Vision Super has engaged via it's membership with ACSI who represent the collective rights and interests of members through influencing companies, investors, government and opinion leaders. 

ACSI’s member funds are united by the belief that the short-term outlook of many actors in the investment system means that today’s market prices may not capture all of the risks and opportunities inherent in the value of companies.

Responsible exercise of ownership rights by long-term asset owners can assist in improving that value and consequent investment return outcomes for their members. The financial system is not always set up in the best long term interests of shareholders.

ACSI’s mission is therefore to enhance sustainable long term value for the retirement savings that are entrusted to our members as fiduciary institutional  We note we are not actively engaged via ACSI on every company they deal with and it is the broader membership, of which we are a small part,  who set the focus of engagement for ACSI collectively.

ACSI also organised a number of meetings with BHP which we attended. The larger funds seem to have a lot of influence on the organisation. Other similar sized funds believe full membership is worthwhile, particularly if the intent is to file more resolutions. Going forward, ACSI is considering whether it wishes to extend the actions it takes as part of a review.

In circumstances where we did want to file more resolutions, ACSI would be invaluable if they were prepared to use their resources and influence to craft and fight for resolutions. The larger superannuation funds tend to highly favour engagement and access to companies as the way forward. There appears to be little evidence this works as far as we can see in terms of global (as opposed to company specific) science issues.

BHP Co-Filing Resolution

Vision Super strongly urged BHP through the shareholder resolution we co-filed for comany to withdraw from industry associations lobbying against effective climate policy. Vision staff had to do a lot of lobbying on this issue. We needed to meet with BHP to gain credibility with other funds, despite they themselves having met with the company with a similar message on many occasions. As a smaller fund gaining meaningful access was not easy. This process started in the 2018/19 financial year although the vote occurred in 2019/20.

ACSI supported our resolution on BHP. Ownership Matters, which provides research to ACSI, amongst others, recommended against as did the main global proxy advisors, ISS and Glass Lewis. This was despite egregious examples on inappropriate lobbying activity by Australian mining interests between the time we filed and the vote!

https://www.mudgeeguardian.com.au/story/6404460/bylong-coal-rejection-prompts-nsw-minerals-council-campaign/

The final votes disclosed to the market for both the UK and Australia BHP AGM’s were 27.07% in support with 4.3% abstaining on the shareholder resolution. Vision Super did not hold exposure to the BHP Plc listing and believe that shareholder resolution was relatively successful but ultimately disappointing given how many PRI members voted against the resolution.

 The resulting media coverage was good, but the process took up a great deal of time for the people involved. we wrote letters to over 25 superannuation funds and managers  for support and even US Consultant Segalmarco and engaged in countless conversations.

Because we are a small team, we will be restricted in how many of these we can take on and/or what we can do to support them. There are some lessons learned for next time, in particular we could reduce the workload by co-filing with another Australian superannuation fund so that the lobbying for the resolution could be divided. We also need to be hard headed about what results all that effort achieved. We intend to vote consistently with the resolution at other company meetings as these resolutions come up.

It’s also worth noting that as part of the Climate Action 100+ initiative, AMP Capital and HSBC GAM as lead investors for BHP, were not co-filers of this shareholder resolution. As a reminder, the initiative aims to secure commitments from boards and senior management of companies to improve governance of climate-related risk and opportunity, develop a credible transition plan to curb emissions in line with the Paris Agreement and strengthen climate-related financial disclosures. Vision Super is a support investor for South 32 Limited, Qantas Airways Ltd, Woodside Petroleum Ltd and AGL Energy Ltd.

Lastly, its worth highlighting again that Vision Super management is particulary focused on more transparency on tax and lobbying efforts. We note many of the companies publicly supporting responsible approaches on these topics fund bodies doing the exact opposite. Vision Super joined the PRI Collaborative Engagement on Corporate Tax Responsibility. We are co-leads with LUCRF on Sonic Healthcare and Ramsay. Our analysis suggest that both these companies pay a reasonable amount of tax. Both companies operate in multiple jurisdictions but do not undertake country by country reporting. This reporting would enable a better analysis of companies’ tax strategies.

happen.Vision Super had engaged with ACSI on BHP and we asked them to engage with BHP with respect to its corporate climate lobbying of industry associations. Through ACSI we met with senior executives of BHP on multiple occasions. PRI member Cbus were very helpful in getting these meetings to happen.

