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Vision Super

PRI reporting framework 2020

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Outputs and outcomes

LEA 09. Number of companies engaged with, intensity of engagement and effort

Indicate the proportion of companies in your listed equities portfolio with which your organisation engaged during the reporting year.
We did not complete any engagements in the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion of companies engaged with, out of total listed equities portfolio

Individual / Internal staff engagements

0
0

Collaborative engagements

7
0
Service-provider engagements
456
0

09.2. Indicate the breakdown of engagements conducted within the reporting year by the number of interactions (including interactions made on your behalf).

No. of interactions with a company
% of engagements
One interaction
2 to 3 interactions
More than 3 interactions
Total
100%

09.3. Indicate the percentage of your collaborative engagements in which you were the leading organisation during the reporting year.

Type of engagement

% leading role
  Collaborative engagements

09.4. Indicate the percentage of your service-provider engagements in which you had some involvement during the reporting year.

Type of engagement

% of engagements with some involvement
Service-provider engagements

09.5. Additional information. [Optional]

During the financial year 2019, ACSI held 264 formal company engagements across 190 ASX300 Australian listed company meetings. Vision Super was a shareholder of 141 of these companies that ACSI engaged with.

A breakdown by meetings per index segment is as follows:

Meetings per index
ASX20     ASX20-50      ASX50-100      ASX100-200     ASX201-300
42            54                  52                     89                      27

Glass Lewis engaged with 456 companies we held in our portfolios during the period ending 2019 with engagements undertaken by ACSI being removed from the Australian data to avoid any double counting.

In 2019, we engaged with BHP and subsequently co-filed a shareholder resolution on climate change at the BHP Annual General Meeting.

The below is a full listing of company engagements/meetings held by ACSI for all ASX300 companies over the 2019 Financial Year period:

Company
Altium Limited
MYOB Group Limited
Bega Cheese Limited
Bendigo and Adelaide Bank Limited
BHP Billiton Limited
News Corporation
National Australia Bank Limited
Crown Resorts Limited
Suncorp Group Limited
Fortescue Metals Group Ltd
FlexiGroup Limited
Northern Star Resources Ltd
Boral Limited
Qantas Airways Limited
Whitehaven Coal Limited
Brickworks Limited
Primary Health Care Limited
Downer EDI Limited
Wesfarmers Limited
Nanosonics Limited
IDP Education Limited
Netwealth Group Limited
Spark Infrastructure Group
Growthpoint Properties Australia
Wisetech Global Limited
St Barbara Limited
Technology One Limited
CSR Limited
Saracen Mineral Holdings Limited
Metcash Limited
Mortgage Choice Limited
REA Group Ltd
DuluxGroup Limited
Ardent Leisure Group
Estia Health Limited
Genworth Mortgage Insurance Australia Limited
Sonic Healthcare Limited
MYOB Group Limited
Class Limited
Clean TeQ Holdings Limited
Pilbara Minerals Limited
BlueScope Steel Limited
Sandfire Resources NL
Spark New Zealand Limited
JB Hi-Fi Limited
ASX Limited
Aventus Retail Property Fund
Perseus Mining Limited
SEEK Limited
CSL Limited
Monadelphous Group Limited
WorleyParsons Limited
Qube Holdings Limited
Western Areas Limited
Bellamy's Australia Limited
Credit Corp Group Limited
Ansell Limited
Australian Pharmaceutical Industries Limited
Infigen Energy
Scentre Group
Amaysim Australia Limited
Service Stream Limited
Ramsay Health Care Limited
Commonwealth Bank of Australia
Perpetual Limited
Woolworths Group Limited
APA Group
Origin Energy Limited
Amcor Limited
Southern Cross Media Group Limited
Syrah Resources Limited
Blackmores Limited
Mesoblast Limited
Webjet Limited
Propertylink Group
NIB Holdings Limited
Janus Henderson Group PLC
Tassal Group Limited
Tabcorp Holdings Limited
Cedar Woods Properties Limited
IRESS Limited
NEXTDC Limited
South32 Limited
Treasury Wine Estates Limited
Blue Sky Alternative Investments Limited
Flight Centre Travel Group Limited
Stockland
Telstra Corporation Limited
Transurban Group
Insurance Australia Group Limited
National Australia Bank Limited
Evolution Mining Limited
Qantas Airways Limited
Super Retail Group Limited
Woodside Petroleum Limited
IPH Limited
Origin Energy Limited
Charter Hall Retail REIT
Bapcor Limited
Lynas Corporation Limited
Healthscope Limited
Whitehaven Coal Limited
Boral Limited
The Star Entertainment Group Limited
Domino's Pizza Enterprises Limited
Growthpoint Properties Australia
Woolworths Group Limited
Commonwealth Bank of Australia
Sims Metal Management Limited
Rio Tinto Limited
Bingo Industries Limited
Goodman Group
Mirvac Group
Mayne Pharma Group Limited
Nine Entertainment Co. Holdings Limited
Vocus Group Limited
Mineral Resources Limited
Newcrest Mining Limited
Senex Energy Limited
Vicinity Centres
Fairfax Media Limited
Greencross Limited
LendLease Group
BlueScope Steel Limited
Cromwell Property Group
Charter Hall Group
QBE Insurance Group Limited
Wesfarmers Limited
Link Administration Holdings Limited
Afterpay Touch Group Limited
Sonic Healthcare Limited
Karoon Gas Australia Ltd
Automotive Holdings Group Limited
Smartgroup Corporation Ltd
Myer Holdings Limited
Transurban Group
OZ Minerals Limited
St Barbara Limited
Wesfarmers Limited
National Australia Bank Limited
Chorus Limited
AMP Limited
Westpac Banking Corporation
Rio Tinto Limited
OZ Minerals Limited
Orica Limited
DuluxGroup Limited
Incitec Pivot Limited
Sandfire Resources NL
Spark Infrastructure Group
Ramsay Health Care Limited
Charter Hall Long Wale REIT
Australia & New Zealand Banking Group Ltd
Atlas Arteria Limited
Nearmap Limited
Australian Pharmaceutical Industries Limited
Liquefied Natural Gas Limited
Xero Limited
Graincorp Limited
Eclipx Group Limited
MYOB Group Limited
Aristocrat Leisure Limited
Telstra Corporation Limited
Macquarie Group Limited
James Hardie Industries Plc
Coles Group Limited
Mirvac Group
Scentre Group
GPT Group
Iluka Resources Limited
Alumina Limited
Northern Star Resources Ltd
InvoCare Limited
Amcor Limited
Woodside Petroleum Limited
Challenger Limited
MYOB Group Limited
Rio Tinto Limited
Senex Energy Limited
Spark Infrastructure Group
Computershare Limited
Syrah Resources Limited
BHP Group Limited
Coca-Cola Amatil Limited
Atlas Arteria Limited
Santos Limited
Adelaide Brighton Limited
QBE Insurance Group Limited
Asaleo Care Limited
AMP Limited
Regis Healthcare Limited
CSR Limited
Dexus Prop
Westpac Banking Corporation
IRESS Limited
Rio Tinto Limited
oOh!media Limited 
Oil Search Limited
Caltex Australia Limited
Sydney Airport
Smartgroup Corporation Ltd
Sigma Healthcare Limited
South32 Limited
Altium Limited
Medibank Private Limited
Viva Energy Group Limited
Healthscope Limited
NIB Holdings Limited
Woolworths Group Limited
APA Group
Domino's Pizza Enterprises Limited
Sundance Energy Limited
The a2 Milk Company Limited
Nufarm Limited
Infomedia Limited
Suncorp Group Limited
Costa Group Holdings Limited
Brickworks Limited
Ansell Limited
Japara Healthcare Limited
Navitas Limited
South32 Limited
South32 Limited
Shopping Centres Australasia Property Group
OFX Group Limited
Carsales.com Limited
Dexus Prop
AusNet Services
Brambles Limited
Aurizon Holdings Limited
BlueScope Steel Limited
Coles Group Limited
Bellamy's Australia Limited
Treasury Wine Estates Limited
National Australia Bank Limited
Speedcast International Limited
Freedom Foods Group Limited
NEXTDC Limited
Charter Hall Retail REIT
Nanosonics Limited
Nearmap Limited
Regis Resources Limited
Evolution Mining Limited
Bank of Queensland Limited
ALS Limited
Steadfast Group Limited
AGL Energy Limited
Carnarvon Petroleum Limited
Telstra Corporation Limited
Magellan Financial Group Limited
McMillan Shakespeare Limited
Independence Group NL
Kogan.Com Limited
Viva Energy REIT
Cleanaway Waste Management Limited
Flight Centre Travel Group Limited
Mineral Resources Limited
Macquarie Group Limited
Paladin Energy Limited
Ausdrill Limited
Resolute Mining Limited
Insurance Australia Group Limited
LendLease Group
Origin Energy Limited

