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Active ownership blog: 2024 voting season spotlight

Voting at shareholder meetings is part of being an active owner. In this blog we share some examples of how we plan to vote on shareholder resolutions.

13/05/2024
voting_blog2024

Authors

Active Ownership team

We use our rights as shareholders to vote at Annual General Meetings (AGMs) to hold companies to account and influence change where needed. We view this as part of our responsibility to ensure votes are cast in the best interests of clients and with the aim of enhancing investment returns. Through this blog, we explain how we plan to vote on a variety of shareholder resolutions. Although sustainability-related shareholder resolutions tend to be more frequently filed in the US, we engage companies globally on sustainability-related topics.

As Kimberly Lewis, Head of Active Ownership, explains: “As a large shareholder of many businesses, Schroders cannot treat every shareholder resolution on climate change, for example, as a statement of our general stance on that issue. We think about the resolution in the context of the company and our engagements with it. Is this resolution adding value and is it really the best way to address the issue for that company?”

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.

13 May 2024: How we will vote over Equinor’s CAPEX alignment to Paris Agreement

Equinor, the Norwegian oil and gas company, is holding its annual general meeting on 15 May. Shareholders will vote on a resolution asking the Board to update its strategy and capital expenditure plan, considering the company’s commitment to support the goals of the Paris Agreement and the Norwegian Government’s expectations for the company to align with the Paris Agreement. The resolution also requests the updated plan to “specify how any plans for new oil and gas reserve development are consistent with the Paris Agreement goals”.

The company in its response states its energy transition plan demonstrates a business model and strategy that are already aligned with the Paris Agreement's most ambitious 1.5°C goal. They also stress that more investments in energy production and infrastructure are required to secure supply and reduce the cost of energy.

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 believe that companies’ long-term financial success depends on their ability to transition their business models to net zero and adapt to a changing climate. We engage with companies on climate as a way of encouraging positive change that we believe can future-proof their businesses and help to generate returns for our clients. To that end, one of our expectations is that companies “Allocate capital to limit warming to 1.5°C, focusing on regions and technologies with the greatest climate impact”. We ask companies to set out how they will align their loans and/or investments toward activities that support the company’s climate goals and targets.

2. Is a resolution the best way to address the issue?

Yes, we acknowledge the company is leading on decarbonisation action relative to its sector. Nonetheless, we believe this resolution will encourage the company to produce more complete disclosures and provide further evidence to its claims that the strategy is already aligned with the Paris Agreement goals.

3. Does the resolution add value to what the company is already doing?

Yes, 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. In particular, it requires further disclosures from the company, stress-testing its decisions of new reserve development.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, the resolution is not asking the company to halt its production of oil and gas immediately in a way that could cause unintended consequences, it merely is requesting the company’s board to demonstrate that its strategy and capex are aligned to its and the Norwegian government stated ambition to be aligned to the Paris Agreement or else revise its strategy and capex. We believe that by disclosing this information, Equinor will provide greater transparency to investors on the alignment between its commitments and implementation of its strategy.

3 May 2024: Suncor Energy Inc: How we will vote on Suncor’s climate disclosures

On 7 May, shareholders of Suncor Energy, a Canadian integrated energy company, will vote on a shareholder resolution asking the company to disclose audited results assessing a range of climate transition scenarios on the assumptions, costs, estimates, and valuations underlying its financial statements. The proponent is not seeking that Suncor change its judgements on which net zero scenario the company utilizes, or timing and pace of the energy transition. Instead, they are looking for Suncor to perform a sensitivity analysis against multiple climate transition scenarios and discuss the quantitative impact on the company’s financial statements.

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 "conduct climate-scenario analysis across short-, mid- and long-term time horizons” as well as to “reflect material climate factors in the company’s annual report and accounts”. We ask for companies to include in their financial reporting climate-related risk to fully understand how climate risk from the transition to net zero or from the physical impacts of climate change could impact the company’s balance sheet under a range of scenarios. We believe companies who provide robust financial reporting considering any risks, challenges and potential opportunities in a changing global energy environment will be better placed to respond, protect and strengthen the long-term value of investments and will help investors better evaluate any reputational and financial risks to their business model.

