To understand the company's plans with respect to adaptation measures and encourage public disclosure of the measures undertaken and planned.

We engaged with senior management of the company during a site visit to better understand the adaptation options available to the company and its associated priorities. In addition to encouraging the company to disclose more information on the risks to its business posed by adaptation, we adjusted our assumptions and closed our position on reduced valuation upside.

To communicate our concerns that this company's board awarded close to full target on the safety measure within its STI despite the fact that it experienced two avoidable fatalities.

We met with the chair to convey:

- our concerns and expectations that its safety record improve, and

- signal our intention to vote against the company's remuneration plan as a result (which we subsequently did).

We engaged with this company over ongoing industrial action at one of its locations. 

Our engagement sought to understand the company's approach in order to analyse the potential implications.

We met with the company to express our concerns. 

Subsequent to our engagement the company undertook a round of investor engagement (including with our service provider Regnan) to understand how the impacts of the action should be treated with respect to executive remuneration. The company was counselled to consider how it's decision may impact ongoing negotiations at the site, resulting in significant attention being paid to the issue within the company's remuneration report.

A series of objectives were established under our "energy transition" thematic, focusing on:

• Evidence of sufficient board capacity and oversight
• Evidence of carbon and climate strategic risk assessment
• Evidence that this assessment has been integrated into key organisational processes
• Evidence of decarbonisation
• Disclosure of transition plans
• Evidence of the consideration of the human capital required to support effective transition

In this instance, a strong relationship had been developed with the company over a number of years. Good progress in its approach had enabled us to encourage a more sophisticated approach to its climate change risk management, including greater consideration of the physical risks of climate change, most notably water risk.

Engagement with this company on climate-related risks commenced in 2011, with a further 17 meetings held since that time, including both with board and management. More recently these have included investor relations, interested in how the work being undertaken might best be presented to the market and what the expectations from investors are. Given the progress already made, we emphasised the need to consider all climate risks, including physical risks, noting the potential for water risk to impact the operation of the company's existing power plants. Further, we sought detail on the company's ability to execute its plans for transition, noting the cultural change and new skillsets required.

The company's most recent TCFD-aligned disclosures highlight the potential for a number of extreme weather events to disrupt its operations and detail a range of detective, preventative and corrective measures to manage this risk. Other water risks were also detailed, including the potential impacts on hydro assets.

Regnan commenced engagement with this financial services provider on climate-related risks in 2014. Initially objectives were set to focus on transition-related risks and the disclosure of fossil fuel exposures, to enable an assetment of the underlying risk. Following progress by the company (and the sector more broadly), these objectives were expanded to include objectives regarding the completion and disclosure of physical risk analysis, public advocacy where appropriate, and following the release of the TCFD guidelines objectives for aligned disclosure.

We met with the company 12 times, initially with the board to test its oversight and understanding of climate-related risks, and later supported by a series of management meetings to more effectively probe the technical details of the work undertaken.

Following initial progress on transition risk, we wrote to the chair to commend progress to date and set out our expectations with respect to scenario analysis and an assessment of physical risk, arguing that this would set the company up to take a leading position relative to peers.

During 2018, engagement has focused on supporting management efforts to engage the business more broadly on climate-related risks, including participation in information sessions and innovation days to develop its response. In these instances, we provided insights into the impacts of physical risks on various sectors and set out investor expectations of good disclosure.

This year the company released detailed TCFD disclosures clearly articulating the risks to its business. This included the results of physical risk analysis and an overview of its planned response. A further meeting with management was held post the release of public disclosure, providing an opportunity to ask questions of the materials and to influence future refinements.

We commenced a structured engagement stream on conduct culture in 2015, focusing on those companies with business models that heighten the risk of misalignment between strategy, remuneration, culture and risk management. 
Objectives included:

• Evidence that the board accepts it has an active responsibility for conduct culture.
• Evidence that the board recognises and can articulate how risk culture, the business model and strategy shape the conduct risk landscape and can articulate how the company's response is adapted to this.

Focusing on:

• Evidence of board understanding of indicators of environments that may inculcate the normalisation of deviant behaviour.
• Evidence of board ability to interrogate data relevant to those indicators.
• Evidence of board oversight of key conduct risks in annual or other reports (for instance, a risk statement).
• Articulation of how these risks are formally and informally managed.
• For entities that are operating in relatively weak governance geographies, evidence that boards appoint directors with operating experience in such countries/regions to provide oversight to conduct risk management systems in those regions.

Change objectives were scoped using available research for client approval in 2015. Since then, 20 companies have been engaged in over 70 meetings focusing on banking, insurance, diversified finance, healthcare and gaming sector participants. More than two thirds of these meetings were with directors of the companies. In addition, two roundtables were held, bringing together influential directors to share knowledge across sectors. 

