IN FOCUS6-8 min read

Active ownership blog: voting season spotlight

How does voting at annual company meetings work? In this blog we share some examples of how we’re voting on shareholder resolutions.

2023/06/27
blog

Authors

Active Ownership team

Voting is one of the most important ways investors influence how a company is run.

Each year shareholders, including activists, put forward resolutions at company AGMs on anything from climate change to human rights to data privacy. It is the responsibility of asset managers to ensure votes are cast in the best interests of clients.

Andy Howard, Global Head of Sustainable Investment, explains: “We take voting responsibilities very seriously. Every resolution is a specific ask of a specific company which we assess through our own fundamental research. We cannot treat resolutions as a statement of our general stance on an issue. Detail is critical.”

Our Engagement Blueprint sets out our guiding principles around active ownership, including our approach to shareholder resolutions. During the voting season between March and June, be sure to check back for regular updates on how we are voting and why.

27 June 2023: How we will vote over Citizen Watch Company's board

On 28 June, shareholders of Citizen Watch Company, the Japanese watchmaker, will vote on a shareholder resolution asking the company to “abolish concurrently held position of Chief Executive Officer and Chairperson of the Board of Directors and appoint an Outside Director as Chairperson.”

The proponent argues that an independent Outside Director will “result in fairer Board of Directors’ resolutions and improve the supervision of corporate management and governance impact from the perspectives of increasing corporate value and protecting shareholders’ rights.”

The company argues that the combined position of CEO and Chair allows the occupant to make decisions “quickly and appropriately while maintaining adequate communication with the executive side to share information” and that management is “checked and supervised by highly independent Outside Directors, who comprise one third of the board.”

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, in the Corporate Governance theme of our Blueprint we ask companies to “seek to split combined chair and CEO roles and appoint an independent chair; in the interim, companies should appoint a strong lead independent director.” We believe splitting these roles is the optimal way to ensure the Board is independent and able to provide professional scrutiny over management.
  2. Is a resolution the best way to address the issue? Yes, we believe that voting in support of separating the CEO and Chairperson of the Board roles is the best way to uphold shareholders’ rights and encourage effective oversight of the company’s management.

  3. Does the resolution add value to what the company is already doing? Yes, although the company argues that it has processes in place within the Nominating Committee to provide transparency to shareholders on the election of the CEO and Chairperson of the Board, we believe shareholders would benefit from the most robust form of oversight in the form of an independent Outside Director as Board Chair.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, splitting the Chairperson and CEO position is considered best practice in corporate governance, and many leading companies have made this transition successfully.

26 June 2023: How we will vote over The Kansai Electric Power Company's nuclear power plants

On 28 June shareholders of The Kansai Electric Power Company will vote on a shareholder resolution asking the company to amend its articles to “close all of its nuclear power plants as soon as possible unless it expects to be able to satisfy all of the requirements below”.

The requirements include the “development of infallible safety measures against every logically conceivable event including natural disasters and armed attacks”, “establishment of a system under which the amount of liability of the company for an accident at a nuclear power plant does not exceed the company’s capability to pay” and “establishment of a final disposal method for spent nuclear fuel”.

The proponent also asks that until all nuclear power plants are closed, the company should “make efforts to ensure its supply capacity by creating alternative power sources and procuring electricity from other electric power companies and power producers”.

The proponent argues that the risk of a severe accident at a nuclear power plant poses risks to the company’s shareholders and creates a burden for future generations.

The company argues that it has strengthened its safety practices in light of the Fukushima disaster and it is working with the government on tackling disposal of nuclear fuel waste.

After examining this resolution, we have decided to vote Against based on the analysis below:

  1. Is the resolution aligned to our Blueprint? No, although we have a number of expectations of companies in our Blueprint, including related to responsible waste disposal, we want to avoid micromanaging companies and we believe asking the company to close all of its nuclear power plants interferes with the day-to-day operations of the company, and this decision is best left to management.
  2. Is a resolution the best way to address the issue? No, we believe that the decision to use nuclear power is best made by the company’s management, in line with government policy and regulatory requirements.

  3. Does the resolution add value to what the company is already doing? No, the company has outlined how it adheres to regulatory requirements related to the safe operations of its nuclear power plants and the voluntary safety initiatives it has committed to. It describes how it has learned from the Fukushima accident and made improvements to its emergency response capabilities and the protective measures it has taken to improve safety in the event of a natural disaster.

  4. Does the resolution have the potential to cause unintended, damaging consequences? Yes, asking the company to close all of its nuclear power plants “as soon as possible” may be disruptive to the company’s operations and the rapid timeline may impede their ability to provide electricity to consumers. We believe any decision which would markedly change the company’s business model should require a thorough analysis from the company and its diversified stakeholders, and the highly prescriptive nature of this proposal has the potential to harm financial returns as well as consumers who rely on the company’s product.

21 June 2023: How we will vote on Rivian Automotive’s human rights policy

On 21 June shareholders of Rivian Automotive, the US electric vehicle manufacturer, will vote on a shareholder resolution asking the company to “adopt a comprehensive human rights policy which states the company’s commitment to respect human rights as outlined in the United Nations Guiding Principles (UNGPs) and the International Labor Organization (ILO) Declaration on Fundamental Principles throughout its operations and value chain. It describes steps to identify, assess, prevent, mitigate, and, where appropriate, remedy adverse human rights impacts connected to the business."

The proponent argues that the company has faced allegations of human rights violations related to its workforce, and that its exposure to human rights-related risks is likely to grow as it expands globally.

The company argues that its Code of Business Conduct and Ethics provides a sufficient commitment to human rights, and as a company that is relatively newly public, it is at “the beginning stages of progressing these efforts”.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Human Rights theme of our Blueprint we ask companies to establish and implement a human rights policy in line with the UNGPs, ILO and/or other international frameworks which commit to respect human rights. We believe that companies who proactively work to identify and address human rights-related risks are better placed to prevent salient risks to human rights and protect the long-term sustainability of our investments by decreasing the risk of associated operational, legal and reputational costs.
  2. Is a resolution the best way to address the issue? Yes, we believe that shareholders are best placed to ask the company to publish a human rights policy, as the absence of this policy makes it difficult for shareholders to assess its operations and supply chain and how it mitigates associated risks. Greater transparency on its governance of human rights would allow shareholders to hold the company to account should risks materialise.
  3. Does the resolution add value to what the company is already doing? Yes, although the company’s Code of Business Conduct and Ethics highlights that the company respects human rights throughout its operations and global supply chain, the lack of a comprehensive policy makes it difficult for shareholders to understand how respect for human rights is implemented and enforced in practice. The company has faced scrutiny for issues related to workplace safety violations, including injuries at an Illinois plant, and is exposed to risks in its supply chain as mineral extraction used for electric vehicle batteries is linked to human rights abuses such as child labour. Given these risks, we believe adopting a human rights policy would help the company to address these risks and mitigate operational, reputational and legal risks.
  4. Does the resolution have the potential to cause unintended, damaging consequences? No, human rights policies are commonplace among large automakers, and although Rivian is a relatively young company, we do not believe it would face unintended consequences from adopting such a policy. As human rights due diligence laws emerge globally, we believe that adopting a comprehensive policy will help the company to grow its business in a way that is consistent with human rights best practice and avoid legal and reputational risks.

21 June 2023: How we will vote on recyclability of packaging at Kroger

On 22 June shareholders of Kroger, the US supermarket chain, will be asked to vote on a shareholder resolution asking the company to issue a report describing “how the company could reduce its plastics use in alignment with the one-third reduction findings of the Pew Report, or other authoritative sources, to reduce its contribution to ocean plastics pollution.”

The Pew report Breaking the Plastic Wave is a global analysis of plastic flows which sets out actions to substantially reduce plastic pollution over the next 20 years.