2. Is a resolution the best way to address the issue?

Yes, given the role the company plays in the global energy market and their current plans to focus on their oil sands business during a time when these assets are exposed to high carbon risk, we believe the requested information is material to shareholders’ understanding of potential financial risks and challenges to the company’s financial statements.

3. Does the resolution add value to what the company is already doing?

Yes, whilst Suncor has disclosed medium-term financial risks associated with their refining business due to declining revenues because of decreased demand for products and services, they have yet to disclose transition risk associated with other parts of their business. As such, further detailed reporting on the impacts of potential energy transition scenarios on its financial statements is required for shareholders to understand associated financial risk.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, we believe the report requested by the proponent will provide shareholders with additional insight into the climate and energy transition risks that Suncor is potentially exposed to, we do not foresee potential negative impacts from additional disclosures. We believe oil and gas companies need to reflect in their financial reporting how changes to measures such as future oil price, impacts of production growth and asset valuation are considered within the context of different climate scenarios and potential impacts upon their balance sheets.

30 April 2024: How will we vote on Eli Lilly’s resolution on patent exclusivities

On 6 May, shareholders of Eli Lilly, the US pharmaceutical company, will vote on a shareholder resolution asking the company to “establish and report on a process by which the impact of extended patent exclusivities on product access would be considered in deciding whether to apply for secondary and tertiary patents.” The proponent explains that “secondary and tertiary patents are patents applied for after the main active ingredient/molecule patent(s) and which relate to the product.”

We plan to vote For this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes, in the human rights theme we ask companies to develop clear strategies for access to and affordability of fundamental products and services, including medicines. We believe that doing so can enhance the competitiveness and value of businesses over time.

2. Is the resolution the best way to address the issue?

Yes, the resolution asks the company to evaluate the impact of extending patents may have on access to medicines. The company states it is “committed to equitable and affordable access to our medicines so that our breakthroughs can transform more people’s lives”. We believe that producing a report which outlines the process the company has in place to understand the impact of patent extensions on access will help shareholders understand how it is living up to this commitment.

3. Does the resolution add value to what the company is already doing?

Yes, although the company says that it considers “patent life” as one of many factors in its U.S. pricing strategies, it is unclear the process by which the company uses to evaluate the impact of patent extensions on access and affordability.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, several other large US pharmaceutical companies have provided greater disclosure on this topic, and we do not believe that producing this report will be overly burdensome or result in a competitive disadvantage.

30 April 2024: Berkshire Hathaway: How we plan to vote on Berkshire Hathaway’s Diversity and inclusion report

On 4 May, shareholders of Berkshire Hathaway, the US holding company, will vote on a shareholder resolution asking the company to report on the effectiveness of the company's diversity and inclusion efforts.

We plan to vote For this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes, in our Engagement Blueprint we ask companies to disclose metrics to assess inclusive culture and set targets for increasing inclusivity, and to assess the effectiveness of diversity and inclusion programmes. We believe that by creating diverse and inclusive cultures, companies can benefit from improved decision making and problem solving, which may positively impact financial performance and enhance shareholder value.

2. Is a resolution the best way to address the issue?

Yes, as the company has not been responsive to engagement, and we believe supporting this resolution will help convey to management the importance of this topic and its potential to influence investment returns.

3. Does the resolution add value to what the company is already doing?

Yes, although the company has made some improvements to its diversity disclosures, such as its US Equal Employment Opportunity (EEO-1) data, the company provides very limited information on its human capital management data. Shareholders would benefit from more transparency of the effectiveness of company's diversity and inclusion efforts to assess how it is building an inclusive workplace.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes. The percentage of S&P 100 companies reporting on topics including quantitative gender diversity statistics, culture initiatives, and talent attraction and retention has significantly increased. We do not believe this report would present an undue burden to the company.

25 April 2024: How we will vote over Paccar’s climate lobbying

Paccar, the US trucking company, is holding its annual general meeting on 30 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.

Paccar says it “already evaluates and publicly discloses in its annual environmental report to CDP its direct and indirect climate lobbying activities, and the activities’ alignment with the Paris Climate Agreement". However, the proponent argues that the company’s disclosure of its lobbying activities through CDP is insufficient. In 2023, this same proposal received 47.4% support, indicating substantial shareholder interest in this matter. Despite this, the company has not taken action to address any misalignments between its lobbing activities and the Paris Agreement objectives.