Such engagement activities are discussed internally through Vision Super's ESG/Climate Action Team where such engagements are prioritised for the year ahead of company meetings. The Fund has relatively smaller resources devoted to ESG and such initiatives in comparison to its larger industry peers. We aim to allocate time and efforts to such engagement activities where we can make a meaninful difference and also from a cost/benefit perspective.

Vision Super at all times looks to act in the best interests of its membership base and core constituents. To date we have participated in class action litigations opportunistically and in dialogue with our fund managers on a cost/benefit perspective given the resources and time involved with such class action processes.

Class Actions usually extend over a very long period and can also involve different jurisdictions.  The Fund does not have internal legal counsel onboard and management are not legal practitioners or experts with such litigation filings. Given the increased complexity and challenges, Vision Super going forward it not expecting to rely upon legacy policies or decisions by its investment managers, and rather we need to implement a program that more fully monitors, identifies, evaluates and where appropriate, facilitates all the necessary registration and filing necessary to ensure we recover every dollar to which we are legally entitled.

We are aiming to work with class actions service provider who is focused purely on class actions, with the objective for them to undertake an audit on our holdings on a contingency level, including foreign exchange cartel class actions.

Vision Super believes it is our duty, along with our investment managers, to engage with companies to communicate our concerns and position on environmental, social and governance issues. In engaging with a company, we assess the likely impact of the engagement and the ultimate benefit to the value of our holdings.

Engagements may involve meetings with company directors and executives, discussions with other shareholders of the company, participation in collaborative investor initiatives and the submission of shareholder resolutions at company meetings as previously highlighted.

Vision management/executives have in the prior years also been involved in dialogue with the Grattan Institute on energy policy and take opportunties to discuss such initiatives/issues with our proxy rsearch advisors through the likes of ACSI and Glass Lewis.

But share prices going up and down does have an effect on returns for our members, and outcomes for our members are the lens we look at everything through. We think some energy companies’ shares are priced too high, because governments around the world will eventually implement policies that will see fossil fuel use reduced. The longer this takes, the sharper and more abrupt the transition will be, with correspondingly larger losses to shareholders of these companies. Many investors aren’t recognising this yet.

To reduce the risks, including the risk of stranded assets, that will accompany a transition to a low carbon economy, our passive portfolios have a lower carbon intensity than the indexes they track. We have adopted low carbon benchmarks for international and Australian equities index portfolios and have also decreased the carbon intensity of our Australian corporate bond portfolio. This approach covers all emissions in the global economy, not just energy companies. We are proactively seeking ways to further reduce our exposure to climate risk and raise our exposure to companies adopting low carbon solutions. We have divested from tar sands and thermal coal, which are two of the worst contributors to climate change. We are also working on a detailed plan to achieve our published objective of being carbon neutral by 2050.

At the same time, we work actively with the companies we still invest in to improve the environmental, social and governance (ESG) choices they make. One of the ways we do this is to ensure that we actively participate in shareholder voting - a far more effective way to encourage those companies to change than simply divesting. We want to make sure that the companies that we invest in are doing their best to minimise their impact on the environment and to act ethically, so we exercise our shareholder vote. This gives us the opportunity to support businesses that are doing the right thing and oppose actions that will intensify climate change.

Further to Item LEA 03.3:

In 2019, we co-filed a resolution on climate change at the BHP annual general meeting and we also regularly voted in favour of climate change resolutions at companies we own – we were recognised for the second year running as one of Australia’s top funds when it comes to voting for climate resolutions. If we own shares in companies, we’re able to use that vote to try to change their behaviour.

However, we do divest where we don’t believe that engagement can make a difference. In addition to thermal coal and tar sands, Vision Super does not invest in controversial weapons such as nuclear bombs and cluster mines, or in tobacco. When determining which companies we won’t invest in, we set a materiality threshold at 25% of revenue with a 5% buffer for tar sands and tobacco. For tobacco, we will divest according to the Tobacco free pledge. For controversial weapons the limit is any invlovement in critical components.