The proponent argues that corporations like Kroger face financial risks as states enact more strict regulation of plastic waste, specifically extended producer responsibility (EPR) laws which place more responsibility on producers for the lifecycle of their products. The company argues that it has “ambitious sustainable packaging goals” and must balance the need to protect food safety and quality alongside goals to reduce plastic waste.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Natural Capital and Biodiversity theme of our Blueprint, we ask companies to set targets on use of recycled plastics (rPET) as a raw material or on the recyclability of products, and to engage with the downstream implications of their products. Several states in the US have enacted legislation which place new pressure on producers to reduce plastic waste. California, for example, has mandated a “25% reduction by weight and number of single-use plastic and food ware items by 2032”. This legislation focuses the pressure to reduce plastic use on producers, and producers who are non-compliant can face penalties of $50,000 per day per violation.
  2. Is a resolution the best way to address the issue? Yes, as regulatory scrutiny of plastic producers grows, we believe it is appropriate for shareholders to ask companies to report on how they can substantially reduce their plastic use.
  3. Does the resolution add value to what the company is already doing? Yes, although the company has set 2030 goals to “seek to achieve 100% recyclable, compostable and/or reusable packaging for Our Brands products” and “increase recycled content in packaging so that the Kroger Our Brands products portfolio collectively contains at least 10% recycled content in packaging,” it does not have an overall goal to reduce plastic use. Several of Kroger’s peers have committed to the Ellen Macarthur Foundation’s 2025 targets related to plastic use, however Kroger has not signed this commitment and greater analysis of how the company can reduce its plastic use would be beneficial to shareholders.
  4. Does the resolution have the potential to cause unintended, damaging consequences? No, given the increasing regulatory scrutiny the company faces, and potential to incur financial penalties, we do not believe the requested report detailing how the company could substantially reduce its plastic use will cause unintended consequences.

14 June 2023: How we will vote over severance pay at Delta Airlines

On 15 June shareholders of Delta Airlines, the US airline, will be asked to vote on a shareholder resolution asking the company to “seek shareholder approval of any senior manager’s new or renewed pay package that provides for severance or termination payments with an estimated value exceeding 2.99 times the sum of the executive’s base salary plus target short-term bonus.”

Severance agreements or “golden parachutes” refer to the pay and benefits that an executive is entitled to upon termination of employment.

The proponent argues that shareholder approval of severance agreements is appropriate as it “better aligns management pay with shareholder interests.” The company argues that it has in place “responsible limits on post-termination compensation” and needs the flexibility to structure competitive executive pay packages.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Corporate Governance theme of our Blueprint we ask companies to “Develop severance pay arrangements which are reflective of the departing executive’s performance with the option for discretion to be applied by the board to reduce pay-outs, if appropriate.” As active investors, we believe that executive pay should be closely aligned to our interests, as shareholders. It is therefore important to ensure that in the event of change in control that severance payments to senior management are not excessive.
  2. Is a resolution the best way to address the issue? Yes, we do not believe that submitting severance agreements above the specified pay threshold represents an undue burden on the company and we believe it is the best way to uphold shareholder rights on this issue.
  3. Does the resolution add value to what the company is already doing? Yes. Although, the company argues its current policy does not allow for excessive severance pay, we believe the best way to safeguard against this possibility in the future is to include a term in the agreement that requires shareholder approval for severance packages that exceed a disclosed threshold. Whilst a shareholder vote may never be required, it provides us as shareholders with assurance that our interests are protected. In addition, adopting these changes would exemplify market best practice, positioning the company as a leader in good governance and enhancing long-term shareholder value.
  4. Does the resolution have the potential to cause unintended, damaging consequences? No, the proposal does not place a limit on severance pay, but simply asks that severance pay exceeding the proposed amount go to a shareholder vote. We believe this is the most effective way to uphold shareholder rights and do not believe it would present the company with any unintended consequences.

13 June 2023: How we will vote on Caterpillar’s due diligence process for conflict-affected areas

On 14 June shareholders of Caterpillar, the US manufacturer of construction equipment, will vote on a shareholder resolution asking the company to “commission an independent third-party report, at reasonable expense and excluding proprietary information, assessing the effectiveness of the company’s due diligence process in determining if its operations or customers’ use of its products contribute to violations of its Code of Conduct and Human Rights Policy (HRP).”

The proponent asks that the report discuss “how human rights risks in conflict-affected and high-risk areas (CAHRAs) are assessed and addressed” and assess “whether additional policies are needed to avoid causing or contributing to violations in CAHRA”.

The proponent claims that investors currently lack transparency on how the company complies with its policies related to its subsidiaries and distributors in Russia, value chain risks to forced labour, and broader legal and reputational risks related to mandatory human rights due diligence laws in the EU.

The company argues that it already has compliance mechanisms in place regarding human rights globally, including in conflict-affected areas, and that the requested report is not necessary.

After examining this resolution, we have decided to vote For based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, within our Blueprint we ask companies to “adapt existing policies and due diligence measures to the specific needs of conflict-affected and high-risk contexts, performing enhanced due diligence in these contexts and ensuring responsible exit where human rights risks associated with remaining in a location cannot be mitigated.” We believe that companies which have operations or business relationships in CAHRAs face a higher risk of becoming involved in grave human rights violations, and require enhanced due diligence to manage the risks to salient human rights as well as financial and reputational risks to the company should human rights be adversely affected.
  2. Is a resolution the best way to address the issue? Yes, the resolution asks the company to assess the effectiveness of its current due diligence processes against its Code of Conduct and Human Rights Policy. Given the heightened risks the company faces due to its exposure to CAHRAs, we believe a report which examines how effectively its current due diligence process is working and whether any additional policies are needed would help improve transparency to shareholders.

  3. Does the resolution add value to what the company is already doing? Yes, although Caterpillar has a code of conduct which applies to its direct employees as well as its subsidiaries and affiliates worldwide, providing more information on how human rights in CAHRAs are assessed and addressed would help shareholders to better understand how the company is managing risks related to its operations and business relationships in CAHRAs.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, many companies undertake enhanced human rights due diligence processes in CAHRAs, most recently with regards to operations impacted by the war in Ukraine. In its annual report, Caterpillar lists as one of its risks factors that its global operations are “dependent upon products manufactured, purchased and sold in the US and internationally, including in countries with political and economic instability or uncertainty.” We believe a report which assesses how effectively the company’s current processes are working would help the company to manage related risks.

5 June 2023: How we will vote over human rights due diligence at TJX

On 6 June shareholders of TJX Companies, the American-based retailer, will vote on a shareholder resolution asking the company to provide a third-party report “assessing the effectiveness of current company due diligence in preventing forced, child, and prison labor in TJX’s supply chain.”

The proponent argues that TJX is exposed to human rights risks such as forced, child and prison labor in its supply chain, and that the company had not disclosed adequate human rights due diligence mechanisms. The company argues that its Vendor Code of Conduct “prohibits merchandise vendors from using forced, child, and prison labor” and that this is included in its audit process, and it has a zero-tolerance policy for such violations.

After examining this resolution, we have decided to vote For based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, within the Blueprint we ask companies to introduce robust human rights due diligence policies, including identifying and assessing actual or potential human rights risks, integrating findings in processes and taking appropriate action, tracking the effectiveness of the measures, and communicating how impacts will be addressed. We believe that companies with strong due diligence measures to identify and address human rights risks are better positioned to build resilient supply chains and manage reputational and legal risks, helping to protect the long-term sustainability of our investments and thereby better preserve and enhance shareholder value.
  2. Is a resolution the best way to address the issue? Yes, the retail sector is exposed to human rights risks related to labour rights, and these risks were exacerbated during the Covid-19 pandemic. Although the company has a factory auditing program, given the risks the company faces we believe a third-party independent audit assessing the current effectiveness of its due diligence programme is appropriate.

  3. Does the resolution add value to what the company is already doing? Although TJX requires merchandise vendors to adhere to their Vendor Code of Conduct, the company ranks poorly on external benchmarks assessing human rights due diligence. The proponent recommends that the report “consider expected effectiveness of proactive solutions like requiring social audits of underlying suppliers when purchasing off-price retail products”, which could help the company enhance its due diligence and better protect its business from associated reputational and legal risks.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, many other retailers provide greater transparency of their human rights due diligence, such as disclosing suppliers, providing data purchasing practices, and conduct independent audits. We do not believe that a third-party audit would present the company with unintended consequences.

2 June 2023: How we will vote over YouTube online safety

On 2 June shareholders of Alphabet, the US technology company which is the parent company of Google and YouTube, will be asked to vote on a shareholder resolution asking the company to issue a report disclosing “whether and how the Company intends to minimize legislative risk by aligning YouTube policies and procedures worldwide with the most comprehensive and rigorous online safety regulations, such as the European Union’s Digital Service Act and the UK Online Safety Bill.”

The proponent argues that despite the company’s efforts, YouTube faces risks related to online child sexual exploitation and abuse on its platform, and the proponent raises concerns about the company’s ability to prepare for new online safety legislation, which could make the company vulnerable to regulatory fines and penalties. The company argues that it has a comprehensive compliance programme and discloses the policies and procedures related to online safety at YouTube.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Human Rights theme of our Blueprint, we ask companies to ensure that products and services do not cause harm and adversely affect human rights. We believe that as the regulatory landscape for online safety evolves, businesses can help protect against regulatory and legal risks that may carry financial impacts by preparing their compliance systems to meet rigorous reporting requirements.
  2. Is a resolution the best way to address the issue? Yes, we believe asking the company to demonstrate how it is intending to minimize legislative risks is appropriate given the increasing level of global regulatory scrutiny of online safety. As one of the largest online video platforms, we believe this is a material issue for the company and given the saliency of the risk, we believe additional disclosure would be beneficial to shareholders.

