As mentioned in question 01.4, our engagement activity is a combination of proactive and planned engagement and more reactive engagement.
The corporate governance team sets long-term strategic engagement targets which we use to plan and prioritise engagement and define engagement strategic objectives. Note that we have recently reviewed our long-term targets, taking into account LGIM’s five year strategy set out in 2017.
For 2017, we publicly disclosed the following annual objectives in relation to the five year strategic plan:
- Engage with 84 companies as part of Climate Impact Pledge.
- Engage with governments and companies to promote more disclosure on pay ratios
- Engage with US companies on gender diversity
- Formally invite external stakeholders to roundtables to strengthen our Corporate Governance and Sustainability policies
Clear and specific objectives are set at the start of each engagement and reviewed throughout the engagement process. Note that some of these objectives are disclosed publicly in advance of the engagement activity, for example under LGIM’s Climate Impact Pledge.
Tracking engagement activities
LGIM uses Salesforce, a bespoke data management system, to support the team’s engagement work. This system is used for our reporting purposes and to allow management to oversee the progress of engagement activities.
Monitoring progress and identification of need for escalation
The corporate governance team regularly monitors companies against the objectives set at the start of the engagement process to identify change. Actions taken by companies are monitored through direct communications by companies, media reports, regular exchange of information with investment teams, analysis of resolutions prior to a shareholder meeting. Another efficient way for LGIM to monitor companies objectively is to use LGIM’s ESG proprietary tool which collects external data and analysis from 6 different external third party sources and assesses and scores companies based on this data.
Internal Risk Management System – auditing of engagement
There is a clear audit trail of the engagement process, which enables us to report and communicate effectively on our activity both internally to the Corporate Governance Committee or investment teams and externally to our clients.
LGIM has its own internal Risk Management System (RMS) to provide effective oversight of key processes. This includes LGIM’s voting and engagement activities and related client reporting. If an item is not confirmed as completed on RMS, the issue is escalated to line managers and senior directors within the organisation.
Example of how we have monitored and evaluated progress in a particular engagement:
During 2015 and 2016, we have engaged privately with a company on their succession plans at the board and executive level. The company’s chairman, who LGIM supported, had been in the role since 2010. Additionally the company’s Chief Executive Officer (CEO) who had been in this role since 2011 indicated his wish to step down in due course.
LGIM engaged proactively with the company during 18 months. All meetings and information discussed at these meetings was saved in our data management platform.
We worked in collaboration with and regularly updated our investment teams throughout the process.
The company later announced the current chairman would be departing in 2017 and confirmed the name of the successor. The company also confirmed the succession plan for the CEO position. This engagement was saved as a ‘success’ on our platform