Vision Super joined the PRI Collaborative Engagement on Corporate Tax Responsibility, where we are co-leads with LUCRF on Australian based companies Sonic and Ramsay Healthcare Pty Ltd. We have engaged directly with these companies inclusive on on-sight meetings and have reported back to the PRI Tax Engagement Group in 2019.

The Trustee is also a member of RIAA and in principle generally supports most of their engagement activities and we aim to be proactively involved with these initiatives.


LEA 10. Engagement methods

10.1. Indicate which of the following your engagement involved.

(specify)

          ESG research and engagement alert notices via ACSI and Glass Lewis Research Proxy Advisors.
        

10.2. Additional information. [Optional]

Vision Super attends organized by ACSI and Glass Lewis for ASX 300 companies and for international corporations mainly in the US and Europe.

ACSI also provides an voting alert notice for targeted companies during the course of the proxy season and welcomes members to participate through their engagement process where it is appropriate to do so. They also provide a mini and and main AGM season briefing session and engagement highlights which we attend or listen into via conference calls.

Vision Super also attended the following ACSI member forum ans sessions:

  • Reporting Against the Modern Slavery Act
  • PRI Delegation In-Person Trips
  • ACSI Annual Conference
  • ACSI 2019 Phil Spathis Governance Address
  • ACSI/BHP meeting – Industry Associations
  • Health and Safety Report Launch

We also review shareholder notices sent through by the PRI which we review against our own proxy voting recommendions and alignment  against our ESG and Proxy Voting Policies. Vision Super is also engaged through the PRI's collaboartive initiatives where we participate on collaborations where we think we can make a meaninfule difference and meeting our ESG mandate and policy requirements.

Some of the 2019 collaborations initiatives involve the following:

  • Open letter to index providers on controversial weapons exclusions
  • Climate Action 100+ engagement
  • SEC's proposed changes to shareholder proposals and proxy advisory firms

Our proxy research advisor Glass Lewis and in conjunctiion with ACSI members organises a number of forums and conference calls over 2019. Below is a list of agenda topics that Vision Super participated in;

Proxy Season Updates for the following company AGM's over the 2018-19 & 2020 periods:

  • Tesla Inc. (NASDAQ: TSLA)
    • Governance Overview
    • Shareholder Proposals
  • Alphabet Inc. (NASDAQ: GOOGL)
    • Governance Overview
    • Shareholder Proposals
  • Amazon.com, Inc. (NASDAQ: AMZN)
    • Shareholder Proposals
  • Facebook, Inc. (NASDAQ: FB)
    • Shareholder Proposals
  • CBS Corporation (NYSE: CBS)
    • Response to Sexual Harassment Allegations
  • Exxon Mobil Corporation (NYSE: XOM)
    • Vote No Campaign
    • Shareholder Proposals
  • General Motors Co. (NYSE: GM)
    • Climate Action 100+ Proposal on Lobbying
  • AmerisourceBergen Corp. (NYSE: ABC) - March 5, 2020 AGM
    • Key Proposal: Bonus Deferral Policy
    • Other proposals
  • Apple Inc. (NASDAQ: AAPL) - February 26, 2020 AGM
    • Key Proposal: Linking Compensation to Sustainability
    • Key Proposal: Freedom of Expression and Access to Information
    • Other Proposals
  • Transdigm Group Inc. (NYSE: TDG) - March 24, 2020 AGM
    • Reporting and Reducing GHG Emissions Shareholder Proposal
    • Say-On-Pay
  • Toronto-Dominion Bank (TSX: TD) – April 2, 2020 AGM
    • Board Composition Shareholder Proposal
    • GHG Emission Targets Shareholder Proposal
    • Say-On-Pay
  • AGM European Voting Season Preview - March 2020
    • An Overview of Key Trends and Expectations
    • European Regulatory Overview
    • Europe: SRD II taking effect in 2020
    • Increased disclosure from Asset Managers on engagement and voting
    • Reform of voting mechanics and shareholder identification
    • New requirements for issuers (say on pay, RPTs)
    • Proxy Advisor scrutiny (Best Practice Principles or "BPP" updated in 2019)
    • UK and Netherlands: Rise of Stewardship Codes
    • First official full-year reporting against Dutch Code
    • Major revision to UK Code taking effect for reporting year 2020
    • UK Code introducing reporting on outcomes, multiple asset classes
    • Europe: Focus on ESG
  • EU Sustainability Taxonomy
    • IORP II
       
  • Glass Lewis Updates
    • 2020 Policy Updates
    • Europe: SRD II – Remuneration Votes
    • Clarification of approach on votes on policy and implementation reports
    • UK & Europe: Response to Dissent
    • Increased expectation of responsiveness for a significant (e.g. +20%) dissenting vote on any proposal
    • UK & Europe: Board Skills & Diversity
    • Additional clarification on how we expect boards to respond to clear skills gaps and repeated shareholder discontent regarding board composition
    • UK: In accordance with Hampton-Alexander, will look for 33% diversity target to be met at all FTSE 350 companies
  • UK: Remuneration
    • Pension contributions in line with broader workforce
    • Incentive plan limits
    • Threshold vesting for incentive plans capped at 25%
    • Use of downward discretion
    • UK: No Exceptions from Code Compliance for Smaller Companies
  • Focus on ESG Governance Trends in UK
    • Employee engagement
    • Chair tenure & the “nine-year rule”
    • Workforce Representation
    • UK Board Diversity
    • Lead audit partner and tenure 
  • Remuneration
    • Policy Guideline Updates
    • Incentive plan limits;
    • Threshold vesting levels; and
    • Remuneration committee discretion
  • UK Pensions
    • The Investment Association Principles of Remuneration
       
  • Governance Trends in Europe
    • SRD II
    • Belgium & Netherlands
    • France & Italy
    • Germany & Switzerland
  • Governance mega-trends in Europe
    • Improvement in issuer engagement with shareholders
    • Expectation that issuers respond to “significant” (e.g.- 20%) votes against a proposal
    • Executive remuneration remains most divisive topic
    • Board diversity a key area of focus
    • Auditor rotation and independence heavily scrutinised
    • Potential dilution from share issues (over 10%) increasingly questioned
    • Non-financial reporting focusing on materiality, SDGs
    • Increasing shareholder activism
  • Stewardship: the changing environment for investors
    • SRDII requires investors to disclose a policy on ESG topics, including voting and engagement
    • IORPII requires pension funds to disclose ESG risk from 2019/2020
    • New Dutch Stewardship Code takes effect in 2019, with focus on multi-stakeholder perspective
    • UK Stewardship Code currently under revision for 2019
    • Collective engagement initiatives, including TCFD gaining traction in Europe