We note we don’t believe any fund can truly claim to be “fossil fuel free” while fossil fuels are integrated into the global economy. Some of the biggest customers of fossil fuel energy are technology companies, aerospace companies, transport companies, agriculture, and industrial companies - in fact any company connected to a transmission grid fed by fossil fuel energy plants. “

Vision Super has a comprehensive ESG policy which we use to guide our decision-making and to monitor the impact we have on communities and the environment. There’s a growing body of evidence that consideration of ESG factors, when integrated into investment analysis and portfolios, improves long-term investment performance.

You can read more about how we manage climate risk in our annual Corporate responsibility reports, which you can find on the Publications page of our website here: https://www.visionsuper.com.au/images/member-reports/esg2018.pdf and the additional website links below:

https://www.visionsuper.com.au/sustain

https://www.visionsuper.com.au/investments/active-ownership

Additional Engagement Notes:

For ACSI’s priority engagement companies, specific engagement issues are definied at the start of the calendar year. For all other companies, ACSI outlines key engagement topics and objectives prior to the meeting.

Throughout  the  2018-2019 engagement  season, Glass Lewis held meetings with more than 1,600 listed companies around the world. Over 1,400 companies took part in their Issuer Data Report program, and their engagement team contacted more than 37,500 contacts across the issuer community to encourage interaction with Glass Lewis. Glass lewis reports back to its clients on engagement meeting statistics, impact and trends; Issuer Data Report program growth along with knowledge-sharing and development.

Furthermore, Glass Lewis seeks to meet with as many companies as possible, outside of the busy proxy season, and outside a company’s solicitation period. Glass Lewis also aims to involve their clients as part of this process, companies, proxy solicitors and consultants to reach out and arrange meetings with them. Glass Lewis also undertake a significant outreach to the market, requesting offseason engagement meetings.

Please refer to the following webiste link relating to on Glass Lewis's engagement policy: https://www.glasslewis.com/engagement-policy/

Peak proxy season periods vary by region, though most countries’ peak annual meeting season is March-June.

As a member of ACSI we participate in forums they host for members and management representatives from ASX300 companies. We also review and monitor engagement outcomes throughout the course of the year and provide a summary highlight of key themese below as follows;

• Climate Change - Eighteen of ACSI's 20 target companies made material improvements in their management of climate change risks and opportunities.
• Corporate Governance - 13 of ACSI’s target companies made material progress
• Board Diversity - Thirty four of ACSI's 81 target companies appointed women directors after an intensive engagement program
• Remuneration - 37 companies on ACSI’s 2019 radar over executive remuneration issues, 27 made some improvements after engaging with ACSI
• Workforce - 8 of ACSI’s 10 target companies made material progress

As an example, ACSI have outlined that as part of their research ESG Reporting by the ASX200, they found the overall number of Australian companies reporting TCFD has doubled since 2018 to 52 Australian companies either adopting or committing to adopt the reporting disclosure framework. Furthemore, ACSI has found that as a result of their ongoing engagement, that the depth and quality of reporting on emissions targets and scenario analysis has vastly improved. having said that, there is a good contingent of Australian companies that are reluctance to set long-term targets, and to date only six companies have published targets beyond 2040. Its worth noting that ACSI's review and monitoring of these reporting commitments have determined that only 25 companies disclosed what scenarios they were using with only 18 of them analysing the direct impact on their operations.

In 2019, Glass Lewis's analysts base in Australia, held 257 engagement meetings with ASX and NZX listed entities. This  included meeting with representatives of 82 of the S&P/ASX100 constituents throughout the year. Engagement is a powerful tool that Glass Lewis utilises from a number of other options to assess companies. The dialogue between Glass Lewis and the issuers they cover has led to a better understanding of Glass Lewis’ policies and considerations when they are performing their analysis and providing their recommendations. The conversations  Glass Lewis has had with companies have also led to improved disclosure, which helps not just their own understanding, but their client base and the market more broadly. Furthermore, the relationships Glass Lewis has established and grown with the companies they cover has allowed for a greater understanding of where Glass Lewis is coming from and what is important to them when they are evaluating respective proxy statements.

Glass Lewis outlines that dialogue is particularly critical when it comes to more nuanced environmental and social type issues. These issues are often closely intertwined with companies’ operations and require a very thorough understanding of how each company operates. Being able to dis- cuss how certain environmental and social issues affect companies and how different companies are mitigating attendant risks allows Glass Lewis  to more thoroughly consider the materiality of these issues when they are performing their company/proxy research.

