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First Sentier Investors (including First State Investments)

PRI reporting framework 2020

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(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

          We provide proxy guidelines and use proxy advisers however decisions are made by the teams. See additional information.
        

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.

Each team is responsible for their own voting

12.3. Additional information.[Optional]

As described above we provide proxy voting guidelines at a firm level however will take the company’s individual circumstances and willingness to engage into account when making decisions. We do not require different teams to vote the same way on specific resolutions. With oversight from the head of each investment team we believe this is the best way to conduct long-term and ongoing engagement with companies.


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


LEA 14. Securities lending programme

14.1. Does your organisation have a securities lending programme?

14.2. Describe why your organisation does not lend securities.

We believe it is not in the long term interests of our clients to lend securities so that other investors can use them to short-sell our long positions. 

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.

15.3. Additional information. [Optional]

Stewart Investors team comment: We generally seek to engage a company prior to a vote so that appropriate consultation may take place with a view towards achieving a satisfactory solution. If the company does not change its behaviour and is not in-line with what we see is minimum requirements for a given market, we will vote against. We do look to have a positive relationship with the companies we invest in so we can have the most productive engagement. When we are long-term shareholders this also supports the effectiveness of engagement and ideally we will not need to vote against the company. 
Where a satisfactory outcome cannot be achieved on an important issue, it may be desirable for us to attend the relevant meeting of the company and to explain why the proposal is being opposed. In such cases a poll may be requested to ensure that the vote is duly recorded.

FSSA comment: We place tremendous value on our right to vote and devote substantial time and resources to make informed judgements. It is the responsibility of investment analysts and portfolio managers to formulate our stance. We seek to vote on all possible resolutions at company meetings and where we are inclined to abstain or vote against management, engagement will always precede any controversial voting action.

 


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.

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]

Stewart Investors comment: 

Given our active and continuous engagement with investee companies it is unlikely that we would vote against management on a topic that we haven’t already discussed with them.
Proxy voting result rationales are available on reports that can be requested by clients. They are also disclosed by the Sustainable Funds Group within their client quarterly report which is publically available.


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

17.3. Additional information. [Optional]

Our proxy voting record is publically available on our website

https://www.firststateinvestments.com/global/responsible-investment/responsible-investment-proxy-voting.html

 

 

 


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
87.5 %
Against (opposing) management recommendations
11.7 %
Abstentions
0.8 %
100%

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

90

18.4. Additional information. [Optional]

Other types of votes are also made including in the US and Canada where we are asked to vote for the length of time between votes on remuneration reports (where we always vote one year). For the purpose of this question we have counted 'withheld' (US and Canada) votes as votes against as in these cases an 'against' option is not available. 

Stewart Investor commented: In principle we prefer to engage companies outside the annual general meeting (AGM) season and if our engagement is effective we should not have to vote against companies.

Realindex commented: We are systematic manager with a large number of diverse holdings.  We systematically apply a custom ESG integrated proxy voting policy to all resolutions.  We identify and undertake additional due diligence on a select group of meetings for controversial companies or resolutions.  From these reviews, we then select a smaller subset of companies with which to engage. Typically only a few per year depending on issues / resolutions.    


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.

Specify

          Comment by FSSA - exposure/divestment may be decided upon by the PM depending upon the severity and managements response.
        

19.3. Additional information. [Optional]

Stewart Investors comment: As long-term shareholders, we are active (not activist) owners of the companies in which we invest; we aim to vote on all resolutions at annual and extraordinary general meetings. Voting rights are a valuable asset which we believe should be managed with the same care and diligence as any other asset. Ultimately, shareholders’ ability to influence management depends on shareholders’ willingness to exercise those rights.  
Following a concern, if we feel that management have not sufficiently addressed the problem, then at that stage we might take the more extreme measure of engaging the board with the goal of providing pressure on the management. This could take the same forms of phone calls, face to face meetings or even a letter. At this stage we would hope that the board shares our concerns and pressures management. If the board doesn’t share our concerns then it can mean one of two things:  
1)  We have misunderstood the issue or  
2)  We have misjudged the quality of governance. 
At this stage there are few avenues that are left open to us. We can vote against resolutions regarding reappointment of board members or against granting certain rights with a clear explanation to the company as to why we have decided to vote against them (we don’t take voting against a company lightly). At that point, if we still consider the initial risk to be materially damaging to one or more of the three pillars of our investment case, then we would be pushed to sell our shares. 
It is worth remembering that this takes place against a backdrop of a long-term relationship with the company and this process of questioning can take years. As long-term shareholders we must earn the right to engage any of our investments and hence the decision to sell shares is not taken lightly and is seen to be a very last resort. 