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

1. Is the resolution aligned to our Blueprint?

Yes. Climate change is one of the priority themes in our Engagement Blueprint. 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, with the goal of understanding how such activities will influence investment returns. Investors could benefit from better disclosure of Paccar’s lobbying activities to understand how the company and its trade associations are engaging on public policy issues. The company has stated that it is committed to reducing emissions to 2030. A report could provide shareholders with more transparency on how the company’s lobbying activities support this, which will help investors better evaluate any reputational and financial risks to their business model.

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 through its CDP disclosures, shareholders could benefit from further information on how the company sets its lobbying positions, reviews its trade association memberships, and mitigates reputational and financial risks associated with misalignment of the lobbying activities with the Paris Agreement goals.

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. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes. Given other global companies and direct peers to Paccar 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, Paccar will provide greater transparency to investors on the alignment between its climate strategy and lobbying efforts.

25 April 2024: How we will vote on a resolution asking Kellanova to report on pesticide usage in supply chain

On 26 April, shareholders of Kellanova, the food and beverage company, will vote on a shareholder resolution asking the company to issue a report on the risks it associated with pesticide use in its supply chain.

We plan to vote For this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes. In 2024, we updated the Engagement Blueprint to align with the goals of the Global Biodiversity Framework and the Taskforce on Nature-related Financial Disclosures (TNFD). The Global Biodiversity Framework has a target to reduce pollution and reduce excess nutrients lost to the environment by a half by 2030. This target seeks to address the growing risks posed to biodiversity and ecosystem services from excess use of pesticides and fertilisers in many locations. To address these risks, under the theme of natural capital related risk and management we ask companies to take action to protect endangered, threatened or protected species. Specifically, under sustainable food and water, we ask companies to disclose and seek to increase the share of products sourced from regenerative agricultural practices and to develop environmental management plans for the sustainable use of fertiliser and pesticides with the goal of strengthening long-term competitiveness and value.

2. Is a resolution the best way to address the issue?

Yes. Pesticide residues are found in drinking water, soil, rainwater and a vast number of food products, resulting in significant collateral damage such as declines in pollinator species and soil degradation. There is rising risk for companies reliant on pesticide usage from both the physical and financial risks of nature loss and a growing risk of litigation. The resolution encourages the company to align with peers on producing specific reporting on the risks of pesticide usage in the supply chain.

3. Does the resolution add value to what the company is already doing?

Yes. While the company has already made some commitments to encourage the reduction of inputs like fertiliser and pesticides, and works with farmers to support them to take up regenerative agricultural practices, we agree with the proponents that it will be useful for the company to go further, by producing a specific report which will detail pesticide usage and specific risks to human health; soil quality and biodiversity, and specific plans to mitigate those and related financial risks.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, many companies in the food sector disclose information on pesticide risks. Moreover, we do not believe that the request is overly burdensome, and the resolution is sufficiently flexible to allow the company to take steps following the report's findings that are aligned with its strategy.

23 April 2024: How we will vote on PNC Financial Services Group's resolution asking for a report on human rights due diligence

On 24 April shareholders of PNC Financial Services Group, an American bank, will vote on a shareholder resolution asking the company to prepare a report “explaining how PNC’s risk management systems ensure effective implementation of its Human Rights Statement in existing and proposed general corporate and project financing.” The proponent writes that the report may include “a description of human rights due diligence processes in place to embed respect for human rights into operations and to provide access to remedy for human rights impacts connected to financing relationships; and Indicators used to assess effectiveness.”

We plan to vote For this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes, in the human rights theme of our Blueprint we ask companies to conduct human rights due diligence processes in line with their human rights policy and include risks from the company’s products and services in the assessment of salient human rights risks. We believe conducting human rights due diligence helps companies to identify and mitigate associated legal, regulatory, and reputational risks.

2. Is the resolution the best way to address the issue?

Yes, the company is exposed to a variety of human rights related risks, including through its project financing, and we believe that ensuring its systems are being implemented effectively and operating as intended will help the company to manage these risks.

