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HESTA Super Fund

PRI reporting framework 2020

You are in Direct - Listed Equity Active Ownership » (Proxy) voting and shareholder resolutions

(Proxy) voting and shareholder resolutions

LEA 12. Typical approach to (proxy) voting decisions

12.1. Indicate how you typically make your (proxy) voting decisions.

Approach

Based on

12.2. Provide an overview of how you ensure that your agreed-upon voting policy is adhered to, giving details of your approach when exceptions to the policy are made.

Process for voting on shares in companies held by our Australian equities managers

For voting on shares in companies held by our Australian managers, HESTA determines how we will vote and execute the vote. To assist in determining how we will vote we have appointed proxy voting advisors.
When there is a 'contentious resolution(s)' defined as a resolution where (i) our proxy advisors are recommending a vote in opposition to the company's Board or management, or (ii) any of our external investment managers holding the company on our behalf are intending to vote against the company's Board or management, HESTA will request each of our managers holding shares in that company to advise us as to how they intend to vote on the contentious resolution(s) and their rationale for their vote. HESTA regards this advice as critical, as our managers have a detailed understanding of both the governance and operations of their investee companies. It is also part of our approach to encourage fund managers to take greater interest in ESG matters.

The decision on how HESTA will vote is made by HESTA's Investment Manager - ESG (IM-ESG). In determining how HESTA will vote, the IM-ESG considers the advice provided by the proxy voting advisor, as well as the advice provided by the external investment managers, having regard to the individual circumstances of the company. The decision on how HESTA will vote will ultimately be based on what is in the best long-term interests of HESTA members.

In Australia, HESTA has not been involved in filing and/or co-filing a shareholder resolution.

Process for voting on shares in companies held by our international equities managers

For voting on shares in companies held by our international managers, HESTA has appointed Hermes EOS to determine how we will vote and to execute the vote on our behalf. To assist in determining the vote Hermes EOS has appointed a proxy voting advisor. Hermes EOS makes recommendations in accordance with those of the proxy advisor except where there is a 'contentious resolution(s)' i.e. a resolution where their proxy advisor is recommending a vote in opposition to the company's Board or management. In these cases, Hermes EOS will undertake further analysis on the resolution(s).

In determining how Hermes EOS will vote, they consider the relevant corporate governance guidelines and the advice provided by the proxy voting advisor, having regard to the individual circumstances of the company. Where Hermes EOS intend to vote against the company's Board or management on a resolution, they endeavour to engage with the company before the meeting to highlight the contentious resolution(s) and to seek to have the issues resolved.

Hermes EOS will advise HESTA's international equities managers of their voting intention. Unless HESTA's managers notify Hermes EOS that they have an issue with the voting intention, Hermes EOS will execute the vote in accordance with their advice. If HESTA's managers identify an issue with Hermes EOS' voting intention, HESTA's managers are expected to engage with Hermes EOS on the matter. If agreement cannot be reached, the matter is referred to HESTA for HESTA to make the final decision in the same manner as outlined above.

Internationally, Hermes EOS files shareholder proposals in markets where it is relevant to do so, typically in Germany and the US, either as lead filer or as co-filer alongside other investors. This typically forms part of a wider engagement with the company and is used as a tool for leverage in its dialogue with management.

12.3. Additional information.[Optional]


LEA 13. Percentage of voting recommendations reviewed (Not Applicable)


LEA 14. Securities lending programme

14.1. Does your organisation have a securities lending programme?

14.3. Indicate how the issue of voting is addressed in your securities lending programme.

14.4. Additional information. [Optional]


LEA 15. Informing companies of the rationale of abstaining/voting against management

15.1. Indicate the proportion of votes participated in within the reporting year in which where you or the service providers acting on your behalf raised concerns with companies ahead of voting.

15.2. Indicate the reasons for raising your concerns with these companies ahead of voting.

Explain

          In order to help progress engagement (driving change), as well as to help clarify matters at hand to inform better voting decisions.
        