  3. Does the resolution add value to what the company is already doing? Yes, although the company describes some of the steps it takes to prepare for new or updated regulations, we believe shareholders would benefit from more specific information on how the company plans to align YouTube’s policies and procedures to global best practice. Although YouTube’s Community Guidelines outline how harmful content is identified and removed from its platform, and it discloses in its transparency report its policy for child safety and other forms of harmful content, legislation in the EU, UK and elsewhere may require more detailed reporting on harmful online content. A report detailing if and how the company plans to align to these regulations would better allow shareholders to assess how the company is managing legal risks.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, we do not believe more transparency from the company on its plans to align its policies with global regulatory frameworks will pose unintended consequences.

30 May 2023: How we will vote over reporting of the social impact of ExxonMobil’s energy transition

On 31 May shareholders of ExxonMobil will be asked to vote on a shareholder resolution asking the company to “create a report regarding the social impact on workers and communities from closure or energy transition of the company’s facilities, and alternatives that can be developed to help mitigate the social impact of such closures or energy transitions.”

The proponent argues that the company’s reporting does not provide sufficient detail on the implications for workers and communities in the company’s refining, petrochemical or production facility business, as the company begins to invest more in technologies such as carbon capture, hydrogen and biofuels. The company argues that it has already communicated its approach to employees and communities in its reporting, including implications for “lower emissions projects at existing sites”.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Climate Change theme of our Blueprint we ask companies to set out “plans to consult and support impacted workers, such as facilitating a smooth transition to new jobs or providing reskilling / upskilling opportunities.” We also explain that while the just transition, which takes into account the social impacts of climate change, may vary by region and sector, we believe that companies which prepare their workforces and develop strong relationships with affected communities will be better placed to manage the social impacts of the transition, and better protect the long-term value of investments.
  2. Is a resolution the best way to address the issue? Yes, given the company’s role in the energy transition, we believe the requested report is material to shareholders’ understanding of how the company is managing social risks associated with the transition, and provides the company with enough flexibility to identify alternatives to mitigate the potential impacts on workers and communities.

  3. Does the resolution add value to what the company is already doing? Yes, although the company discusses in its sustainability report how it uses an integrated socioeconomic management approach to identify and manage social risks, more detail on how the company plans to mitigate impacts specifically related to facilities which may close or transition would be beneficial to shareholders’ understanding of the risks faced by the company. Similarly, although the company has described some of the investments it is making in its workforce such as programmes to facilitate job rotations, training and learning, more detail is needed to understand how the company plans to specifically address risks to workers employed at facilities which are undergoing change.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, we believe the report requested by the proponent will provide shareholders with additional insight into how the company plans to manage the social risks of the transition. Other oil and gas companies have produced just transition or similar style reports which provide more specific detail on how they are engaging employees on the energy transition, and we do not believe ExxonMobil will face unintended risks or material costs by providing more insight on the impacts to employees and local communities.

26 May 2023: How we will vote in support of a human rights shareholder resolution at Meta

On 31 May Meta Platforms, the American technology company which owns services such as Facebook and WhatsApp, will hold its AGM. Shareholders will be asked to vote on a resolution asking the company to “publish an independent third-party Human Rights Impact Assessment (HRIA), examining the actual and potential human rights impacts of Facebook’s targeted advertising policies and practices throughout its business operations.”

The proponent argues that the algorithms used to perform targeted advertising can exacerbate systemic discrimination and other human rights violations and expose the company to privacy violations. The company argues that it has made substantial progress in its human rights journey, including publishing its first human rights report last year, and that it has a non-discrimination policy which requires advertisers to certify compliance to address this issue.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Blueprint we ask each company to ensure that its human rights policy encompasses the protection of rights in its products and services, and to include risks from the company’s products and services in its overarching assessment of salient human rights risks. Salient risks are those that present the most severe negative impact to people by the company’s activities or business relationships. We believe that companies which consider the impact of the potential human rights risks involved with the use of their products by customers and consumers can mitigate the financial risks associated with inappropriate use of their products.
  2. Is a resolution the best way to address the issue? Yes, we believe asking the company to conduct a HRIA on Facebook’s targeted advertising is appropriate given the materiality and saliency of the issue to the company. Targeted advertising is an approach taken by advertisers to direct their marketing materials to a specific audience based on certain characteristics such as demography, online behaviour and buying patterns. Many governments and regulators are increasingly focused on the impacts of social media on vulnerable groups, and Meta was recently fined approximately £346 million in January for its use of users’ personal data in targeted advertising (Data Protection Commission, January 2023). We believe given these risks, shareholders are well placed to ask companies for more disclosure of the actual and potential risks their practices may pose to society.

  3. Does the resolution add value to what the company is already doing? Yes. We understand that Meta is currently undergoing a salient human rights risk assessment to help the company identify and prioritise the risks it faces, and is developing a strategy that addresses these risks. We have engaged the company on human rights issues since 2018, and although their current salient human rights impact assessment is a positive step, we believe shareholders would benefit from greater disclosure on this topic. Given advertising represents a large share of the company’s overall revenue, we believe an impact assessment conducted by a third-party would help improve transparency surrounding the human rights risks related to targeted advertising specifically.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, we do not believe that an assessment of human rights risks related to targeted advertising will cause unintended consequences. Given the saliency of the issue, and increasing regulatory pressure to protect consumers online as evident by the recent record EU fine for privacy violations, we believe a report that identifies risks related to this practice will allow the company to better address and mitigate any potential adverse impacts identified by the report, and therefore better protect the business from legal, regulatory and reputational risks which could otherwise damage shareholder value.

22 May 2023: How we will vote over Amazon’s warehouse working conditions

On 24 May, shareholders of Amazon, the US e-commerce and technology company, will vote on a shareholder resolution asking the company to “commission an independent audit and report of the working conditions and treatment that Amazon warehouse workers face, including the impact of its policies, management, performance metrics, and targets”.

The proponent cites reports which indicate that the company has higher self-reported injury rates than its peers, and the Division of Occupational Safety and Health of the State of Washington Department of Labor and Industries has found that the company “did not provide employees with a workplace free from recognised hazards that are causing or likely to cause serious injury.”

The company acknowledges that it still has work to do, but claims that it has made substantial improvements in recent years, which are reflected in its improved worldwide incident rate and lost time incident rate.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Human Capital Management theme of the Blueprint we ask companies to establish a health and safety policy and ensure it is implemented as intended; adopt a strong culture of safety in the conduct of business; and have safety considered alongside all business strategy decisions. In addition, we believe that providing a safe working environment for all employees protects companies from legal and regulatory risks, and helps to improve the productivity and reduce direct and indirect costs associated with workplace injuries.
  2. Is a resolution the best way to address the issue? Yes, we have engaged the company on worker health and safety issues, and understand that the company has made considerable investments in safety initiatives and reducing their recordable incident rate and lost time incident rate. However, we believe that a third-party assessment which evaluates the impact of the company’s policies on working conditions at warehouses would be beneficial to shareholders. Although in the US the Occupational Health and Safety Administration (OSHA) is the regulator charged with setting and enforcing workplace safety standards, Amazon warehouses are located in numerous jurisdictions with different regulatory regimes and a third party audit would provide shareholders with a more comprehensive view of the company's safety practices. Additionally, given the financial and reputational materiality of workplace safety to the company, we believe an independent audit would provide shareholders with improved insight into how the company is actively managing this risk.

  3. Does the resolution add value to what the company is already doing? Yes, although the company has produced a worker safety, health and wellbeing report, greater clarity is still needed on the impact of the company’s policies on worker safety. The proponent asks for the report to include the impact of the company’s “policies, management, performance metrics, and targets”. We believe that this information is critical to shareholders’ ability to assess how the company’s policies and management practices promote a culture of safety and are implemented as intended.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, we believe that the information sought in this proposal will provide shareholders with greater transparency over the company’s worker safety policies, and how they are implemented in practice. Should the audit reveal any shortcomings, we believe that this will allow the company to more proactively address any gaps in its processes, helping to improve its performance on worker safety and mitigate its exposure to related risks. Given the potential business risks posed by worker safety, we believe the investment in an independent audit is merited.

19 May 2023: How we will vote over venting and flaring of emissions in Targa Resources’ supply chain

On 23 May, shareholders of Targa Resources, the US energy infrastructure company, will be asked to vote on a shareholder resolution asking the company to issue a report “assessing policy options to go beyond its existing efforts to curtail its impact on climate change from its own venting and flaring and from upstream venting and flaring that are attributable to or influenced by Targa’s midstream activities”.