Regnan released back-testing of it's own company research demonstrating that on aggregate companies with strong performance on conduct culture measures outperform the S&P/ASX200 index. This research was used to further advocacy objectives, facilitating a number of speaking engagements involving high risk sectors and regulators. Comments were sought as part of media coverage of the 2018 Royal Commission into the Australian banking sector which further buoyed interest.

We have observed increased awareness amongst boards of their responsibilities. Specific examples of action have included:

• revisions to board charters to incorporate these responsibilities;
• a shift from a compliance to a cultural framing;
• public disclosure of codes of conduct and whistleblowing policies, and associated metrics; and
• evidence of regular monitoring of key conduct metrics by the board, including some evidence of the triangulation to identify potential areas of concern.

Following a number of unsuccessful attempts to meaningfully engage with the company on climate-related risks, we were able to use a shareholder resolution to seek the previously looked-for detail on the company's approach. Key objectives included:

• Encouraging the company to disclose the results of all components of the resolution even if contingent parts did not receive the required number of votes.
• Strongly communicating that the timeframes for implementing TCFD disclosure outlined in the notice of meeting were well outside investor expectations given the material nature of the risks faced by the company.

Whilst we had discussed climate-related risks with the board a number of times, we had been unable to secure a meeting with management to discuss its approach in more detail, to raise our concerns that climate risk had not been adequately integrated into risk management frameworks, if at all. A shareholder resolution provided the catalyst for a more detailed discussion with board and management enabling us to more fully raise our longstanding concerns.

Given the requirement for a resolution on constitutional change to be passed for the climate-specific resolution to be put to the meeting, we argued that the company should in good faith disclose the results of 'part b' regardless of the result of 'part a'. The company did so, contributing to the establishment of an important precedent for these types of resolutions. Further, we communicated investor frustration with the five year time line proposed for TCFD implementation given the near term materiality of climate change to its business model.

Subsequent disclosure announced that its workplan for TCFD analysis had been brought forward.

We have held two more productive meetings with the company since this time, enabling us to influence the quality and direction of climate analysis undertaken.

Objectives included:

• To understand the rationale for the company's recent move to appoint an executive chair and to communicate our strong governance concerns. 
• To test the company's approach to safety management and seek enhanced disclosure, following a fatality the prior year and declining safety performance overall.
• To communicate our view of corruption and bribery as an area of material concern and seek additional disclosure, including with respect to internal and external whistleblowing procedures.

We first met with the executive chair and company secretary in 2016 to express our concerns, arguing the need for a lead independent director (LID) and offering support for plans to expand the board to facilitate governance and retention objectives (after it had been revealed that the shift had been designed to support succession planning and retention of management talent).

In follow up correspondence with the company secretary, we emphasised a desire for greater LID involvement in investor engagement and sought clarification on the nature of this role.

Subsequently in 2017, we met with the LID in a wide ranging discussion enabling us to test the diligence and competence with which independent oversight was being exercised. This included raising concerns on specific matters including safety and bribery and corruption. A new process has since been implemented for independent directors to meet quarterly without management or affiliates. Monitoring of the company's disclosures the following year indicated improvements to safety practices and in disclosure, as well as the release of an anti-bribery and corruption policy in addition to enhanced disclosure on the role and responsibilities of the LID.

To explore the relationship between franchisees and franchisors of US quick service restaurants (QSR).

We commenced a structured engagement program with US QSR companies operating a franchise model. The QSR business model had been evolving into an increasingly “asset light” model, The number of franchisee relationships has increased, whilst QSRs have been selling directly owned restaurants. In looking at the sustainability of the evolution of the business model, it was important for the fund to have confidence in the financial health of the franchisee. If the franchisee is not able to sustain acceptable returns, the QSR’s royalties’ will be at risk.

Objectives included:

• Evidence that franchisees are sustaining an acceptable return on their investments.
• Evidence that some of the discounting programs and promotional meal deals offered by the QSRs were not having a negative impact on the profitability of the franchisees.
• Evidence that there was a constructive relationship between franchisor and franchisee.
• Evidence that the franchisor continues to innovate on behalf of the franchisees.

During 2018 Pendal engaged multiple times with the major US QSR restaurants and their franchisees.

In each meeting with QSR restaurants, we asked for evidence to show that their franchisees are able to sustain an acceptable payback despite same store sales being weak for a number of years.

We also questioned management in regard to the impact of heavy discounting programs on the financial health of the franchisee.

Our meetings with franchisees focused on their profitability, and whether they felt that profitability was sustainable. We also asked for examples of ways the QSRs are working with franchisees to help them sustain and enhance profitability.