Global Listed Infrastructure Security Comment: The team’s strategy in the event of unsuccessful voting is continued engagement with the company concerned, with key issues reflected in the Quality scores for that company. This score in turn impacts our investment decisions. 


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.

20.7. 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
Company leadership issues
Conducted by
Objectives

Team: Stewart Investors

Industrial group in India – risk to quality

 

 

Scope and Process

We abstained a request to elect a new independent director to the Board. 
We believe decisions taken by the elected independent director in their previous role at a large Indian bank demonstrated a high level of risk which we do not believe is a quality that would enhance the Board of our investee company.
Our decision to abstain rather than vote against was primarily driven by the long-term stewardship that the company group provides.
The vote went through and the person was elected.

Outcomes
ESG Topic
General ESG
Conducted by
Objectives

Team: Stewart Investors

European listed multinational pharmaceutical company – risk to governance and stewardship

 

 

Scope and Process

We voted against a shareholder proposal which requested the Company reduce the price of insulin and other products if it return on equity exceeded a stated percentage.
We believe that management are best placed to decide the day-to-day operations of the business and that their pharmaceutical products are priced in alignment with health care authorities and buyers around the world, and the agreed prices reflect the innovation and risk that have been undertaken by the Company in developing the products.

Outcomes
ESG Topic
Other governance
Conducted by
Objectives

Team: Stewart Investors

Asian listed multinational banking and financial services corporation – risk to governance

Scope and Process

We voted against a proposal to elect a person to the company’s audit committee as we did not believe this person was a truly independent director. The person is co-chair and a senior partner of the firm which had provided legal services to the company since 2018.

Outcomes
ESG Topic
Health and Safety
Conducted by
Objectives

Team: FSSA

Brambles has been a core holding across many of our funds over the years. After a period of lacklustre performance, a number of changes were made at both the management and board level. Graham Chipchase was appointed CEO in 2017 and came with an impressive track record, having turned around Rexam during what was a difficult period for the company. We have gradually built conviction in his abilities and the changes he has internalised. Graham has brought a spark to the company’s ESG approach. As the world’s largest pallet pooling company, the business is an inherent part of the circular economy and has been for over 60 years. However, there is no sign that Brambles is resting on its laurels. There are new initiatives, such as collaborating with customers to lower transportation costs and achieve efficiency gains, as well as a level of disclosure and reporting which is first class among the companies in our investment universe. Despite all the progress, things can still go wrong. In 2019, there was the unfortunate death of an employee during operation.

Scope and Process

When we raised our concerns with management, they communicated the situation clearly and explained the number of initiatives that were being rolled out to prevent future incidents. Notably, the CEO, Division Head, Head of Safety and Head of Operations all had to forgo their discretionary bonuses. Our view is that Bramble’s attitude to ESG and other aspects of the business are tantamount to quality. It is proactive, process-driven and realistic – characteristics that indicate a quality franchise run by quality management. The engagement increase our conviction in the business.

Outcomes
ESG Topic
Plastics
Conducted by
Objectives

Team: FSSA

Godrej Consumer has been held widely across our funds for many years. For this 122-year old business, stewardship is part of the DNA. As shareholders, we have benefited greatly from the company’s ability to transition to professional management whilst maintaining the crucial stability offered by the family’s influence. Collaboration between the family and management has been fundamental to its success. The company has taken a similar approach to addressing the number of sustainability challenges facing Fast-Moving Consumer Goods (FMCG) companies. In identifying the strengths of European rivals (Unilever & Nestle) on sustainability matters, Godrej established an open dialogue with them to encourage collaboration around the many challenges they share. After expressing to us their desire to become leaders in sustainable packaging solutions, we introduced Godrej to a biodegradable packaging company in late 2018.

Scope and Process

By the time we met management again in May 2019, the company had commissioned a pilot study of alternative biodegradable packaging, signed up to the Plastic Pact and were using refillable containers, which lowered prices for customers and generated higher margins for the company. The company has traded on high valuations in recent years, which has prompted healthy debate among our team members on whether we should sell it. We continue to own it, however, and where we have been able to agree is on the basis that it exudes quality. There are plenty of challenges ahead for Godrej, but their transparency, awareness and willingness to learn helps us build confidence in their ability to navigate these tricky waters.  