The practice of flaring and venting occurs during the oil and gas production process when gas needs to be disposed of for operational safety, supply chain capacity constraints, and other reasons, and it is either burned or released into the atmosphere. Flaring refers to the burning of natural gas which converts methane into carbon dioxide, and venting refers to gas being directly released into the atmosphere.

In its opposition statement Targa Resources asserts that while it agrees that reducing venting and flaring emissions is important, setting short- and medium-term goals for Targa’s and third party operations may not be possible or effective, and that its current efforts to manage unplanned venting and flaring in its own operations demonstrate progress on this issue.

The proponent argues that flaring and venting in the oil and gas value chain poses regulatory, reputational and transition risks, and that the company’s current efforts do not fully address how it will reduce flaring in its own operations and in those of its upstream partners.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within our Engagement Blueprint we ask companies to reduce climate risk exposure by committing to decarbonise their business models by mid-century, and to provide detailed transition plans describing how they will transition and meet their targets. In the case of venting and flaring, we believe that the emissions generated through venting and flaring pose a material risk to the business’ ability to decarbonise, and expose the company to material legal, regulatory and reputational risks.
  2. Is a resolution the best way to address the issue? Yes, we believe that the report requested by the proponent will provide shareholders with better insight into how the company plans to reduce venting and flaring in its own operations and work with its upstream partners to remove pressures which result in this activity throughout the value chain. The US Environmental Protection Agency (EPA) and Department of the Interior have recently taken new steps to regulate methane emissions from oil and gas operations and limit flaring on federal and tribal lands, placing increased regulatory scrutiny on the company. Given that the company says it is “focused on reducing flaring from our operations and helping our exploration and production (E&P) partners and downstream customers meet their flaring and GHG intensity targets”, we believe the information asked for by this proposal will better inform shareholders on the actions the company is taking to address the regulatory and environmental challenges it faces.

  3. Does the resolution add value to what the company is already doing? Yes, although the company reports in its 2021 Sustainability Report a 40% reduction in overall flaring volumes from emissions events compared to 2020, this figure is only reported on a percentage basis and does not provide a way to quantify total flaring emissions. The company also briefly describes some of the drivers of operational disruptions which cause the need to flare gas, and some of the steps it is taking to address these. However, more detail is needed on how the company is increasing operational reliability and how it coordinates with upstream operators to avoid the need for flaring. Additionally, we believe setting short- and mid-term targets would provide greater accountability on the company’s stated efforts to “minimise flaring as much as possible”.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, given the heightened regulatory landscape for oil and gas operators engaging in flaring and venting, we do not believe that a report which assesses the policy options for addressing flaring and venting in the company’s own operations and which contribute to flaring in its value chain will present unintended consequences.

15 May 2023: How we have co-filed a shareholder resolution encouraging the US pharma retailer CVS Health to adopt and disclose a paid sick leave policy

On 18 May shareholders of CVS Health, the American pharmaceutical retailer, will be asked to vote on a shareholder resolution asking the company to “adopt and publicly disclose a policy that all employees, part- and full-time, accrue some amount of paid sick leave (PSL) that can be used after working at CVS for a reasonable probationary period.” The resolution continues: “This policy should not expire after a set time or depend upon the existence of a global pandemic.”

The proponents, one of which is Schroders, argue that offering a comprehensive paid sick leave policy presents several benefits, such as higher productivity and lower employee turnover, to the business while mitigating legal, regulatory and reputational risks. The company argues it has enhanced its compensation offering in recent years and a paid sick leave policy for all employees would limit its flexibility to design competitive benefits packages.

We decided to co-file this resolution and will vote to support it based on the following analysis:

  1. Is the resolution aligned to our Blueprint? Yes, under the human capital management theme of our Blueprint, we ask companies to invest in their workforce, and disclose the paid time off benefits, including sick pay, available to employees, and assess if the benefits provided by the company sufficiently support the financial wellness of employees. We have discussed previously how paid sick leave presents a number of opportunities for businesses to realise cost savings, reduce the spread of disease in the workplace, and improve employee wellbeing. We believe that these kinds of investments in the workforce help to improve the long-term sustainability of the companies in which we invest.
  2. Is a resolution the best way to address the issue? Yes, we engaged the company in 2022 to explain the merits of paid sick leave, and the benefits we believe it can bring to the company’s retail operations. Although the company conveyed its position, we did not agree that adopting a paid sick leave policy would limit their flexibility to designing a competitive benefits package. While the resolution asks the company to adopt and disclose a paid sick leave policy for all employees, it leaves substantial flexibility for the company to design and implement the policy, including by setting accrual rates and probationary periods. Additionally, we did not agree with the company that paid sick leave imposes an unnecessary cost to the company, as research increasingly indicates that paid sick leave can provide cost savings by reducing absenteeism with minimal costs or administrative burden. Following meetings with the company, we felt that the best way to advance our position would be to co-file a resolution asking the company to adopt and disclose a paid sick leave policy for all employees.

  3. Does the resolution add value to what the company is already doing? Yes, currently the company offers paid sick leave to employees working over 30 hours per week, or if there is a local and state-level mandate to provide paid sick leave (there is not federal requirement to provide paid sick leave in the US). This shareholder resolution asks the company to provide a paid sick leave policy for all employees, including part-time workers who are not covered by local or state law. Part-time retail workers are among the least likely to have access to paid sick leave, and we believe that by asking the company to make this investment in its workforce, the company will help improve productivity and retention in its part-time workers while reducing reputational risks.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, several other retailers offer a form of paid sick leave for their part-time employees, and states and local governments are increasingly requiring employers to provide this benefit. We believe that given the body of evidence supporting paid sick leave, both from business and public health perspectives, the company will not incur any unintended or damaging consequences by adopting a paid sick leave policy.

10 May 2023: How we are voting on Las Vegas Sands’ board skills and diversity disclosures

On 11 May, shareholders of Las Vegas Sands, an American casino and resorts company, will be asked to vote on a shareholder resolution asking the company to disclose “each director/nominee’s self-identified gender and race/ethnicity, as well as the skills and attributes that are most relevant in light of the company’s overall business, long-term strategy, and risks.” The proponent adds: “The requested information shall be presented in matrix format and shall not include any attributes the board identifies as minimum qualifications for all director candidates (the 'Board Matrix')."

It argues that this disclosure would better enable shareholders to assess board members’ individual qualifications and skills, and the breadth of diversity across a range of factors.

The company contends that it already provides information regarding the board members’ age, skills, and gender and racial/ethnic diversity, and that this disclosure may impair board members’ right to privacy.

After examining this resolution, we have decided to vote For, based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the corporate governance theme of our Blueprint, we ask companies to disclose director biographies and diverse characteristics and skills, and to ensure the board is refreshed regularly, taking into account performance and these attributes, including diversity, skills, experience and independence. We believe that by ensuring the board contains a broad range of backgrounds and skills, companies will be better able to navigate the risks and opportunities they face, and are better positioned to protect the long-term sustainability of the companies we invest in.
  2. Is a resolution the best way to address the issue? Yes, we believe that shareholders are best placed to ask the company to publish a board skills and diversity matrix, as this information is helpful to understanding the background and skills of its directors and nominees. Greater board level transparency will allow shareholders to understand where any gaps may exist on the board, assess the breadth of diversity on the board, and to understand how the board’s skills and diversity have evolved over time. Given the growing list of companies who have adopted this practice, we do not believe that the proposal presents any undue burden.

  3. Does the resolution add value to what the company is already doing? Yes, although the company’s current disclosures of its board members contain some information on its members' skills and diversity at the aggregate level, this information provided does not include the gender or race/ethnicity of individual director nominees presented in the proxy statement. Presenting this information in a matrixwould clarify for shareholders the self-identified gender and race/ethnicity of each director, and therefore allow them to more accurately assess diversity across the board and make better informed voting decisions. Additionally, the proposed matrix would provide shareholders with more comparable information of the board on a year-over-year basis.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, although the company has expressed concerns regarding board members’ privacy, numerous other companies have provided a board skills and diversity matrix, including the company’s peers, and we do not believe that greater disclosure will present unintended consequences.

9 May 2023: How we are voting on Charles River Laboratories' reporting on imported primates

On 9 May shareholders of Charles River Laboratories, an American pharmaceutical and clinical laboratory company, will be asked to vote on a shareholder resolution asking the company to report annually on “the species, country of origin (including wild-caught or captive-bred, omitting proprietary information), and numbers of nonhuman primates imported by the company into the US; the species and numbers of nonhuman primates transported within the country; and measures the company is taking to mitigate its impact on dwindling populations in nature.”

