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APG Asset Management

PRI reporting framework 2018

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Engagement

Overview

LEA 01. Description of approach to engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate whether your organisation has a formal engagement policy.

01.2. Attach or provide a URL to your engagement policy.

01.3. Indicate what your engagement policy covers:

01.4. Provide a brief overview of your organization’s approach to engagement

APG engages to assure that its portfolio companies effectively implement an appropriate long-term corporate strategy and deliver returns to their shareholders, while respecting their other stakeholders. APG expects its portfolio companies to demonstrate responsible business practices and policies. Therefore, APG enters into dialogue with companies in order to enhance and preserve the value of our investments, and to improve sustainability and corporate governance performance. In meetings with companies we make our expectations on sustainability and shareholder rights clear. To emphasize our message we often cooperate with other investors in this area. Our approach to engagement includes:

  1. Intensive engagement with companies that are potentially in violation of the UN Global Compact with clear objectives, based on structured processes and monitored by our Responsible Investment Committee;
  2. Engagement based on priority themes that we define at the beginning of the year (e.g. climate change, labour relations, remuneration, board composition);
  3. (Joint) engagement by GRIG and/ or portfolio managers on ESG issues that contribute to ESG integration;
  4. Ad-hoc engagement based on issues that arise throughout the year;
  5. Strategy related engagement contributing to better risk/return profiles; and
  6. Engagement with external managers who manage long term portfolios on our behalf.

01.6. Additional information [optional]


LEA 02. Reasoning for interaction on ESG issues

02.1. Indicate the method of engagement, giving reasons for the interaction.

Type of engagement

Reason for interaction

Individual/Internal staff engagements
Collaborative engagements
          To influence legal, regulatory or best practice reforms on ESG issues.
        
Service provider engagements

Please specify why your organisation does not engage via service providers.

We have sufficient internal engagement capacity

02.2. Additional information. [Optional]

In addition to engagement with portfolio companies, we engage external service providers to improve their services and corporate practice. We do so by pro-actively contributing feedback on the quality of the services, data and policies of our service providers.


Process

Process for engagements run internally

LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagement activities carried out by internal staff.

03.2. Describe the criteria used to identify and prioritise engagement activities carried out by internal staff.

03.3. Additional information. [Optional]

Given the size of APG's equity portfolio universe, we need to consider optimal use of engagement resources, balancing the prospect of achieving successful engagement results from an investment (value creation) and RI policy perspective with other considerations such as market impact and clients' wishes. This requires us to be selective.

The nature of the concern and the gravity of the particular issue:

  • High priority concerns include: violations of the UN Global Compact principles, labour standards controversies, environmental harm, board and committee composition, audit concerns, remuneration concerns.
  • Concerns based on the results of an in-house assessment of companies’ policies and practices (inclusion policy).
  • Isolated incidents versus repeated patterns: A one-off incident (for example an oil spill or labour unrest) does not necessarily require engagement. We examine the way management responds to such incidents, and the effectiveness of management systems and other fundamental considerations such as the corporate culture surrounding safety to ensure such an incident won’t happen again in the future.
  • Engagements based on concerns related to priority topics and themes in certain sectors on specific client request.

Investment impact:

  • Business impact - the likelihood the ESG issue identified may or could materialize into a significant business detriment;
  • Investment relevance - likelihood the ESG issue could impact the share price in the short, medium or long term;
  • Portfolio relevance - a combination of our stake and the company's value in our portfolio;
  • The degree of leverage we believe we have (outlook for success);
    • size of our stake (% of equity);
    • relationship with the company;
    • track record with the company;
    • wider investor interest in the topic.

LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

04.1. Indicate if you define specific objectives for your engagement activities.

04.2. Indicate if you monitor the actions that companies take during and following your engagements activities carried out by internal staff.

04.3. Indicate if you do any of the following to monitor and evaluate the progress of your engagement activities carried out by internal staff.

04.4. Additional information. [Optional]

We have developed an in-house centralized knowledge management system (KMS) database in which we track our engagement with companies as well as other relevant research, financial and ESG information. Both the investment teams and the GRIG team have access to this database which ensures sharing of information. We also screen portfolios with respect to the UN Global Compact.

For each engagement we document the company's name, the engagement issues, our objectives, and whether they have been met or if progress has been made. We also document the engagement intensity-level, whether we are working collaboratively with other investors, the steps taken in terms of dialogues, meetings and written exchanges, and the steps to be taken in future. The KMS  is a very successful engagement monitoring tool that is used on a daily basis by GRIG and investment teams.

Engagements with companies on the basis of UN Global Compact violations which could lead to exclusion require sign-off from a board-level committee. Progress of these engagement trajectories is evaluated regularly by this committee.


Process for engagements conducted via collaborations

LEA 05. Process for identifying and prioritising collaborative engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

05.1. Indicate whether your organisation has a formal process for identifying and prioritising collaborative engagements

05.2. Describe the criteria used to identify and prioritise collaborative engagements.

05.3. Additional information [Optional]

The assessment of whether or not to start or join a collaborative engagement is mostly defined on the basis of:

  • whether there are like-minded investors with whom we can collaborate,
  • whether the engagement is in line with our priorities,
  • whether the engagement targets form part of our portfolios, and
  • whether we perceive a group engagement to be the most effective approach in a given situation.

LEA 06. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

06.1. Indicate if you define specific objectives for your engagement activities carried out collaboratively.

06.2. Indicate if you monitor the actions companies take during and following your collaborative engagements.

06.3. Indicate if you do any of the following to monitor and evaluate the progress of your collaborative engagement activities.