3. Does the resolution add value to what the company is already doing?

Yes, although the company has disclosed some information on how it monitors environmental and social risks, shareholders could benefit from more information on the effectiveness of their risk management systems.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, given the company has outlined the risk management processes it has in place, we believe a review of the effectiveness of these policies will be beneficial to shareholders without placing an undue burden on the company.

19 April 2024: How will we vote on Goldman Sachs’ plans to report on gender pay gaps going forward

On 24 April shareholders of Goldman Sachs, the US bank, will vote on a shareholder resolution asking the company to “report annually on unadjusted median and adjusted pay gaps across race and gender globally, and include associated policy, reputational, competitive and operational risks – including risks associated with recruiting and retaining diverse talent”.

We plan to vote For this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes, in our Blueprint we ask companies to collect and disclose gender and ethnicity pay gap information for the key markets in which the company operates, while respecting local regulation. We believe that disclosing this information allows shareholders to better assess how the company is investing in diverse talent and mitigating reputational, legal, and regulatory risks.

2. Is a resolution the best way to address the issue?

Yes, last year the company settled a class action lawsuit related to pay gaps and promotion gaps, and we believe supporting this proposal will help demonstrate to the company the importance with which we view the disclosure of pay gap data, which helps shareholders to understand how the company is addressing pay inequities.

3. Does the resolution add value to what the company is already doing?

Yes, although the company has committed to pay equity, it does not currently disclose adjusted or unadjusted pay gap information for its global workforce.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, Goldman Sachs must already disclose some pay gap information where some markets, such as the UK, have mandated it, so we do not believe implementing the request will be an undue burden. Additionally, some of Goldman Sachs’ peers have disclosed pay gap information in greater detail, and we believe enhancing the quality of its disclosures will help bring the company’s pay gap reporting in line with best practice.

16 April 2024: How we will vote on Nestlé’s reporting on food and beverages according to their healthfulness

On 18 April, shareholders of Nestlé, the food and beverage company, will vote on a shareholder resolution asking the company to adopt an amendment to their Articles of Association, to include specific reference to reporting on key performance indicators (KPIs) on the absolute and proportional sale figures of food and beverage according to their healthfulness.

We plan to vote Against this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes. The resolution relates to two areas of our Engagement Blueprint: sustainable food and water under the Natural Capital and Biodiversity theme, and access to fundamental products and services under the Human Rights theme. We ask companies to “develop clear strategies for access to and affordability of fundamental products and services for underserved and/or vulnerable communities, including in low- and middle-income countries, for example medicines, nutrition, technology/connectivity and finance”.

2. Is a resolution the best way to address the issue?

No. We consider it essential that Nestlé improve the health and nutrition of their products. This is especially important in the context of potential regulation to tackle rising costs to governments and consumers from food related diseases and supporting appropriate investment in healthier product categories. However, we do not believe the resolution as framed is the most effective way of working with Nestlé management to improve the health of their products. We are particularly concerned about the resolution’s aim to enforce a binding change to the company’s Articles of Association. We consider it important that Nestlé is given the flexibility to set an appropriate strategy in line with its ambitions that can accommodate new and emerging evidence on best practice. We also think it is important that any such target and reference point concerning proportional sales figures is benchmarked appropriately so as not to inadvertently impact business decision making around any future disposals and acquisitions. We consider that amending the company’s Articles of Association would be micromanaging the approach that Nestlé takes to achieve this.

3. Does the resolution add value to what the company is already doing?

No. We welcome the steps Nestlé took last year to provide more transparency about the nutrition of its products in line with Health Start Rating (HSR) and to set an absolute target to grow the sales of healthy products over the last year. This resolution does go one step further by requiring a ‘proportionate target’. We have been engaging with the company at board and executive level on its approach to improving nutrition in line with the asks in our engagement blueprint and will continue to do so.  We are encouraged that Nestlé is moving towards best practice and think that added value to shareholders will arise from Nestlé setting its own strategy towards healthier products, rather than through an inflexible amendment to its Articles of Association.  