The proponent claims that the company faces risks related to their oversight of long-tailed macaques (monkeys), citing instances where the company has transported the primates across state lines without the required veterinary inspections and issues with infectious disease. The proponent also describes the experimentation industry’s role in the population decline of monkeys, which have been classified as “endangered” by the International Union for Conservation of Nature. The company argues that it is committed to animal welfare and accountable supply chains, and that the use of monkeys is critical to studying the prevention and treatment of emerging infectious diseases.

After examining this resolution, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our blueprint? Yes, within the Natural Capital and Biodiversity theme of our Blueprint, we describe how we engage companies to adopt sustainable business practices, including animal welfare. We believe companies who adhere to sustainable animal welfare practices are helping to protect the long-term value of our investments. In this case the company’s ability to demonstrate its ability to mitigate legal and reputational risks associated with animal rights is material to the company’s performance; the company’s share price responded negatively following news that the U.S. Department of Justice is investigating its supply of monkeys from Cambodia.
  2. Is a resolution the best way to address the issue? Yes, although the company has an animal welfare policy in place, it has been involved in recent controversies related to its treatment of monkeys, including having received a subpoena relating to an investigation of monkeys in their Cambodian supply chain. Although the company has stated it is suspending shipments of monkeys from Cambodia, it continues to face legal and reputational risks.

  3. Does the resolution add value to what the company is already doing? Yes, although the company has committed to making new disclosures in 2023, we believe supporting this resolution is the best way to signal to management the types of disclosure needed to provide shareholders with better insight into how the company is managing risks related the welfare of its monkeys. As discussed above, the importation and treatment of monkeys and risks to the declining population of monkeys is a material risk to the investment performance of the company.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, the resolution is asking for greater disclosure on the numbers and origins of monkeys obtained by the company, and the measures it is taking to reduce the species’ dwindling population. We believe greater disclosure will provide better transparency to shareholders without causing any additional risks for the company.

4 May 2023: How we are voting on Berkshire Hathaway’s reporting of diversity, equity and inclusion efforts

On 6 May shareholders of Berkshire Hathaway, the American conglomerate, will be asked to vote on a shareholder resolution which asks the company to produce a report on the effectiveness of their diversity, equity and inclusion efforts. The proponent asks that the report use “quantitative metrics for hiring, retention, and promotion of employees, including data by gender, race, and ethnicity” in the report.

Berkshire Hathaway argues that it encourages the leaders of the businesses which it owns and/or operates to execute diversity, equity and inclusion strategies, and that it has published a U.S. Equal Employment Opportunity Commission’s 2021 Employer Information Report (EEO-1) report for its own operations. However, the proponent argues that of the 63 companies Berkshire Hathaway lists on its website, only one has published an EEO-1 report.

After examining this proposal, we have decided to vote For based on the analysis below.

  1. Is the resolution aligned to our Blueprint? Yes, within the Diversity and Inclusion theme of the Blueprint, we ask companies to collect and disclose workforce diversity data and to assess the effectiveness of diversity and inclusion programmes. We believe that more transparency on the effectiveness of companies’ diversity and inclusion programmes will allow shareholders to better assess the value of the investments companies are making into these programmes and whether or not the companies are on track to meet their stated goals through the disclosure of outcomes-based performance metrics.
  2. Is a resolution the best way to address the issue? Yes, the company has thus far been unresponsive to our attempts to engage on its oversight of human capital management. We believe voting in support of this resolution is the best way to advance the issue with management.

  1. Does the resolution add value to what the company is already doing? Yes, as the holding company of numerous subsidiaries over a diverse range of industries, we believe Berkshire Hathaway can better oversee the long-term sustainability of its holdings by understanding how their diversity, equity and inclusion strategies are being implemented. Although Berkshire Hathaway discloses EEO-1 data for its own operations, it does not disclose metrics which relate to the performance of its programmes, such as hiring, retention or promotion of employees. This data, along with more data from the effectiveness of its holding companies’ strategies, will help shareholders to better understand how each company is building a diverse and inclusive workforce in a manner which is an effective use of shareholder capital.
  2. Does the resolution have the potential to cause unintended, damaging consequences? No, many companies have adopted diversity and inclusion strategies and regularly report on their progress against the objectives they have set. We do not believe that publishing a report on the effectiveness of diversity and inclusion efforts will present any unintended consequences for the company.

3 May 2023: How we are voting on Kraft Heinz’s reporting of water risk in its supply chain

On 4 May, shareholders of Kraft Heinz, the American food and beverage company, will be asked to vote on a shareholder resolution asking the company to report to shareholders “using quantitative indicators where appropriate, an assessment to identify the water risk exposure of its supply chain, and its responsive policies and practices to reduce this risk and prepare for water supply uncertainties associated with climate change.”

The company argues that its current commitments and disclosures make the report requested by the proponent unnecessary. These include goals to reduce water use intensity by 2025 and signing the CEO Water Mandate, where it has committed to “identify and reduce critical water risks to our business, seize water-related opportunities, and contribute to water security and the United Nations Sustainable Development Goals.” The proponent argues, however, that a full risk assessment of the company’s value chain would allow shareholders to better understand the company’s management of its water risks.

After examining this proposal, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, within the Natural Capital and Biodiversity theme in the Blueprint, we ask companies to implement a water stewardship strategy including efforts and targets to reduce water consumption and manage wastewater treatment and to disclose operations in water stressed areas. We believe that sectors which are reliant on natural resources, such as water, may see company valuations affected as water scarcity becomes more prevalent. Actively managing these risks, both in their direct operations and in their supply chain, is one of the ways companies can protect the long-term sustainability of their businesses.
  2. Is a resolution the best way to address the issue? Yes, the food and beverage industry is exposed to financial, operational and regulatory risks relating to water scarcity and shifts in the global water supply. In 2020, food companies voluntarily reported to the CDP (formerly the Carbon Disclosure Project, the CDP is a disclosure framework through which companies outline their climate-related risks), that the potential financial impact of water risks could be $196 billion (Ceres, 2021). As the global regulatory environment places increasing pressure on companies to manage their water use, we believe supporting this resolution is the best way to signal to management the importance of this issue.

  3. Does the resolution add value to what the company is already doing? Yes, although the company has set goals related to its water use intensity and has undertaken a water risk assessment of its global manufacturing operations, we believe shareholders would benefit from more information on the work the company is doing in its supply chain. The company has stated it plans to release a global water policy; however, we believe a risk assessment across the supply chain would complement such a policy and provide shareholders with better insight into the company’s risk exposure to water scarcity and management of these risks.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, given the company has already completed a water risk assessment in its manufacturing operations, and has incorporated water stewardship in its Supplier Guiding Principles, which state the company’s requirements, standards and expectations of its suppliers, we do not believe that a supply chain risk assessment would expose the company to any additional risks.

2 May 2023: How we are voting on nominees to Hammerson’s board

On 3 May, shareholders of Hammerson Plc, a British property development company, will be asked to vote on a shareholder proposal which would appoint two nominees to the board. The dissident filing the resolution argues that the company has been underperforming in recent years, and that the company should reduce its administrative costs and make changes to its strategy. The proponent puts forward two candidates in an attempt to influence the board in line with the proponent’s vision for the company.

After examining this proposal, we have decided to vote Against based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Partially, within the Corporate Governance theme of the Blueprint we set out a number of expectations for Board oversight and effectiveness.These include maintaining a majority independent board, that has the relevant experience and is refreshed regularly.We analyse director elections on a case-by-case basis, reviewing if the nominees will add value to board deliberations.
  2. Is a resolution the best way to address the issue? No, in this case the proponent is putting forward directors to change the make-up of the board in line with the proponent’s vision for the company’s strategy. We believe that the best way to address any issues with the company’s strategy is to engage with management to understand their position and articulate any concerns.

  3. Does the resolution add value to what the company is already doing? No, the company already has a recently refreshed, well-qualified board, where the average tenure is two years and the CEO and Chairman have also been appointed in the last two years.

  4. Does the resolution have the potential to cause unintended, damaging consequences? No, we believe that the addition of two new board members would create disruption for the company. We have voted against this resolution because we believe maintaining stability on the board, who we believe possesses the necessary diversity of skills, experience and knowledge to deliver against their strategy , which we feel is in the best interest of shareholders.

25 April 2023: How we are voting on Marathon Petroleum’s disclosures around Just Transition

On 26 April, shareholders of Marathon Petroleum will be asked to vote on a shareholder resolution asking the company to disclose how it is addressing “the impact of its climate change strategy on key stakeholders, including but not limited to the communities it serves and workers, consistent with the Just Transition guidelines of the International Labour Organization (ILO).”

