes. Exclusive reliance on ratings in regulation may raise 
questions, while the process for deciding which ratings are eligible for use for regulatory purposes should be 
transparent and could be subject to evaluation at various levels of frequency. IOSCO’s November 2022 Call 
for Action covers good practices for ESG ratings and data providers and is addressed to voluntary standard-
setting bodies and industry associations operating in financial markets to promote good practices among 
their members. 
OECD/LEGAL/0413
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At the same time, conflicts of interest may arise and affect judgement, such as when the provider of advice, 
rating or data is also seeking to provide other services to the company in question, when the provider or its 
owner have a direct material interest in the company or its competitors, or when the rating provider is at the 
same time an index provider who will decide on companies’ inclusion in an index based on the rating they 
produce. Many jurisdictions have adopted regulations or voluntary codes of conduct or have encouraged the 
implementation of self-regulatory codes designed to mitigate such conflicts of interest or other risks related 
to integrity, and have provided for private and/or public monitoring arrangements.
Many jurisdictions require or recommend that proxy advisors disclose publicly and/or to investor clients the 
research and methodology that underpin their recommendations, and the criteria for their voting policies 
relevant for their clients. Some jurisdictions require that proxy advisors apply and disclose a code of conduct, 
and disclose information on their research, advice and voting recommendations and any conflict of interest 
or business relationships that may influence their research, advice or voting recommendations, and the 
actions they have undertaken to eliminate, mitigate or manage the actual or potential conflicts of interest. In 
some cases, requirements for proxy advisors include developing appropriate human and operational 
resources to effectively perform their functions.