Active engagement: Initiatives 2017/18
Focusing on the issues we believe can improve the risk/performance profile of companies in which we invest.
Through our engagement activities we aim to use our influence as investors to encourage companies to mitigate key environmental and social risks relevant to their sector.
We have ramped up our stewardship activities around climate change. As a large investor we believe we have a key role to play in limiting global warming to a 2°C scenario1. Given the systemic nature of climate change, we believe investors need to come together and use their collective influence to bring about necessary change. We will continue to review our engagement strategy on this issue and are currently considering additional engagement objectives in relation to climate change.
Key engagement topics:
We continue to hold constructive and challenging discussions directly with companies, and as part of a coalition of investors, engaging with companies in key sectors. These discussions focus on strategies to manage the challenges posed to businesses by climate change and emerging regulations in a carbon constrained world. This engagement encourages corporations to improve disclosure on their carbon risk resilience strategies as the world shifts to a low-carbon economy. Improved disclosure of strategy and scenario planning is an important tool in terms of enabling investors to assess the risks and opportunities associated with climate change and helps us make better informed decisions on behalf of our clients.
Our current engagement covers 36 companies in four key sectors – oil and gas, utilities, mining and automotive.
|2017 Climate Engagement List|
|Eni||GDF Suez - Engie||Centrica||BMW|
|Royal Dutch Shell||RWE||National Grid||Groupe PSA|
|Statoil||E. ON||DRAX||Groupe Renault|
|Lukoil||EnBW Germany||BHP Billiton||Daimler|
|PGE (Polska Grupa Energetyczna)||Fortum||
|American Electric Power||Iberdrola||Rio Tinto||General Motors|
b. Filing shareholder resolutions
To support our engagement work we use our clients’ shareholder rights at general meetings to push companies to accelerate strategic planning on climate change.
In 2016 we filed shareholder resolutions at the general meetings of Anglo American, Glencore and Rio Tinto, all of which were approved by shareholders. In 2017, among others, we filed a shareholder resolution at a meeting of US energy company, Exxon Mobil, a case which was particularly noteworthy as it meant the firm had to recognise the impact of climate change on its business. The resolution was passed by 62.3% of votes cast at the general meeting, marking one of the few occasions that a climate related resolution has been approved at the general meeting of a US company.
2017 Climate Resolutions List
|Exxon Mobil||AES Corporation||Ameren||Devon Energy|
|Dominion Energy||DTE Energy||Duke Energy||First Energy|
|Hess||Kinder Morgan||Marathon Petroleum|
|Noble Energy||Occidental Petroleum||PPL||Southern Company|
During the year we revised our corporate governance and voting policy. We wanted to highlight the critical issue of climate change, and the importance we place on companies to manage the associated risks. Our policy states that we will cast our votes at general meetings to support climate-related resolutions.
In 2017 we were part of a coalition of investors that filed and voted in favour of identical shareholder resolutions at the general meeting of 15 key US oil, gas and electric utility companies. These resolutions sought improved disclosure around the management of climate risks. In addition, we systematically voted in favour of all resolutions seeking a better approach to the strategic consideration of climate change issues by companies.
Engagement activities for 2017/18
We have several initiatives already in place to increase our efforts around climate change. These focus on collaborative activities with like-minded investors as we believe that climate change is an area where collective influence will bear greater results.
GC 100 engagement
The GlobalClimate 100+ is a major five-year initiative to target and engage with the top 100 of the largest greenhouse gas emitters. These companies represent 85% of annual greenhouse emissions2.
The engagement objectives include curbing emissions, strengthening climate-related financial disclosures and improving governance on climate change risks. These align with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). This builds on work we currently do with the Institutional Investors Group on Climate Change (IIGCC) where we are leading engagement with companies in the utility and automotive sectors.
The Task Force on Climate-related Financial Disclosures (TCFD) has developed voluntary, consistent climate-related financial risk disclosures to be used by companies in providing information to investors, lenders, insurers and other stakeholders. This is a step-change in that it provides a single framework for disclosure that cuts across sectors and markets. It puts a company’s governance strategy and leadership at the heart of its disclosure on climate related risks. We will be using the TCFD framework as the basis of our engagement with companies as this broadens climate stewardship beyond emitters to other sectors where climate change equally poses a financial risk.
Proactive voting on climate risks
Where we have concerns that companies are not responding adequately to climate-related issues and engagement is not progressing, we will use our voting rights, beyond shareholder resolutions, to vote against a range of resolutions including the annual report and accounts, director elections and remuneration.