ACSI & Glass Lewis

As our proxy research advisor, ACSI engages with companies and undertakes a series of escalation steps before and post-AGM. The level of escalation recommended by ACSI is dependent upon the nature and materiality of an issue and responsiveness of a company to engagement.

Generally, where ACSI recommends a vote in opposition to the board, depending on the materiality, the company may be put onto ACSI's engagement priority list for the following year.

Further escalation can include:

• Further engagement with board members and/or chair
• Recommending in favour of a shareholder resolution
• Expressing concerns to alternative company representatives (i.e. management, other non-executive directors)
• Working collectively with asset managers/other asset owners and holding discussions with other equity or bondholders
• Recommending additional votes against management on relevant proposals at general meetings (eg: ACSI's women on boards policy https://acsi.org.au/images/2017WomenonBoardsVotingPolicy.pdf & https://acsi.org.au/images/stories/ACSIDocuments/2019-Voting-Policy.pdf)
• Speaking to regulators, industry bodies and advocating for policy change
• Expressing concerns publicly
• Encourage our membership and other industry participants to take up more pro-active stance

Glass Lewis being Vision Super's other research proxy advisor, don't provide engagement services of a nature similar to ACSI and thier reports are based on publicly available information.

BHP Engagement on pro-coal lobbying 

Objective

We wanted BHP to stop contributing money to industry organisations that lobby for more coal-fired energy production, with a focus on the Minerals Council of Australia (MCA)and their offshoot, Coal21 as well as the Queensland Resources Council and the NSW Minerals Council. These bodies have outsized influence on the Australian Government and allow companies to claim no pro fossil fuel lobbying whilst being major funders of these businesses.

Strategy

Vision Super met with BHP to engage with them on the issue, along with the ACCR, and the ACCR had met with them on several previous occasions. The meeting was not fruitful; however, we continued to engage with the organisation and seek meetings with Board-level representatives in order to try to persuade BHP to send a signal to their industry associations that are lobbying against sensible climate policy. We also welcomed and urged other funds to engage with BHP Board or senior executive level. We were quoted in a number of major news papers on the issue (the Australian Financial Review and the Fiarfax newspapers) and wrote a number of letters to the editor.

Despite the engagement process with BHP, it did not eventuate in any real effective outcomes and as such, we along with a number of other investors in conjunction with ACCR decided to resolve the matter with a shareholder resolution. It must also be said that engagement over many years had led to little progress. Australia is further from managing its emissions today than it was a decade ago. As no agreement was reached with BHP for them to withdraw or suspend membership of the MCA until they stop lobbying for more thermal coal mining, a co-file shareholder resolution was a final escalation point. Many investors are claiming that engagement is leading to progress with BHP. We saw little sign of this and note that the BHP's funding of fossil fuel lobby groups has an adverse influence that dwarfs anything BHP might do internally. We note Australia's carbon emissions continue to rise and climate change contributed to the worst bushfires to date in Australias history of the 2019/20 summer. 

Vision Super also believes that any sensible industry association would be preparing its members to act along with urging sensible government policy rather than simply downplay the need to take action with respect to corporate climate lobbying associations.

Comments on Kyoto carryover credits

Under Kyoto, Australia’s emissions target was an increase on our actual emissions. Supporting the use of Kyoto carryover credits effectively means you are supporting a 10-12% reduction in Australia’s emissions targets. You can’t say you believe in climate change on the one hand, and support using Kyoto carryover credits on the other. BHP has not and will not come out agaimst Australia's intention to undertake this accounting slight of hand..

Addtional points on lobbying

BHP is right - it’s up to the government to legislate for effective action on climate change. But they’re saying that while 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. That’s why we co-filed the shareholder resolution. We want BHP to stop funding industry associations like the MCA while they continue to lobby against effective action on climate change. 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. MCA and other lobby groups have been quieter since the vote. However, we do not know what is being said behind closed doors and our emissions, until the pandemic, continued to rise.

Additional comments to Item LEA 06.3 -

BHP corporate climate lobbying trade associations - comments from Michael Wyrsch, Chief Investment Officer, Vision Super

“BHP is committed to the goals of the Paris Agreement. However, meeting the Paris goals requires public policy support, and 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 by 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. This is counter to BHP’s long-term interests, and therefore to our members’ interests as shareholders through their superannuation.”