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Team: Global Listed Property Securities
Objective: Ensure fair and competitive compensation to Executives, at alignment to shareholders’ interest; 
Specific issue: management remuneration and alignment concerns.

 

Scope and Process

We voted against Scentre Group’s remuneration report and its proposal to grant equity to CEO Peter Allen. We believed those proposals were not fair and reasonable, taking into account the industry’s benchmark and peers’ performance. The company has been poorly positioned given the structural headwinds confronting retail sector and mall owners; its financial results and share price performance has also underperformed other Australian REIT peers; we believed its proposal were not in alignment with shareholders’ interest.

Outcomes
ESG Topic
Company leadership issues
Conducted by
Objectives

Team: Global Listed Property Securities
Objective: Ensure sound corporate governance at Board level to act in the best interest of shareholders
Specific issues: lack of independence in the new Board of Director

 

Scope and Process

Ado Properties (ADO GY) is a Frankfurt listed German PRS company, which was 38% owned by the Israel listed ADO Group.

Over a period of months at the early into 2019, Ado Group had gone through a change of ownership, with Shikun&Binui (construction and infrastructure company) selling in tranches its controlling stake to the Dayan family and Apollo Global Management. As a result of this change in ownership, several changes to the Board of Directors of Ado Properties took place, which resulted in 5 members out of 8 being proposed and appointed by Dayan/Apollo and only 2 independents remaining, alongside the CEO. Most shareholders objected to the perceived lack of independence of the Board, but there was limited engagement from either the management or, particularly, the Board to alleviate investors’ concerns; in spite of objections, the proposed appointments have ultimately been voted in.

We divested our entire holding, and have subsequently witnessed the entire management team of Ado Properties being replaced in the summer of 2019, and a 30% decline in the stock share price performance from March to June of 2019 (albeit, admittedly, significantly impacted also by the introduction of a rental-freeze law in Berlin).

Outcomes
ESG Topic
Political spending / lobbying
Conducted by
Objectives

Global Listed Infrastructure
Shareholder Proposal Regarding Political Contributions and Expenditures Report for NextEra Energy
 
 

Scope and Process

We welcome the information already being provided by the company on this topic, but believe that a more comprehensive report detailing all political spending would be helpful for transparency. Accordingly, we voted FOR this shareholder proposal (despite Management recommending a vote AGAINST) in order to emphasize our support for this. 

Outcomes
ESG Topic
Other governance
Conducted by
Objectives


Global Listed Infrastructure
Shareholder Proposal Regarding Allocation of Profits / Dividends for East Japan Railway. 

 

Scope and Process

The company’s dividend pay-out ratio is currently 30%. Although not unusual within a Japanese context, this is substantially lower than many companies within our global opportunity set.  We would like to see a higher allocation of profits towards shareholder returns, and therefore voted AGAINST management recommendations on this proposal, in order to convey our view. 

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Australian Equities Growth /EI – Concerns Over Size of Stock Option Grants for Executive Committee Member (name of company withheld)

Scope and Process

Management recommended a vote in favour stock option grants to Executive Committee member.  On investigation, we found that the size of the stock option grant was out of step with levels granted to other members of the Executive Committee and also versus levels across comparable companies in the market.
As a result, we decided to vote against management.

 

Outcomes

21.2. Additional information. [Optional]

Stewart Investors commented:

In the majority of cases we vote with company management and use our long-term engagement process with companies outside of AGM season to discuss and further engage on any issues we may have. The above examples where we voted against were and are part of our wider engagement process and these votes are by no means actioned in isolation. We are active not activist in our voting practices and don’t take voting against a company lightly. The majority of resolutions we vote against relate to management remuneration, minority shareholder rights and board directorships. More specific topics around ESG and sustainability are less likely to appear on ballot papers but we do engage widely with investee companies on a variety of issues.
More specifically the Sustainable Funds Group have identified the following three themes as engagement priorities with companies.
Remuneration: with the aim to develop principles which we can encourage companies to adopt and also engage on remuneration at a broader level through a consideration of living and minimum wages. 
Diversity: with the aim to engage on gender diversity across board and management throughout our portfolio companies. 
Pollution: with the aim to focus initially on plastics and packaging and encouraging companies, particularly our consumer goods companies, to reduce their non-recyclable plastic waste and consider circular economy principles.


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