15.3. Additional information. [Optional]

The percentage range, 99-75%, disclosed in LEA 15.3 refers to the HESTA Australian Equities Portfilio and activities by ACSI. Prior to ACSI issuing voting recommendations to members, ACSI attempts to make contact with all companies, particularly if there is a controversial item or where ACSI may oppose the board on a resolution.

In the instance of Hermes EOS, the percentage range is 24-1%. The engagement provider interacted with companies around 1000 meetings in 2018. This would usually be ahead of meetings and as a result of concerns around the vote or an anticipated vote against management.


LEA 16. Informing companies of the rationale of abstaining/voting against management

16.1. Indicate the proportion of votes where you, and/or the service provider(s) acting on your behalf, communicated the rationale to companies for abstaining or voting against management recommendations. Indicate this as a percentage out of all eligible votes.

16.2. Indicate the reasons why your organisation would communicate to companies, the rationale for abstaining or voting against management recommendations.

Explain

          In order to help progress engagement (driving change), as well as to help clarify matters at hand to inform better
        

16.3. In cases where your organisation does communicate the rationale for abstaining or voting against management recommendations, indicate whether this rationale is made public.

16.4. Additional information. [Optional]

The percentage range, 99-75%, disclosed in LEA 16.1 refers to the HESTA Australian Equities Portfilio and activities by ACSI, where ACSI communicates with 100% of companies. In the instance of Hermes EOS, the percentage range is 24-1%.

Votes in selected markets - ASX ex300 listed companies

When our service provider recommends their clients a vote against the company's Board or management on a resolution(s) our service provider advises the company in writing of the recommendation and the rationale for the recommendation on an ad hoc basis.

Votes for significant shareholdings (all markets) - Companies listed on international exchanges

Where, in accordance with its policies, Hermes EOS is voting for a significant shareholding or the company is high-profile, and is voting against the company's Board or management on the resolution(s), Hermes EOS advise the company in writing the rationale for the against vote and the steps it would like to see the company take to rectify the issue.


LEA 17. Percentage of (proxy) votes cast

17.1. For listed equities in which you or your service provider have the mandate to issue (proxy) voting instructions, indicate the percentage of votes cast during the reporting year.

Votes cast (to the nearest 1%)

99 %

Specify the basis on which this percentage is calculated

17.2. Explain your reason(s) for not voting on certain holdings

Some shares on loan

17.3. Additional information. [Optional]

ACSI issued voting advice for the entire ASX300 and Hermes EOS submits vote recommendations on all listed equity covered by its proxy voting service.


LEA 18. Proportion of ballot items that were for/against/abstentions

18.1. Indicate whether you track the voting instructions that you or your service provider on your behalf have issued.

18.2. Of the voting instructions that you and/or third parties on your behalf have issued, indicate the proportion of ballot items that were:

Voting instructions
Breakdown as percentage of votes cast
For (supporting) management recommendations
86 %
Against (opposing) management recommendations
13 %
Abstentions
1 %
100%

18.3. In cases where your organisation voted against management recommendations, indicate the percentage of companies which you have engaged.

100

18.4. Additional information. [Optional]

Companies held by our Australian equities managers

Our proxy adviser ACSI engages with all companies where it recommends a vote against management. Where HESTA votes against management in line with one of our equity manager's recommendations, the managers also engage with the company.

Companies held by our International equities managers

Hermes EOS engaged around 1000 meetings of the 6,305  where it recommended one or more votes against management. All of their voting recommendations and rationales for not supporting management are published on their website.


LEA 19. Proportion of ballot items that were for/against/abstentions

19.1. Indicate whether your organisation has a formal escalation strategy following unsuccessful voting.

19.2. Indicate the escalation strategies used at your organisation following abstentions and/or votes against management.

