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Environment Agency Pension 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

          see 12.2
        

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.

EOS at Federated Hermes provides us with voting recommendations based on our voting policy which are input on the voting platform prior to the vote deadline. The voting recommendations are then cast as voting instructions if there is no further intervention, except in the case of shareblocking votes.

12.3. Additional information.[Optional]


LEA 13. Percentage of voting recommendations reviewed

13.1. Of the voting recommendations that your service provider made in the reporting year, indicate the percentage that was reviewed by your organisation, giving the reasons.

Percentage of voting recommendations your organisation reviewed

Reasons for review

13.2. Additional information. [Optional]


LEA 14. Securities lending programme

14.1. Does your organisation have a securities lending programme?

14.2. Describe why your organisation does not lend securities.

We believe that stock lending is an important factor in the investment decision, providing opportunity for additional return, but that lending should not undermine governance, our ability to vote or long-term investing. We will recall stock where required. There may be some instances where we decide not to stock lend, particularly where there are concerns of borrowers deliberately entering transactions to sway the outcome of a shareholder vote. Our approach to responsible stock lending is outlined in further detail in a separate policy. 

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]

Our voting recommendation and engagement provider EOS at Federated Hermes 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 voting decisions.
        

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]

Our voting recommendation and engagement provider EOS at Federated Hermes interacted with companies around 1000 meetings in 2019. This would usually be ahead of meetings and as a result of concerns around the vote or an anticipated vote against management.


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%)

100 %

Specify the basis on which this percentage is calculated

17.3. Additional information. [Optional]

Our service provider EOS at Federated Hermes 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
93 %
Against (opposing) management recommendations
7 %
Abstentions
0 %
100%

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

16

18.4. Additional information. [Optional]

Our service provider EOS at Federated Hermes 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]

A recommendation to divest will be the last resort, but appropriate if we believe the risk to long-term shareholder value is being undermined.


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.

Our service provider EOS at Federated 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.

EOS also lead filed a proposal at BP plc which went to a vote. 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.

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

We do review ESG shareholder resolutions filed by other investors. This may be via alerts from NGOs and/or RI publications. 

Depending on whether we are invested we may discuss next steps with our managers or our pool or if not invested it may highlight an ESG theme which we will follow up.

20.7. Additional information. [Optional]

Our service provider EOS at Federated Hermes encourages boards to engage with serious, committed long-term shareholders, including EOS on behalf of its clients. Where boards interact in an active and engaged way with shareholders on issues that affect companies’ long-term value, EOS will see less need to file or support shareholder resolutions. In EOS’ experience, shareholder proposals can be a natural starting point or a catalyst for related dialogue with issuers and thus avail themselves of these opportunities, where appropriate, whether or not EOS recommends voting in favour of the resolution itself.  EOS expects boards to address the issues raised by shareholder proposals which receive significant support or where they are material to the company. In addition,  EOS views any failure to implement a shareholder proposal that has received majority support as a clear indication of a board of directors not fulfilling its obligations to the owners of the company.


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, set up by the EAPF, 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

EOS believes that companies should design and implement remuneration policies that align the interests of management with the interests of shareholders and incentivise executives to optimise long-term value. Its core objectives concern the implementation by companies of remuneration approaches aligned with the Hermes Remuneration Principles, including the simplification of remuneration schemes, the reduction of variable-to-fixed pay ratios, a focus on strategic goals and increased executive shareholdings. 

Scope and Process

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 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, 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. 

Outcomes
ESG Topic
Other governance
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

21.2. Additional information. [Optional]


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