Other focused arears in 2019:

  • Ratification of Board and Management Acts
  • Pension Contributions
  • Board Gender Diversity & Composition
  • Say on Pay Votes
  • Environmental and Social Risk Oversight
  • Shareholder Activism Continues to Evolve
  • Ratification of Auditor

ACSI is also a member of and active participant in the following Australian forums:

  • ASX Corporate Governance Council
  • Business Reporting Leaders Forum (BRLF)
  • Investor Group on Climate Change (IGCC)
  • PRI Australian Advisory Committee

The Fund's investment managers also engage with company management as part of their investment process framework for companies they hold in our portfolios. Vision Super also engages with its investment managers during the course of the year on proxy voting issues.


LEA 11. Examples of ESG engagements

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

ESG Topic
Climate Change
Conducted by
Objectives

ACSI seeks companies disclose reliable and sufficiently granular information for investors in line with the TCFD Framework that provides insights into how the company manages climate risks and how they are resilient under a low carbon economy. ACSI assesses companies against the following areas:

  • Climate transparency, governance & policy
  • Transition risk management and disclosure
  • Physical risk management and disclosure
  • Paris-aligned targets
  • Just transition
  • Industry associations
Scope and Process

ACSI’s focus is on 20 ASX300 companies from materials & building, energy, transport and insurance sectors.

Other background notes

Climate change was a topic of discussion raised with all 20 priority companies, and more broadly with other ASX300 companies who have a material exposure. In 2019, 18 of 20 companies progressed against our company specific objectives

On average, ACSI met with all climate-risk priority companies twice and some companies up to five times.

Outcomes
ESG Topic
Labour practices and supply chain management
Conducted by
Objectives

Targets are bespoke to each company and are around improving their disclosure, governance, oversight and management of risks across the following areas:

  • Wage fraud
  • Supply chain and human rights
  • Franchising
  • Modern slavery

An example for one company would be that ‘ACSI is seeking to have the company report to a best practice standard on their labour hire supplier’s performance’.

Scope and Process

ACSI's focus is on 10 companies in the ASX300 who have a material exposure to human capital risks. This includes wage fraud, supply chain and human rights, franchising and modern slavery risks.

Other background notes

ACSI met formally with each priority company at least once and saw 8 out of the 10 companies make some material progress.

Outcomes
ESG Topic
Diversity
Conducted by
Objectives

ACSI extended our gender diversity campaign to the ASX300 with the aims to increase the representation of women on company boards to 30% - out objectives were to see women appointed to the board and/or a commitment or demonstration of how they plan to achieve 30%.

Scope and Process

ACSI targeted 81 ASX300 companies who have either zero or one women on their board, at the start of 2019. The engagement was conducted through a means of face-to-face meeting, teleconferences, and formal letters and through proxy voting.

Other background notes

Of the 81 companies targeted at the start of 2019, 34 companies appointed a female director to their board. Our program included 75 meetings with these target companies and resulted in ACSI opposing 16 director re-elections as they failed to demonstrate a plan to reach 30% women on their board.

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Improve aspects of remuneration practices and structure. These improvements included improving pay-for-performance alignment, the cessation of retention plans, making hurdles more challenging, introducing executive and director minimum shareholding requirements.

Scope and Process

ACSI had 37 ASX300 companies as priority targets for remuneration issues.

Other Background Notes

Of the 37 remuneration priority companies ACSI saw over 70% of them improve their remuneration practices and structures.

Outcomes
ESG Topic
Climate Change|Other

specify

          
        
Conducted by
Objectives

Engagement with BHP to express our concerns around their corpoate climate lobbying of industry trade associations like the Minerals Council of Australia (MCA).

BHP is continuing to be a major funder of organisations like the MCA that are lobbying against effective policy. The cumulative effect of lobbying by the industry associations BHP funds is a political environment where effective action is impossible. So in effect they’re saying we want government to act, while paying other organisations to stop government from acting.