Other Comments

As a member of ACSI, management routinely uses the proxy voting research recommendations provided by ACSI and we review against our policy. On some occasions we may not necessarily come to the same voting recommendations on matters of contentious nature. We disclose all our voting publicly and report internally within the ESG Climate Action Team and at least bi-annually to the investment committee annually in our annual reports. 

Vision Super will on occasions provide feedback to managers and companies for their consideration and review on ESG related company holding matters, with the intention of also understanding how and why the investment managers approach to similar issues may be different on occasions. This also applies to our proxy voting relating to resolution ballots on Vision's equity shareholdings, despite our investment managers no longer voting on behalf of the Fund.

Our active fund managers aim to maximize value of their portfolios by ensuring best practice corporate governance through the voting they undertake and engagement initiatives in maximizing these goals. They do this my engaging with respective board and management teams of companies they are shareholders in where such improvements contribute to maximizing performance and business metrics.

IFM Investors Passive Low Carbon Mandate

With respect to engagement, IFM Investors believe active company engagement is critical to the advancement and promotion of responsible investment considerations across the broader corporate and financial sectors. This approach aligns with their Responsible Investment Charter and the values of their clients and their beneficiaries. IFM have an intimate knowledge of their investments and regularly engage with businesses either directly, or through the Australian Council of Superannuation Investors (ACSI). In their activity they seek to encourage positive change in corporate behaviour. Typically, their activity is prioritised around pre-determined themes and objectives, which are reviewed on an annual basis. They also frequently engage with regulators, industry associations and the investment community to promote best practice responsible investment standards.

Resolution Capital GREIT's Mandate

Over the 2019 period, Resolution Capital who manage a GREIT's portfolio for Vision Super, undertook a key engagement activity primarily related to lack of gender diversity on the boards of investee companies (<30%).

The goal of this engagement was to increase female board representation at companies where it’s under-represented. In a similar exercise to that undertaken in previous years, Resolution Capital analysed the gender diversity of the boards of the companies they invest in. On average, women make up 27% of board seats, an increase from 22% in 2018 and 18% the year before that. Whilst they believe this improvement is quite encouraging, more needs to be done to improve the board composition at these companies. On a weighted average basis the global portfolio has 25% female board representation, versus 24% for the index.

Importantly, forty two percent of their holdings have female board representation at or above 30%, up 9 percentage points year on year. As part of their engagement initiatives, during Q4 2019 they contacted all companies in their current portfolio which have less than 30% of women on the board. Resolution Capital outlined their desired target for a minimum of 30% female representation on the boards and asked if they have plans to increase gender diversity on the board. In the majority of case companies they want to increase female board representation but noted that this will also take time.

Gender diversity on listed REIT boards is a metric that Resolution Capital have been actively monitoring and engaging with investee companies on. The manager believes this is an imporant area which is also supported by empirical research where boards that embrace cognitive diversity, through appropriate gender representation and a broad spectrum of skills and experience, are more likely to achieve superior risk adjusted returns.

The other area of main engagement for Resolution capital during 2019 related to insufficient ESG disclosure (partly based on GRESB data) with the purpose to improve ESG disclosure and gain insights at the current level of sustainability within the company and future plans.

Climate Action 100+ Further Engagement Tactics

As a support innvestor of Climate Action 100+, investors are considering a consistent messaging approach going forward with the following direct engagements tactics as options for consideration for relavant companies;

• AGM statements
• Media tactics
• Joint statement with company
• Voting
• Filing resolutions
• In person meetings
• Investor roundtables
• Public letters/statements (directed at company/sector/other)

Investors may also consider leveraging portfolio managers and investment managers to deliver a unified message to a comany which is targeted and considering meeting with different levels of executives and management in the company.
 

ACSI tracks all formal company engagement meetings and provides semi-annual and annual company engagement updates to all members.

Throughout  the  2018-2019 engagement  season, Glass Lewis held  meetings  with more  than 1,600 listed companies around the world. Over 1,400 companies took part in their Issuer Data Report program, and their engagement team contacted to more than 37,500 contacts across the issuer community to encourage interaction with Glass Lewis.

This review provides an overview of of Glass Lewis's engagement efforts, with specific focus on engagement meeting statistics, impact and trends.