Five of our teams use a combination of: "Divestment", "Reducing Exposure", "Voting against re-election of relevant directors" and "Voting against the board of directors or the annual financial report"
Three teams Collaborating with other investors.
Two teams Submitting nominations for election to the board.
In general, because engagement is embedded in our investment process, engagement dialogue is an ongoing process. Therefore success criteria are not necessarily tied to individual interventions that can be easily deemed successful or unsuccessful.
For example, the following teams responded:
Stewart Investors: We are long-term investors and see engagement as a continuous process. Our engagement process reinforces the imperative that our long-term investments should be a multi-faceted partnership between a company and every one of its stakeholders and we all have an active role to play in that relationship.
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 shares.
FSSA: In instances where we might be unsuccessful in our engagement, or management fail to alleviate our concerns due to an underwhelming response, questions are inevitably raised regarding the management’s approach to stewardship. We are willing to divest (and have done in the past), but it is usually the last resort. 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 vote against management, engagement will always precede any controversial voting action.
GLIS: Firstly, the listed infrastructure team raises issues in meetings with company management, in order to put our view across and to understand the situation from the company’s perspective.
If we don’t see change, we will then contact the Board, for example by writing a formal letter, outlining our concerns.
If we feel that our concerns are still not being addressed, we may vote against the company via proxy shareholder voting.
In instances where management does not respond adequately to engagement, this may impact negatively on our ranking of the stock, which could result in our divesting ownership. We view this approach as being an important element of our fiduciary responsibilities.
Australian Equities Growth and Equity Income: the Australian Equity Growth team’s rigorous ESG scoring system lays the foundation of their engagement escalation strategy. They are more likely to invest in those companies whose management they have already identified as being open to engagement on ESG risks.
They then assess how companies are managing ESG issues and, where necessary, encourage the entities in which they invest to improve their ESG performance and disclosure practices through active dialogue with many boards and senior company management. They try to gain comfort that the company’s senior management and board are aware of, and accountable for, the management of material ESG issues. Material issues that are not being appropriately addressed are then escalated to proxy voting, investment decisions and ultimately divestment.