19.3. Additional information. [Optional]

Through our service provider, ACSI, we engage companies and undertake a series of escalation steps before and after company meetings. 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
  • 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/wp-content/uploads/2020/02/2019-Voting-Policy-gender-diversity.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

LEA 20. Shareholder resolutions

20.1. Indicate whether your organisation, directly or through a service provider, filed or co-filed any ESG shareholder resolutions during the reporting year.

20.2. Indicate the number of ESG shareholder resolutions you filed or co-filed.

2 Total number

20.3. Indicate what percentage of these ESG shareholder resolutions resulted in the following:

Went to vote
50 %
Were withdrawn due to changes at the company and/or negotiations with the company
50 %
Were withdrawn for other reasons
0 %
Were rejected/not acknowledged by the company
0 %
Total 100%

20.4. Of the ESG shareholder resolutions that you filed or co-filed and that were put to a vote (i.e., not withdrawn), indicate the percentage that received approval:

1 >50%
50-20%
<20%

20.5. Describe the ESG shareholder resolutions that you filed or co-filed, and the outcomes achieved.

HESTA co-filed the shareholder resolution at the 2019 AGM of BP. The proposal called for the company to describe how its strategy is consistent with the goals of the Paris Agreement on climate change. More than 99% of votes cast were in favour of the resolution, which was pursued through the Climate Action 100+ collaborative engagement platform. The resolution was also backed by BP itself.

Our service provider Hermes EOS cofiled a shareholder proposal for one of the largest operators of retail drugstores to annually disclose on the use of its clawback provision on executive compensation. Interest in clawback use in particular relates to the company’s management of its role in opioid use. The proposal was withdrawn to facilitate further engagement on how the company is managing its product governance and stewardship of opioids.

20.6. Describe whether your organisation reviews ESG shareholder resolutions filed by other investors.

HESTA reviews all Australian shareholder resolutions internally ahead of the voting deadline. A memo to the CEO is drafted by the Responsible Investment team, with approval granted to support or oppose the resolution, or to abstain.

20.7. Additional information. [Optional]


LEA 21. Examples of (proxy) voting activities

21.1. Provide examples of the (proxy) voting activities that your organisation and/or service provider carried out during the reporting year.

ESG Topic
Climate Change
Conducted by
Objectives

EOS supports the Transition Pathway Initiative, (TPI), a global, asset-owner led initiative that assesses companies’ preparedness for the transition to a low carbon economy. In 2019 it introduced the guideline that it would consider recommending a vote against the chair of the board of a company with a management ranking of 0 or 1 by the TPI, unless the company had provided a credible plan to address the climate risks and opportunities of the low carbon transition.

Scope and Process

EOS wrote to 63 companies to advise them of this guideline and to request further engagement ahead of each company’s annual shareholder meeting. It also met over 10 companies, with one Japanese motor vehicle manufacturer agreeing to make improvements to its reporting in response to this engagement. EOS then voted against the chairs of the nominations and governance committees at some companies, citing climate governance as a key reason. 

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Ensure alignment of executive and shareholder interests, and appropriate board oversight.

Scope and Process

Hermes EOS’s voting recommendations on pay reflected these concerns, with an overall 33.3% recommended vote against rate in 2019, versus 33.15% in 2018. In the UK Hermes EOS opposed 28% of remuneration reports based on concerns such as excessive quantum and pay outcomes not aligned with performance. For example, it opposed the report at a European oil major, where the policy paid out at near maximum. In the US, Hermes EOS recommended voting against over 82% of say-on-pay proposals in 2019 due to concerns about quantum and insufficient long-term alignment. Targeting CEO pay in the top quartile of peers is one of the ways it seeks to address quantum, a critical issue in the US following many years of pay ratcheting up. It opposed pay proposals at three US retailers where CEO pay was in the top quartile of peers. 

ACSI analyses the remuneration disclosures by the company and engages with the company on where improvements can be made or why remuneration was paid in certain outcomes.  Depending on the company’s disclosures, commitments to improve or discretion applied ACSI will either recommend a vote in favour or against.  