06.4. Additional information. [Optional]

We have developed an in-house centralized knowledge management system (KMS) database in which we track our engagement with companies as well as other relevant research, financial and ESG information. Both the investment teams and the GRIG team have access to this database which ensures sharing of information. We also screen portfolios with respect to the UN Global Compact.

For each engagement we document the company's name, the engagement issues, our objectives, and whether they have been met or if progress has been made. We also document the engagement intensity-level, whether we are working collaboratively with other investors, the steps taken in terms of dialogues, meetings and written exchanges, and the steps to be taken in future. The KMS  is a very successful engagement monitoring tool that is used on a daily basis by GRIG and investment teams.

Engagements with companies on the basis of UN Global Compact violations which could lead to exclusion require sign-off from a board-level committee. Progress of these engagement trajectories is evaluated regularly by this committee.


General processes for all three groups of engagers

LEA 09. Share insights from engagements with internal/external managers

09.1. Indicate if insights gained from your engagements are shared with your internal or external investment managers.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

09.2. Additional information. [Optional]


LEA 10. Tracking number of engagements

10.1. Indicate if you track the number of your engagement activities.

Type of engagement
Tracking engagements

Individual / Internal staff engagements

Collaborative engagements

10.2. Additional information. [OPTIONAL]

We have developed an in-house centralized knowledge management system (KMS) database in which we track our engagement with companies as well as other relevant research, financial and ESG information. Both the investment teams and the GRIG team have access to this database which ensures sharing of information. We also screen portfolios with respect to the UN Global Compact.

For each engagement we document the company's name, the engagement issues, our objectives, and whether they have been met or if progress has been made. We also document the engagement intensity-level, whether we are working collaboratively with other investors, the steps taken in terms of dialogues, meetings and written exchanges, and the steps to be taken in future. The KMS  is a very successful engagement monitoring tool that is used on a daily basis by GRIG and investment teams.

Engagements with companies on the basis of UN Global Compact violations which could lead to exclusion require sign-off from a board-level committee. Progress of these engagement trajectories is evaluated regularly by this committee.


Outputs and outcomes

LEA 11. Number of companies engaged with, intensity of engagement and effort

11.1. Indicate the amount of your listed equities portfolio with which your organisation engaged during the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion (to the nearest 5%)
Specify the basis on which this percentage is calculated

Individual / Internal staff engagements

287 Number of companies engaged
10 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

Collaborative engagements

45
1 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

11.2. Indicate the proportion of engagements that involved multiple, substantive and detailed discussions or interactions with a company during the reporting year relating to ESG issue.

Type of engagement

% Comprehensive engagements

 

 

Individual / Internal staff engagements

 

 

Collaborative engagements

11.3. Indicate the percentage of your collaborative engagements for which you were a leading organisation during the reporting year.

Type of engagement

% Leading role

  Collaborative engagements

11.5. Additional information. [Optional]

The numbers provided indicate the number of companies engaged with. In many instances, we engaged on multiple issues and themes within the same year. Companies where we had collaborative engagement activities are only included in the collaborative number, although we often also engaged separately with these companies on other topics.


LEA 12. Engagement methods

12.1. Indicate which of the following your engagement involved.

12.2. Additional information. [Optional]


LEA 13. Companies changing practices / behaviour following engagement (Private)


LEA 14. Examples of ESG engagements

14.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

ESG factors
ESG issue
          Executive Remuneration
        
Conducted by
Objectives
  • Inclusion of a return on investments performance measure in the executive remuneration plan
  • Revenues performance measure corrected for mergers and acquisitions
  • Larger shareholding requirements for executives
Scope and Process

As one of the largest shareholders of the company, we were consulted about proposed changes and expressed our concerns about the use and removal of certain performance indicators which in our view were not aligned with the strategic objectives of the company. We were pleased to learn from a response letter we received from the company that the remuneration committee followed our recommendations by making some specific amendments to the original proposal.

Outcomes

In line with our requests;

  • the performance measure on the return on the company’s capital spent on investments was retained,
  • the company’s revenues will be corrected for mergers and acquisitions, and
  • the shareholding requirements for management were increased
ESG factors
ESG issue
          1. Lack of independence of lead independent director
2. Lack of board refreshment
3. No resignation policy
4. No majority voting standard
5. Staggered board
        
Conducted by
Objectives
  1. Strengthening of the lead independent role and the appointment of a different board member to that role,
  2. adoption of a majority voting standard,
  3. adoption of a resignation policy,
  4. more board refreshment, and
  5. annual director elections for all directors
Scope and Process

We had a few years of intense engagement with a US real estate company, including face-to-face meetings, calls and letters in which we shared our concerns about the company’s governance. 

Outcomes

The company;

  1. strengthened the lead independent role and appointed a different board member to that role,
  2. adopted a majority voting standard,
  3. adopted a resignation policy,
  4. appointed a new independent director, and
  5. de-staggered the board
ESG factors
ESG issue
          Insufficient reporting on 2°C scenario, energy transition and climate change.
        
Conducted by
Objectives

Co-file shareholder resolutions at US energy companies’ AGMs requesting the companies to be transparent about how they take into account climate change and changes in technology in the strategy and capital allocation.

Scope and Process

Together with a group of other investors, we co-filed shareholders resolution at a US energy company.

Outcomes

The shareholder resolution received 62% support from shareholders at the AGM and was one of the first climate related shareholder resolutions to ever receive majority support.

14.2. Additional information. [Optional]


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