Marathon Petroleum, an American petroleum refining company, has outlined how it plans to diversify its portfolio as part of the transition to a low-carbon economy. The proponent argues that proper management of the Just Transition, which is defined by the International Labour Organization as “greening the economy in a way that is as fair and inclusive as possible to everyone involved, including workers”, presents a material financial risk. The company argues that it has already produced a Just Transition report which provides the information sought in this proposal.

After examining this proposal, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, climate change is one of the priority themes in our Blueprint, and we focus on how a company is managing financially material risks for its business related to climate transition, including evolving regulation and increases in carbon pricing. Within this, we ask companies to identify the key social impacts of their climate transition plans, policies and adaptation measures, and set out how the company plans to consult and support impacted workers.
  2. Is a resolution the best way to address the issue? Yes, we believe this resolution will benefit shareholders by providing greater insight into how the company is managing social risks associated with its climate plans. This includes encouraging the company to disclose time-bound, measurable indicators that will help shareholders better understand how the company is preparing its workforce to meet its strategic objectives.

  3. Does the resolution add value to what the company is already doing? Yes. We recognise that in March 2022 Marathon Petroleum published its first Just Transition report, which outlines the steps the company is taking to facilitate a responsible transition, including stakeholder engagement, human capital management and community investment. However, the report currently does not provide any measurable indicators that would enable shareholders to judge the success of the Just Transition initiatives the company has put in place. As such, we believe this proposal adds value to what the company is doing by encouraging the company to include these indicators in the next iteration of their report.

  4. Does the resolution have the potential to cause unintended consequences? No, a number of governments, including the United States, signed the Just Transition Declaration during COP26, which established a global understanding for a Just Transition. Companies play an important role in identifying and managing climate risks related to their workforce, communities and wider stakeholders across the value chain. We believe that the sort of disclosure requested by this resolution helps investors understand how a company is addressing this systemic risk. Given the company already discloses a wide range of environmental and social data which could inform the metrics included in its Just Transition report, we do not believe this proposal places an undue burden on the company.

24 April 2023: how we will vote over Wells Fargo’s simple majority vote

Tomorrow (25 April) shareholders of the American bank Wells Fargo will be asked to vote on a shareholder resolution asking it to adopt a majority of votes cast standard, or a simple majority in compliance with applicable laws.

A supermajority requires a large majority of shareholder votes for a resolution to pass, whereas a simple majority generally requires any majority over 50%.

The company argues that its current ownership structure has only two supermajority requirements involving common shares, and that these are designed to protect shareholders’ interests. However, the proponent argues that supermajority voting requirements are negatively related to company performance and used to block proposals supported by most shareholders.

After examining this proposal, we have decided to vote For based on the analysis below.

  1. Is the resolution aligned to our Blueprint? Yes. Within the corporate governance theme of our Blueprint, we outline expectations for shareholder rights. This includes setting measures which encourage a single class of share capital and “one share, one vote” policies.
  2. Is a resolution the best way to address the issue? Yes. We believe that supporting this resolution is the best way to advance the interests of shareholders in this matter and promote more equal voting rights. Although the company argues that its current supermajority requirements apply only in limited circumstances, we believe that adopting a simple majority or majority of votes cast policy would be the best way for shareholders to provide meaningful engagement with the company on issues which are put up to vote.

  3. Does the resolution add value to what the company is already doing? Yes. We believe that the resolution will improve shareholder rights, particularly on matters where a resolution may receive strong support from shareholders. A simple majority or majority of votes cast policy would enable shareholders to exercise their rights more effectively when voting on issues which are material to the company.

  4. Does the resolution have the potential to result in unintended, damaging consequences? No. Although the company argues that its current supermajority requirements are designed to protect shareholders against hostile takeovers, the company’s shares are widely held and we do not believe that reducing certain voting requirements would make the company vulnerable to hostile takeovers.

24 April 2023: how we will vote on a high carbon financing proposal at Citigroup

Tomorrow (25 April) at the annual meeting of Citigroup, the American multinational bank, shareholders will be asked to vote on a fossil fuel finance resolution.

The proposal is for Citigroup to set a time-bound phase-out of its financing for lending and underwriting to projects and companies engaging in new fossil fuel exploration and development.

The company argues that it already has a net zero plan, and has set 2030 emissions reduction targets for its energy and power loan portfolios, while the proponent argues that Citigroup’s existing commitments do not align to its targets.

After examining this proposal, we have decided to vote Against based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Partially. Climate change is one of the themes in our Blueprint. For relevant sectors, we ask companies to set out how they will align their loans and/or investments towards activities that support the company’s climate goals and targets. However, we do not outline specific financing policies that companies should adopt within our Blueprint.
  2. Is a resolution the best way to address the issue? No. While we would welcome further information on the bank’s strategy and risk appetite in relation to new fossil fuel exploration and development, we believe direct engagement and dialogue is a better way to address sector-specific financing policies in most cases. This particular resolution unequivocally asks the bank for a time bound phase-out of financing to both projects and companies engaging in new fossil fuel exploration and development. We believe further consideration is needed as to whether it is currently possible for the bank to establish a timescale for phase-out while also meeting global energy security, access and affordability needs. The chief executive officer Jane Fraser has already asserted in March that she believes “the energy transition, energy security and access to energy — are not mutually exclusive and must be solved for simultaneously”. There is a great deal of uncertainty regarding the pace of the transition. It depends on factors ranging from the availability and cost-effectiveness of low-carbon alternatives to technological developments and the level of global demand for oil and gas products. Additionally, further consideration is needed to understand the implications of a complete phase-out in the long term for industries that may still need oil and gas for certain applications should no viable alternatives become available, for example as a feedstock for certain industrial processes or for aviation.

  3. Does the resolution add value to what the company is already doing? Yes, as the company has not set out any policies for projects and companies engaging in new fossil fuel exploration and development. The company’s Environmental and Social Policy Framework already sets out a partial coal phase-out along with exclusions for project-related financial services for new thermal coal mining or significant expansion; new coal-fired power plants or expansion; and oil and gas exploration, development and production in the Arctic Circle. This framework also includes enhanced due diligence for certain activities in the oil and gas sector. However, it should be noted that emissions from oil and gas financing are expected to fall without the introduction of further policies. The company has set an absolute emissions reduction target for its energy loan portfolio, aiming for emissions from these companies to drop 29% by 2030 from a baseline year of 2020. On balance we don't think this proposal is the best way to achieve the desired outcome at this time.

  4. Does the resolution have the potential to cause unintended consequences? Yes. We do not believe this resolution sufficiently allows for the nuances and complexities associated with the energy transition, and the difficulties in establishing a timescale for the phase-out of fossil fuel exploration and development while also meeting global energy security, access and affordability needs. We therefore do not think a vote for this resolution is in the best interest of shareholders and our clients.

20 April 2023: how we will vote over IBM’s lobbying disclosures

On 25 April IBM shareholders will be asked to vote on a resolution which asks the company to prepare an annual report disclosing lobbying policies and procedures.

The US technology company says that it has “well-known disclosures, policies and practices in this area” and that it is committed to providing oversight and disclosure of its engagement in public policy.

However, the proponent of the shareholder resolution argues that IBM’s disclosures do not include payments made to trade associations and social welfare organisations and that its lobbying activities pose a reputational risk.

After examining this proposal, we have decided to vote Against based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes. Within the Engagement Blueprint we ask companies to disclose funds spent on direct lobbying activities and disclose memberships to trade associations and, where possible, the funding associated with these memberships. We believe these disclosures provide shareholders with the transparency needed to understand how the company engages in public policy and any financial, legal and reputational risks it may be exposed to.
  2. Is a resolution the best way to address the issue? No. The proponent argues in the supporting statement that IBM incurs reputational risks by the potential misalignment of its lobbying activities and its policy positions. However, we believe that IBM has already explained how it considers its public policy engagement and that this is made publicly available on its public policy website. We do not believe that the disclosures the proponent asks for will provide shareholders with any more insight into how the company aligns its lobbying activities to its policy positions.

  3. Does the resolution add value to what the company is already doing? No. IBM already discloses its total lobbying expenditures and trade association memberships on its public policy website. The company is also required to disclose the proportion of dues it pays to trade associations that is devoted to lobbying expenditure. IBM has a long-standing policy which prohibits donations of any kind to political candidates and organisations, and prohibits its trade associations from using IBM funds to make political contributions. Additionally, the company explains how its government and regulatory affairs division oversees lobbying activities, and that this group reports to the board of directors. We don’t believe that this shareholder resolution will provide shareholders with more information than the company currently provides.