Outcomes
ESG Topic
Diversity
Conducted by
Objectives

Board composition is critical to the good management of companies and one of the most important shareholder powers is the ability to elect board directors. A diverse board is vital to good decision-making, so EOS stepped up its expectations on gender diversity in 2019.

Scope and Process

In the UK, EOS tightened its policy for board-level gender diversity with a guideline of 30% women for FTSE 100 boards and 25% for FTSE 250. It also introduced a policy on below-board diversity, with the guideline that it would consider recommending a vote against the chair of FTSE 100 companies with no women on their executive committee. In the US, EOS continued to push its expectations on board diversity across a number of dimensions, recommending opposition to 916 proposals in 2019, compared with 618 proposals in 2018.

In Germany, EOS released its new German Corporate Governance principles, which set out its expectations for 2020 and beyond, including that companies achieve 30% female representation on executive boards. Currently, only 8% of German companies have more than one woman on the executive board. Two-thirds still have no female board members. EOS raised the issue of diversity at one German car manufacturer’s annual shareholder meeting, along with concerns about audit tenure that led it to oppose the ratification of the auditors.

Outcomes
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 companies in the ASX300 who have a material exposure.

ACSI provides analysis on climate-related resolutions by analyzing the climate change disclosures by the company and engages on where improvements can be made often seeking commitments from the company ahead of the AGM. Depending on the company’s disclosures or commitments to improve ACSI will either recommend a vote in favour or against a shareholder proposal. In FY19, ACSI provided voting recommendations on 7 companies with climate-related resolution.

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

To ensure these companies have adequate systems, policies and practices in place to monitor and modify contractor/supplier behaviors. This includes encouraging public disclosure of training efforts, auditing outcomes, lists of suppliers and engagement with Governments where issues are systemic.

Scope and Process

ACSI focus is on companies in the ASX200 who have a material exposure. ACSI provides analysis on LHR-based shareholder resolutions in the Australian market. For FY19, ACSI provided analysis on two LHR-based shareholder resolution.

Outcomes
ESG Topic
Diversity
Conducted by
Objectives

Increase the representation of women on ASX300 company boards to 30%. Where companies fail to demonstrate a plan to reach 30% ACSI recommends votes against zero women boards.

Scope and Process

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. ACSI will make a recommendation based on actual appointments and commitments to improve gender diversity.

Outcomes
ESG Topic
Climate Change
Conducted by
Objectives

Three Australian insurers received shareholder resolutions specific to the management of climate-related risks within their investment portfolios, specifically seeking the disclosure of plans, including timelines for the divestment from fossil fuels. Regnan engaged with the companies seeking to:

  • inform voting recommendations/intentions
  • understand the current processes for considering climate related risks in their investment process and seek enhancements where required
  • communicate investor interest on other material climate-related issues for the business (i.e. to communicate investor interest in the company's management of climate-related risks outside of the specific asks of this resolution)
  • seek that the companies disclose the results of shareholding voting on the outcomes of climate component of the resolution, irrespective of whether a pre-requisite resolution on constitutional change was passed
Scope and Process

Regnan engaged with both the proponents of the resolution and the company to better understand the context for the resolution. In its third meeting with the company on this issue in 2019 it detected a more supportive approach to the principle nature of the resolution's ask, this view was further supported by a public statement broadly conistent with the resolution. On this basis they saw that support for the resolution should be seen as support for continued action by the company.

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

A human rights resolution was offered for vote regarding worker protections within this company's supply chain. Regnan's engagement sought to reconfirm aspects of previous engagement with a view to testing whether the company's stance had shifted and seek to understand the company's underlying objections to the resolution.

Scope and Process

Regnan engaged with both the proponents of the resolution and the company to better understand the context for the resolution. In its third meeting with the company on this issue in 2019 it detected a more supportive approach to the principle nature of the resolution's ask, this view was further supported by a public statement broadly conistent with the resolution. On this basis they saw that support for the resolution should be seen as support for continued action by the company.

Outcomes

21.2. Additional information. [Optional]


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