Scope and Process

BHP is continuing to fund industry associations that are lobbying against effective government policy to address and limit the effects of climate change. For example, some of the organisations funded by BHP, including the Minerals Council of Australia (MCA) and Coal21, have been lobbying for government support for new thermal coal mines. This lobbying contributes to a political environment where sensible bipartisan policy on energy and climate change seems unachievable.

Vision Super co-filed a shareholder resolution alongside Atlassian’s Mike Cannon- Brookes’s private investment company, Grok Ventures; the Church of England Pensions Board (UK); MP Investments (Denmark); and ACTIAM (Netherlands), asking BHP to stop funding industry associations like the MCA while they continue to lobby against effective action on climate change. ACCR sponsored the resolution.

We strongly believe that it’s counter to BHP’s long-term interests, it’s counter to the science and it’s counter to our members’ interests as shareholders in BHP through their super.

Outcomes
ESG Topic
Human rights|Labour practices and supply chain management
Conducted by
Objectives

Barings who manage an alternative debt fund which we have alloactions in, highlighted in a report published by the Centre for Research on Multinational Corporations that a Myanmar factory in the company’s (German fashion retailer) supply chain employed underage workers.

The Barings’ High Yield analyst engaged with the company’s CFO to request that changes to the supply chain were made.

Scope and Process

The company disclosed it had previously been made aware of misconduct, including the employment of underage workers, following a previous audit done by the Fair Wear Foundation, an industry body established to eradicate this sort of behaviour.

Management subsequently sent its own team to investigate the supply chain and confirmed there were no longer youth workers at factories in line with the company’s Code of Conduct for suppliers. Former youth workers received full financial support and school education.

The Barings’ investment committee were satisfied that the company's management team sufficiently addressed the issue and reassured that the firm took ESG concerns seriously. Barings continue to invest in the business.

Outcomes
ESG Topic
General ESG|Anti-bribery and corruption|Other governance
Conducted by
Objectives

Barings was evaluating a German based company which is regulated by stringent German weapon export regulation, albeit some of the company’s production capacity is in South Africa which Barings understand is subject to less stringent regulations.

Another focused engagement related to comany who supplied to the larger tobacco manufacturers, an industry with clear negative health connotations. Barings were not comfortable with an investment from an ethical perspective given the exposure to the tobacco industry.

Scope and Process

There have been a number of corruption cases in the defence industry, notably related to Saudi Arabia, which is a major customer of the company. Barings was not aware of any ongoing cases against the company or any of its current employees. The company is not on the MSCI database as it is a separate entity not yet carved out from the parent company. However, it would fail the governance test due to concentrated ownership by the private equity sponsor.

Barings declined this deal because the company is involved in the defence segment and primarily sells radar/situational awareness instruments. It does not directly sell lethal weapons; however, it does sell guidance systems helping missiles to reach targets.

In light of this Barings strongly felt the company did not uphold their expected standards of social responsibility.

Similarly, they declined a separate deal where a company makes material used in cigarette filters, both a social and an environmental concern. As a privately owned company, it does not appear on the MSCI database and would score poorly on corporate governance due to its concentrated ownership.

Outcomes
ESG Topic
General ESG|Other governance
Conducted by
Objectives

Baillie Gifford who manager a long term global growth mandate for Vision Super and who hold Netflix, outline that the comany has a bespoke governance structure, maintaining policies and provisions which are not considered best practice. It has also refused to adopt shareholder proposals for changes, which have received majority support at previous AGMs.

Baillie Gifford held discussions with the company in 2019 to better understand its corporate governance protocals and strategy objectives.

Scope and Process

Netflix recognises that, as the business matures, its governance practices must evolve to remain appropriate. However, the board believes existing practices, such as a classified board and supermajority voting requirements, protect the business from short-term market pressures.