  4. Does the resolution have the potential to result in any unintended, damaging consequences? No. Although we do not believe there are any unintended consequences from disclosing this information, we believe it is a duplication of what the company currently discloses and does not represent value for shareholders.

17 April 2023: how we will vote over Boeing’s climate lobbying

Boeing, the US aerospace company, is holding its annual general meeting on 18 April. Shareholders will vote on a resolution asking it to disclose information on if and how its lobbying activities align with the Paris Agreement, the international treaty on climate change, and the steps being taken to address any areas of misalignment.

Boeing says it “supports the objectives of the Paris Agreement and considers climate change to be an urgent issue”, and argues it is committed to political transparency. However, the proponent argues that the company’s disclosure of its lobbying activities is limited and poses a reputational risk.

After examining this proposal, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes. Climate change is one of the priority themes in our Blueprint. We ask companies to publicly disclose any climate-related lobbying activity as well as to set out how they align direct lobbying activities and trade association memberships with the goals of the Paris Agreement and their own climate strategies.
  2. Is a resolution the best way to address the issue? Yes. We believe this resolution will encourage the company to produce more complete disclosures on its climate lobbying activities.

  3. Does the resolution add value to what the company is already doing? Yes. Although the company sets out some information on its lobbying and political activities and how they align with the goals of the Paris Agreement through its CDP disclosures, shareholders could benefit from further information on how the company mitigates reputational and financial risks associated with misalignment.

    Formerly Carbon Disclosure Project, CDP is a disclosure framework through which companies outline their climate-related risks. There have been instances over the past few years where a number of companies have faced legal challenges as a direct result of their misaligned lobbying practices, greatly impacting their reputations.

    We believe this resolution could help shareholders better assess how the company is addressing climate-related risks and potential costs to the business from climate transition trends.

  4. Does the resolution have the potential to cause unintended consequences? No. Given other global companies are disclosing detailed climate lobbying reports and demonstrating how their lobbying aligns with their overarching climate strategy and decarbonisation goals, we do not believe the resolution has the potential to cause unintended consequences.

    We believe that by disclosing this information, Boeing will provide greater transparency to investors on the alignment between its climate strategy and lobbying efforts.

11 April 2023: how we will vote on Dow's reporting of risks around demand for plastics

Dow Inc. holds its Annual General Meeting on 13 April, where shareholders will be asked to vote on a shareholder resolution regarding plastic pollution. The resolution asks the company to “issue an audited report addressing whether and how a significant reduction in virgin plastic demand, as set forth in Breaking the Plastic Wave’s System Change Scenario to reduce ocean plastic pollution, would affect the Company’s financial position and assumptions underlying its financial statements.” Virgin plastics are refined from petrochemicals which have never been refined or processed previously.

Dow is an American materials science company whose portfolio is comprised of plastics, industrial intermediates, coatings and silicones businesses. Its ambition is to “become the most innovative, customer-centric, inclusive and sustainable materials science company in the world".

After examining this proposal, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, in the Natural Capital and Biodiversity theme of our Blueprint, we ask companies to establish measurement systems to understand impacts and dependencies on nature, and put into place comprehensive policies to manage and reduce negative impacts on nature and biodiversity through the full value chain, in order to reduce these dependencies and the risks and potential costs to the business associated with them. We also ask companies to set targets on use of recycled plastics (rPET) as a raw material or on the recyclability of products addressing circular economy, pollution and waste.
  2. Is a resolution the best way to address the issue? Yes, we believe that current and future regulatory action regarding virgin plastics is a material issue for the company, and a report which assesses the impact of a significant reduction in virgin plastic demand on the company’s financial position is appropriate. We believe shareholders would benefit from the scenario analysis described in the resolution, as it would provide more transparency on the company’s current exposure to risks related to plastics demand, and its management of these risks.

  3. Does the resolution add value to what the company is already doing? Yes, although Dow’s sustainability strategy includes commitments to enable 1 million metric tons of plastic to be collected, reused or recycled through its direct actions and partnerships by 2030, and 100% of its products sold into packaging applications to be reusable or recyclable by 2035, more analysis on the risks Dow is exposed to would be beneficial to shareholders. The company has disclosed that concerns regarding plastic waste in the environment and more restrictive regulations related to plastic products could negatively impact its financial results, and therefore we believe that greater disclosure of its financial risks would be additive to the company’s current sustainability disclosures and strategy.

  4. Does the resolution have the potential to cause unintended damaging consequences? No, the company has stated its ambitions surrounding the circularity of its products and its awareness of the risks it faces related to plastic waste, and therefore we believe the scenario analysis described in this resolution will bring more clarity to these risks, and better position its leadership to manage these risks effectively.

3 April 2023: How we will vote on Royal Bank of Canada's greenhouse gas reduction goals

Shareholders at the Royal Bank of Canada AGM on 5 April will be asked to vote on a resolution for the company to issue a report that discloses 2030 absolute greenhouse gas emission reduction targets covering its lending and underwriting activities for two high emitting sectors: oil and gas and power generation. The resolution asks that these targets are aligned with a science-based net-zero pathway and in addition to any emission intensity targets for these sectors that the company has or will set.

The bank at present has a commitment to reach net zero emissions by 2050 and has set 2030 emission intensity reduction targets for sectors including power generation and oil and gas. It joined the Net Zero Banking Alliance in 2021 and published its first net-zero report in October 2022.

After examining this proposal, we have decided to vote For based on the analysis below:

  1. Is the resolution aligned to our Blueprint? Yes, climate change is one of the priority themes in our Blueprint. Within this we ask companies to set long-, medium-, and short-term science-based targets covering Scope 1, 2 and relevant Scope 3 greenhouse gas (GHG) emissions. Scope 1 emissions are direct emissions that occur from sources owned or controlled by the company, Scope 2 emissions are indirect emissions from the purchase of energy, and Scope 3 emissions are all other indirect emissions that occur in a company’s value chain. Setting and disclosing these targets helps to offset risks and associated costs to the business that are expected to arise as regulation and higher carbon pricing drive decarbonization globally.
  2. Is a resolution the best way to address the issue? Yes, the resolution acknowledges the physical emissions intensity targets already set by the bank but is asking the bank to set absolute emission reduction targets for two sectors, in line with other North American and global peers. We believe shareholders would benefit from understanding how the company is managing its climate-related risks.

  3. Does the resolution add value to what the company is already doing? Yes, as the bank does not yet have targets to reduce financed emissions on an absolute basis. The bank itself has stated that achieving net-zero emissions in its lending by 2050 will require reductions in absolute emissions. Therefore, setting interim absolute reduction targets would be beneficial to shareholders as it would allow them to better assess how the company is addressing climate risk and potential costs to the business from climate transition trends.

  4. Does the resolution have the potential to cause unintended damaging consequences? No, given other North American and global banks have set absolute targets for these sectors we do not believe the resolution has the potential to cause unintended consequences. We believe that setting targets for the oil and gas and power generation sectors will provide greater transparency to investors on how RBC is progressing against its commitments, which include achieving net zero in lending by 2050.

21 March 2023: How we will vote on Starbucks’ commitment to workers

Starbucks, the multinational coffee chain, will hold its AGM on 23 March. Shareholders will vote on five shareholder resolutions, including one on assessment of worker rights commitments.

This resolution asks the company to “commission and oversee an independent, third-party assessment of Starbucks’ adherence to its stated commitment to workers’ freedom of association and collective bargaining rights as contained in the International Labour Organization’s (ILO) Core Labor Standards and as explicitly referenced in the company’s Global Human Rights Statement.”

Freedom of association is about the right to form and join trade unions. The ILO is a UN agency focused on “decent work for all men and women”. It brings together governments, employers and workers from 187 member states. Freedom to form and join a union, and to bargain collectively, is one of its core labour standards along with freedom from forced labour, freedom from child labour, freedom from discrimination at work, and a safe and healthy working environment.

Starbucks explicitly commits to respecting the principles of several international frameworks, including the UN Guiding Principles on Business and Human Rights, UN Global Compact, and the ILO Core Labour Standards. However, there is limited transparency to investors on how the company engages with stakeholders and embeds respect for freedom of association in its day-to-day operations.

After examining this proposal, we have decided to vote For based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, within the human capital management (HCM) thematic priority we ask companies to disclose how they create and ensures a culture of actively embracing freedom of association by upholding international standards such as those outlined by the ILO. People in an organisation are a significant source of competitive advantage to the business, and we believe effective human capital management is essential to drive innovation and long-term value creation.
  2. Is a resolution the best way to address the issue? Yes, we have engaged the company on HCM issues and believe voting in support of this resolution is appropriate. Additionally, Starbucks has stated in its reporting that the way it responds to union-organising efforts could impact how its brand is perceived and have adverse effects on its business, including on financial results. We believe that an independent review of its commitment to freedom of association would benefit shareholders’ understanding of the risks Starbucks is exposed to in this area.