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

No. We consider it may be anomalous for the company to have a specific section in their Articles of Association on health, over and above specific detail on other material issues, of which there are many. Amending the Articles of Association would bind the company in a way that would not allow it the flexibility to adapt to changing circumstances. Therefore, it is important that the company’s Articles of Association remain sufficiently broad to accommodate any new evidence on best practice on nutrition and health.

5 April 2024: How we will vote on Lennar Corporation’s LGBTQ Equity and Inclusion Disclosures

On 10 April shareholders of US homebuilding company Lennar Corporation will vote on a shareholder resolution asking the company to report on the company’s LGBTQ equity and inclusion efforts in its human capital management strategy. The proponent argues that while the company already supports the business case of inclusion, nationally there is growing incidence of LGBTQ individuals experiencing harassment and discrimination, and strong inclusion policies can present a competitive advantage to companies taking action.

We plan to vote For this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes, diversity and inclusion is one of our priority engagement themes, and within this we ask companies to disclose policies around inclusion and how the company provides for the needs of a diverse workforce. Diversity across multiple dimensions brings a valuable range of outlooks and opinions, and when paired with an inclusive culture, we believe it can lead to higher-quality work, better decision-making and problem-solving, and greater team satisfaction. This, in turn, can help drive company productivity and profitability and create stronger returns and value for investors.

2. Is a resolution the best way to address the issue?

Yes, we believe that this resolution will encourage the company to expand its disclosures in relation to diversity and inclusion efforts.

3. Does the resolution add value to what the company is already doing?

Yes, we recognise that the company acknowledges and has taken significant steps to create a diverse and inclusive workforce, including with respect to LGBTQ individuals. However, current disclosures lack quantitative information around the workforce composition, and include minimal specific references to LGBTQ inclusion. We believe additional information, particularly around how the company assesses the effectiveness of inclusion programmes and whether Lennar collects anonymised data on sexual orientation and gender identity, would be helpful to better understand the company’s progress on inclusion and help inform human capital management strategies.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, many companies, including in the construction industry, have adopted and disclose information on diversity and inclusion strategies. Moreover, we do not believe that the request is overly burdensome and it allows the company flexibility to determine how it could expand existing inclusion disclosures based upon current activities.

28 March 2024: How we will vote on Air Canada’s in-person shareholder meetings

Air Canada currently uses a virtual-only format for annual general meetings (AGMs). On 28 March shareholders will vote on a shareholder resolution asking the company to instead hold AGMs in person, with complementary virtual meetings. The proponent argues that virtual meetings should not replace in-person meetings, as both options afford shareholders their choice of how to participate in AGMs.

We plan to vote For this resolution based on the below analysis:

1. Is the resolution aligned to our Blueprint?

Yes, under the Corporate Governance theme of the Blueprint we ask companies to engage in continuous dialogue with shareholders on material issues, including addressing any significant dissent before or after shareholder meetings. We believe in-person meetings provide an important forum for the board to hear directly from shareholders, and a virtual-only format does not allow shareholders sufficient access to present their views.

2. Is a resolution the best way to address the issue?

Yes, virtual AGMs have grown in popularity in recent years, and while the virtual format is authorised under many Canadian companies’ corporate statutes, we believe the in-person format should be preserved as it presents an opportunity for shareholders to address the board directly. In the absence of regulations requiring a hybrid format, we believe supporting this resolution is the best way to address the issue.

3. Does the resolution add value to what the company is already doing?

Yes, Air Canada has used a virtual-only format for the past five years, pre-dating the rise in virtual AGMs during the Covid-19 pandemic. Although the company maintains that its ongoing shareholder engagement efforts provide an adequate supplement to in-person AGMs, we believe the option of in-person attendance at pivotal moments of the year, such as the AGM, is an important way in which the company signals its embrace of shareholder rights.

4. Can the resolution be implemented without the potential for causing an unintended negative impact?

Yes, although hybrid formats remain less popular than virtual or in-person only AGMs, we believe hybrid meetings present the optimal way for shareholders of diverse geographies and interests to attend meetings. We do not believe a hybrid format would present undue burden to the company.

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Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF (No.24546). Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at IFC1, Esplanade, St Helier, Jersey, JE2 3BX, (No.31076).