Specifically, it believes it is fulfilling its fiduciary duties by rejecting pressure to conform to a prescriptive list of best practices that it does not consider supportive of growth. The board has been strengthened in recent years and operates in a manner which ensures knowledgeable and nimble decision making.

There is also greater corporate consciousness as to how the business maintains its relationships with stakeholders. Baillie Gifford's research and engagement indicate that Netflix's governance is pragmatic and supportive of the long-term strategy. Accordingly, they were comfortable in taking a different view from the market and voted at the AGM to maintain the current structure, including the rejection of two shareholder proposals to amend voting standards and corporate political disclosures.

Baillie Gifford continues to engage with Netflix to ensure its governance practices remain appropriate.

Outcomes
ESG Topic
General ESG
Conducted by
Objectives

Baillie Gifford discussed regulatory pressure and public sentiment as part of a broader conversation in early 2019 with CEO, Mark Zuckerberg, and VP of Global Policy Management, Monica Bickert. Her role is to oversee Facebook’s content policies.

Scope and Process

Baillie Gifford focused on three aspects as part of their discussions with Facebook.

First, she noted that it is impossible to create a single set of rules around which content is acceptable and which is not, so a degree of human interpretation (currently handled by 20,000 reviewers) will still be required.

Second, partnerships with regulators seem increasingly advanced, open and collaborative with regard to content and issues such as terrorism.

Third, Facebook has adopted a policy of transparency in addressing the challenges. Rules on what is permissible are openly available, as are reports on what has been removed, and metrics on whether offensive content was identified by Facebook, users or members of the public. This approach seems appropriate and Baillie Gifford look forward to continued progress and discussions around these complex issues.

Outcomes
ESG Topic
Company leadership issues|Anti-bribery and corruption
Conducted by
Objectives

Harris Associates manage a global equity mandate for Vision Super who hold Glencore in the portfolio. The UK’s Serious Fraud Office (SFO) announced that it was launching an investigation into suspicions of bribery by employees or agents of Glencore.  While specific matters being investigated have not yet been detailed, Harris’ investment team discussed the headline immediately with management.

Harris believed the most likely scenario is that they are looking into similar issues being pursued by the US Department of Justice (DOJ), an investigation which was launched in July 2018. 

Scope and Process

Subsequently Harris’ investment team hosted a call with Glencore Chairman Tony Hayward to assess the potential impact of the SFO revelation. Glencore enlisted a separate subcommittee of the Board of Directors that is completely walled off from management, to manage the investigations.

Harris do not believe that there are endemic cultural issues at the company as many of the items in the DOJ investigation predate Glencore’s IPO in 2011.

Glencore is taking the investigations seriously, and Harris view the recent management changes at the entities under investigation, African copper and oil trading, positively. Since the launch of the DOJ investigation there has not been an impact on Glencore’s licenses to operate or on Glencore’s ability to earn profits and generate cash flow. Although Harris believe that a fine from the DOJ is likely, they have already incorporated an impending fine in their valuations.

Harris is monitoring the SFO investigation. Should events occur that materially lower their estimate of intrinsic value they will reassess their position at that point; however, at this time they still see enough upside to warrant Glencore’s weighting in our portfolio.

We continually press Harris on Glencorp and are not convinced by their responses to date.

Outcomes

11.2. Additional information. [Optional]

Further note on fund manager Harris Associates

Over an extended period of time, Harris Associates has developed a strong reputation as a long-term, shareholder-oriented investment firm. This approach is a byproduct of their value investment philosophy that requires every investment to meet the following criteria:

  • they are companies that we believe are priced at significant discounts to our estimate of the company’s intrinsic value
  • that have a path to grow per share value and
  • are run by managers who think and act as owners.

Harris Associates view each stock purchase as if they are buying a piece of the business and, in turn, believe that discussing relevant issues that may affect the company’s long-term performance is part of their due diligence process. They utilize engagement as a way to act in shareholders’ best interests to maximize the expected value of their investments. 