We strongly believe that the ability of a board to adequately conduct its oversight responsibilities depends on it having the right mix of directors with relevant skills, backgrounds and experience. This naturally points to the important benefits that diversity can have on the long-term success of companies. We have been engaging with boards to promote diversity, both at the leadership level and throughout the company. Discussing diversity is now a standard agenda item and the tone regarding diversity issues, particularly in terms of gender representation at board level, is very positive.
While we will continue to push for diversity at board level, we understand that gender diversity should also include internal progression within companies to combat the hourglass effect. This is where there is a broad gender balance at the bottom of an organisation but decreases up the hierarchy of senior management, before improving again at board level – but only in response to shareholder engagement or regulatory changes.
A further evolution of our policy on diversity is to use our voting rights to push for increased gender diversity at board level. During 2017 we voted in support of shareholder resolutions seeking increased representation of women on boards and better disclosure on gender pay gaps, and the board strategy for closing such gaps.
Gender Diversity: 42% female at board level; 21% at executive committee
International Diversity: 64% of executive committee based outside Europe
Signatory to the Women Empowerment Principles
84% of employees work in countries that apply the Schneider Gender Pay Equity Plan
AXA IM’s standard policy supports shareholder resolutions promoting gender at board and executive levels, seeking improved disclosure on gender pay equity and diversity in general.
In line with this policy we supported shareholder resolution at Alphabet, asking the company to prepare a report detailing the policies and goals to reduce the gender pay gap. We supported this resolution as Alphabet is starting to lag behind its peers on this key issue. Many technology companies, including Amazon, Apple and Microsoft, have either disclosed their wage gap and/or committed to address gender pay issues. The resolution was supported by 13% of voting shares.
Board nomination process
There is broad support across different markets for the elimination of the practice where director elections are bundled into one resolution. This results in an ‘all or nothing’ voting option on the board and deprives shareholders of the ability to cast their vote on the performance of individual directors. Over the past three years we have been working with a group of international investors to engage with Swedish companies to unbundle the director election process. Of the 40 companies initially targeted in 2015, close to half have now adopted the practice of individual elections. We are continuing our engagement with the remaining companies.
……Therefore, we again urge you to consider proposing individual director elections and individual vote count as a standard practice at the earliest opportunity. Further in this letter we reiterate our concerns about bundled director elections and the importance of individual elections and vote count for global institutional investors……… Extract from AXA IM’s letter dated November 2017.
UN Global Compact/Reputation risk
We have a long-standing engagement programme targeting companies whose policies and practices are demonstrably in breach of the principles of the UN Global Compact, and where the company has not taken action to correct the breach.
Vedanta is one company we have been engaging with regarding its safety record and the impact of its activities on the environment and local communities. Our dialogue has moved in a positive direction following changes made during the tenure of former CEO, Tom Albanese. Our focus has shifted to ensuring that positive developments on key sustainability issues are embedded within the culture, operations and practices of the company.
During the latest reporting year, Vedanta’s record on safety and fatalities continued to build positive momentum with a 65% reduction in fatalities compared with 2014, when our engagement programme began. In addition, the company continues to show a declining Lost Time Injury Frequency Rate (LTIFR) – an important indicator of good safety practices in the mining industry. The company had the best year so far in terms of its overall safety performance.
Executive remuneration is a subject of ever increasing attention and it has moved from a sole focus on aligning executive rewards with share price performance. Now there is more of a focus on how the trajectory of executive remuneration aligns with the general workforce and social expectations around pay. Many markets now require disclosures of pay ratios between top executives and the rest of the workforce and this has broadened to social issues such as gender pay gap reporting. For example, in 2017 the UK Government introduced legislation requiring all employers with 250 or more employees to publish information on the gender pay gap within their organisation.
We have focused on these issues for a long time and recent events reinforce our view that board decisions around remuneration have long-term consequences which may not be apparent until several years later. UK housebuilder, Persimmon recently made headlines for excessive executive pay based on a long-term share plan, which was initiated in 2013. The chief executive is due to receive £131 million, which AXA IM opposed when the plan was proposed. We were one of the few institutional investors to do so.
……. we voted against the resolution on behalf of our clients. Our voting position was informed by our house view that the long-term incentive plan (LTIP) does not incentivise management to create additional value for shareholders but is designed to reward management for distributing existing shareholder value. Extract from AXA IM’s letter dated February 2013.
1The 2°C scenario1 is the proposal that places an upper limit on the increase in global temperatures of no more than 2°C above pre-industrial levels.
2ClimateAction100.org and CDP data