  3. Does the resolution add value to what the company is already doing? Yes, although the company has committed to respecting freedom of association, investors would benefit from greater clarity from an independent party on how this is embedded in the company’s everyday practices. This could provide greater understanding on how the company protects labour rights and minimizes reputational and legal risks, and is important to evaluating the company’s long-term sustainability. Although the company states that it is conducting a human rights impact assessment, we believe a third-party review specifically focused on freedom of association is appropriate given the materiality of the issue and number of controversies the company has faced related to labour relations.

  4. Does the resolution have the potential to cause unintended damaging consequences? No, we believe a third party report would provide greater transparency on labour relations at the company at a reasonable cost, and provide the company with an independent assessment of any risks they may face related to infringements on fundamental freedoms such as freedom of association. Additionally, other companies such as Apple, have agreed to undertake similar third-party assessments, and given this precedent we do not believe this report would result in unintended consequences for the company.

10 March 2023: How we will vote on Carlsberg’s human rights reporting

Carlsberg, the Danish brewing company, will hold its AGM on 13 March. Shareholders will be presented with a proposal for the business to publish its human rights-related efforts and risks. The proposal asks the board of directors to report on “the company’s efforts to respect human rights and labour rights in accordance with the United Nations Guiding Principles on Business and Human Rights (UNGPs), and which, if any, human rights-related financial risks the company has identified, and how it seeks to address these.”

Carlsberg is a signatory of the UN Global Compact, the voluntary sustainability initiative based on CEO commitments, and has also stated it is committed to the UNGPs. The company also states that it conducts human rights due diligence, including identifying salient issues in its value chain and working to mitigate potential adverse impacts. The company also says it is committed to continuously assessing issues identified.

After examining this proposal, we have decided to vote Against based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, human rights is one of our priority themes and we ask companies to introduce robust human rights due diligence processes, including integrating the findings and taking appropriate action. We believe that by mitigating human rights risks, businesses will be better protected against the operational, reputational, legal and financial risks resulting from human rights controversies.
  2. Is a resolution the best way to address the issue? No, the company already commits to respecting human rights as defined by the UNGPs and it will be required to report on its sustainability due diligence under the European Union’s Corporate Sustainability Reporting Directive (CSRD), which entered into force this year. As part of this due diligence, the company will need to disclose its processes to identify, prevent, mitigate, and account for ways it addresses actual and potential impacts on people.

  3. Does the resolution add value to what the company is already doing? No, we have engaged the company and in this case it is already undertaking double materiality assessments to identify, assess and prioritise human rights risks, and has committed to doing so on a yearly basis. It will publish the latest results in 2025 for 2024 reporting. Given the new requirements posed by CSRD, we do not believe that the resolution is additive to what the company is already doing and what it is required to do by law.

  4. Does the resolution have the potential to cause unintended damaging consequences? Yes, while we support the resolution in spirit, in this case we believe it duplicates the newly-introduced regulatory requirements, which are designed to harmonise information and reduce reporting costs over the medium to long term. Asking the company to produce an additional report may pose an unmerited administrative burden, without necessarily delivering enhanced human rights outcomes.

7 March 2023: How we will vote on Apple’s gender pay gap reporting

Apple will hold its AGM on Friday (10 March). There are five shareholder proposals on the ballot, one of which relates to gender and racial pay gaps. The proposal asks the company to “report on median pay gaps across race and gender, including associated policy, reputational, competitive, and operational risks, and risks related to recruiting and retaining diverse talent.”

Apple currently reports statistically-adjusted pay gaps, for example between men and women performing similar roles or with similar education levels. Unadjusted, median pay gap reporting does not take these factors into account, and the proponent argues this measure better captures the actual pay gaps experienced by women and minorities.

After examining this proposal, we have decided to vote For based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, Diversity and Inclusion is one of our priority themes and within this we ask companies to disclose gender and ethnicity pay gap information. Diversity across multiple dimensions brings a valuable range of outlooks and opinions, and when paired with an inclusive culture, can lead to higher-quality work, better decision-making and problem-solving, and greater team satisfaction.
  2. Is a resolution the best way to address the issue? Yes, we have engaged the company on this issue and believe voting in support of the resolution can help support our engagement on this topic in this case.

  3. Does the resolution add value to what the company is already doing? Yes, improved transparency on gender and ethnic pay gaps would allow us to better understand how the company is progressing against its diversity goals, would provide the investors with more comparable data and greater insights into how the company is positioning itself to realise the benefits of a diverse workforce.

  4. Does the resolution have the potential to cause unintended damaging consequences? No, given the company already discloses pay gap metrics, we do not believe this would cause any unintended harm.

6 March 2023: How we will vote on Applied Materials’ threshold to call a special meeting

Applied Materials, a US-based semiconductor and display equipment company, will hold its AGM on Thursday (9 March). Shareholders will be allowed to vote on a shareholder resolution which asks the board to “take the steps necessary to amend the appropriate company governing documents to give the owners of a combined 10% of our outstanding common stock the power to call a special shareholder meeting.”

The company sets the threshold to call a special meeting at 20%. The proponent argues that reducing this threshold to 10% would enable shareholders to more easily take action outside of the AGM, and that the company’s current form of written consent poses too many barriers for shareholders.

After examining this proposal, we have decided to vote For based on the below analysis:

  1. Is the resolution aligned to our Blueprint? Yes, Relationship with Shareholders falls under the Governance priority theme in our Blueprint, and within this we ask companies to maintain an open dialogue year round, and not only related to the AGM. We believe that it is essential that strong governance policies and practices are in place to ensure that businesses act in the best interest of shareholders and other key stakeholders, in order to drive long-term sustainable value creation.
  2. Is a resolution the best way to address the issue? Yes, we believe voting in support of this resolution is the best way to raise the issue with management.

  3. Does the resolution add value to what the company is already doing? Yes, we believe a reduced threshold of 10% of outstanding common stock is preferrable to the company’s existing form of written consent, and helps to keep management accountable to shareholders.

  4. Does the resolution have the potential to cause unintended damaging consequences? No, we believe shareholder dialogue with the company on an ongoing basis is an important element of shareholder rights, and the threshold of 10% is reasonable and does not pose a risk to shareholders abusing the right to disrupt day-to-day management.

Our approach to voting at company meetings

The environmental and social forces reshaping societies, and their implications for businesses, are core to Schroders’ approach to active ownership. Throughout the year, we work with companies to understand if and how they are preparing for the long-term challenges they face, and encourage them to take action where change may be required in order for these companies to strengthen their long-term prospects and generate higher quality returns for shareholders.

Another way we use our voice as shareholders is through voting at companies’ Annual General Meetings (AGMs). This helps us to effect change and is one of the ways we can escalate our concerns where engagement has not been successful.

ESG-related resolutions have increased in both volume and breadth in recent years, and we expect this trend to continue this year. Assessing these resolutions requires a detailed understanding of the company, sector and potential implications adopting a resolution would have. Our 2023 Engagement Blueprint summarises our views on issues we regard as having the potential to be particularly material to investment risk. We seek to align our approach to voting with our wider active ownership priorities. We will oppose the board's recommendations and support shareholder resolutions if we believe that doing so is, taking into account relevant factors, in the best interests of shareholders and our clients.


Within the Blueprint we outline our process for evaluating shareholder resolutions based on four key questions:

  1. Is the resolution aligned to our Blueprint? This considers the resolution’s fit with the expectations we outline within the six thematic priorities covered in the Blueprint.
  2. Is a resolution the best way to address the issue? We do not intend to micro-manage companies, but rather to provide oversight and guidance through dialogue, engagement and voting. Moreover, we consider if other relevant stakeholders are better placed to address the issue, for example governments through regulation.

  3. Does the resolution add value to what the company is already doing? This could include improving transparency to help us better understand how companies identify and manage risks, providing reassurance that policies and practices are effectively implemented, strengthening management systems to resolve and prevent controversies, and encouraging companies to move towards ESG best practice.

  4. Does the resolution have the potential to cause unintended, damaging consequences? This considers if the proposal, if implemented, could have the potential to cause unintended consequences of a significant level to the company’s stakeholders, taking into consideration a range of contextual factors, including cost, sector, geography, and economic climate.

Authors

Active Ownership team

Topics

Active Ownership
Sustainability
Global
Equities

For professional advisers only. This site is not suitable for retail clients.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Schroders Investment Management Ltd registration number: 01893220 (Incorporated in England and Wales) is authorised and regulated in the UK by the Financial Conduct Authority and an authorised financial services provider in South Africa FSP No: 48998