Initiating Engagement

The engagement process begins before investment and carries on throughout the investment process. By the time Harris decide to invest in a company, they have already concluded that management and the board of directors are likely to act in shareholders’ best interests. Occasionally, they have important disagreements about the best way to maximize shareholder value. When management does not meet their expectations, they initiate a private, direct conversation. Harris prefer this interaction over public shareholder resolutions. Engagement is carried out under the premise that unsatisfactory or insufficient change by the company will generally be met with divestment.

Monitoring Engagement

Harris Associates regularly monitor invested companies and take appropriate action if investment returns are at risk. To ensure that the companies are acting in their shareholders’ best interests, they regularly communicate with management about new initiatives and matters affecting the business. Annually, they have more than a thousand management meetings with C-level executives and board members. Harris's meetings address long-term sustainability issues and managements plans to proactively deal with business risks and opportunities, including potential environmental, social and governance (ESG) issues, when relevant. 

Measuring Engagement

Harris measure the success of their engagement based on how well a management team maximizes shareholder value. They urge corporate leaders to provide clear and relevant disclosures of information that may influence their decisions. Harris then voice their concern when they believe disclosures are inadequate. 

They also utilize proxy voting authority to address crucial corporate governance issues and encourage corporate actions that enhance shareholder value. Harris believe proxy voting rights are an important part of their investment process. They exercise these responsibilities to help serve their clients’ best interests as company shareholders. Since they invest in companies where they see the goals of management and shareholders aligned, they vote in accordance with management’s recommendations on most issues. This approach confirms that their investment process is working.

To improve the effectiveness of their engagement, they may work with collective bodies and other shareholders. Harris accept the Japan Stewardship Code, which corresponds with their processes and procedures. Harris may periodically send a letter to each of their Japanese holdings that describes their expectations of management and returns and requests that corporate governance be modeled after global best practices. Harris are also a supporter of the principles of good stewardship that are embodied in the U.K. Stewardship Code.

Harris is also a member of the Asian Corporate Governance Association, an organization that leads a constructive dialogue between regulators, institutional investors, listed companies and auditors on key corporate governance issues. 

Further notes on fund manager Amundi Asset Management

Amundi who manage our passive bonds and inflation linked portfolios has ongoing engagement led and conducted by their ESG analysts. They

Engagement for influence, led and conducted by their ESG analysts and engagement through voting, led by their voting analysts: pre-meeting dialogue and voting in general meetings.

Ongoing engagement with issuers and companies has a dual purpose:

  • Meet companies in order to better understand sectorial ESG challenges and ESG rating
  • Encourage companies to adopt best ESG practices and challenge them on ESG risks

The table below shows detailed statistics for the year 2018. (at the time of repoting 2019 details were not available)

  • Number of companies interviewed: 259
  • Number of questions asked: 1273
  • Average number of subjects covered per company: 5

Further notes on ESG Proxy Advisor ACSI

As our ESG research proxy advisor, ACSI has made significant progress in 2019 through engagement with 20 climate change priority companies. Its worth mentioning that there have been material improvements made by 18 of the targeted companies. As company reporting has improved under ACSI’s scrutiny, they have refined their approach and process from simply advocating back in 2017 to companies adopting the TCFD reporting framework, and to developing bespoke objectives for each company. This has allowed ACSI to accelerate the pace of change by pushing companies to best industry practice and standards.

Furthermore in light of the AUSTRAC findings, ACSI in conjunction with its members, organised meetings with executive bank representatives, stressing the need for critical change in leadership to recognise their collective failure to meet their obligations to AUSTRAC and other stakeholders.

27 out of 37 of ACSI's 2019 targeted companies made some improvements after engaging with ACSI mainly over executive remuneration issues.

Lastly, 2019 was also a record year for ‘strike’ outcomes on remuneration votes which was a direct result of protest voting due to the Royal Commission findings namely from misconduct from Australia’s banking sector.


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