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Capital Group

PRI reporting framework 2020

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Outputs and outcomes

LEA 09. Number of companies engaged with, intensity of engagement and effort

Indicate the proportion of companies in your listed equities portfolio with which your organisation engaged during the reporting year. We did not complete any engagements in the reporting year.
We did not complete any engagements in the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion of companies engaged with, out of total listed equities portfolio

Individual / Internal staff engagements

401
21.1

Collaborative engagements

09.2. Indicate the breakdown of engagements conducted within the reporting year by the number of interactions (including interactions made on your behalf).

No. of interactions with a company
% of engagements
One interaction
2 to 3 interactions
More than 3 interactions
Total
100%

09.5. Additional information. [Optional]

We hold in excess of 1900 listed businesses. Our investment professionals engage with these issuers every year, it is a fundamental part of our investment philosophy making thousands of company visits around the world each year. We meet and assess the quality of management, analyse the company's financial strength, its resources, its products and the services it provides and we will also meet the company's competitors. It's not uncommon for our investment analysts to know several generations of management teams at the companies they cover.

Our investment professionals are responsible for these engagements and they are supported by the global Governance and Proxy team and ESG team.

 


LEA 10. Engagement methods

10.1. Indicate which of the following your engagement involved.

10.2. Additional information. [Optional]

At Capital Group, our investment professionals invest a significant amount of time analysing the sustainability of a company's business model. As part of the broad due diligence activities we conduct with management, which range from calls with company board members and senior management to in-person visits to company operations, we place emphasis on ESG-related factors, without separating ESG into a different category of fundamental research.  


LEA 11. Examples of ESG engagements

11.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

ESG Topic
Executive Remuneration|Climate Change|Company leadership issues|General ESG
Conducted by
Objectives

To communicate to the company representatives that the company should consider utilising an ESG metric as part of remuneration practices to help demonstrate commitment to the long-term business plan

Scope and Process

We met with the management team of a French beverage company to provide feedback on the remuneration policy for the company. In the CEO’s long-term incentive plan, one of the legacy KPIs was no longer relevant. We suggested including an ESG metric such as carbon or water reduction as a replacement. This kind of interaction was welcomed by the company as it values shareholder engagement and considers ESG to be an essential element for the long-term health of the business.The feedback was well received, and the company now has a dedicated ESG metric as part of its long-term incentive plan.

Outcomes
ESG Topic
Climate Change|Company leadership issues|General ESG
Conducted by
Objectives

To communicate the need for ESG consideration when looking at the company's long term strategy

Scope and Process

We met with the Board of a diversified resources company, which currently generates nearly half of its revenue from steel-making coal, to present an investor's perspective. Our presentation included an emphasis on ESG considerations as a way of triggering a conversation on scope-3 carbon emissions and encouraging the company to put the coal business into "run-off" mode, to avoid more extreme scenarios like forced divestment. Soon after, the board faced a decision about a new coal mine, and chose not to invest.

Outcomes
ESG Topic
Company leadership issues|Sustainability reporting|Other governance|Other

specify

          
        
Conducted by
Objectives

To encourage higher dividends and a more independent board

Scope and Process

In a recent meeting with the CEO and CFO of a Japanese steelmaker, our analyst and portfolio manager expressed their views that the combination of cash hoarding, a lack of investor relations efforts, poor transparency, and a shortage of documents in English makes it difficult for investors to even hear about the company, let alone become interested enough to invest. They also encouraged the company to appoint more external directors.

Less than two months after the meeting, the company announced that it had increased the previously disclosed final dividend for the 2018 financial year from JPY 25 per share to JPY 40 per share, and had also doubled the 2019 dividend estimate to JPY 100. At its June shareholder meeting, the company also added a second external director to the board.

Outcomes
ESG Topic
Executive Remuneration|Climate Change|Company leadership issues
Conducted by
Objectives

To encourage adoption of more carbon-efficient approaches

Scope and Process

A global leader in building materials is a carbon-intensive business. Our equity analyst repeatedly emphasised the need for the company to introduce more carbon-efficient approaches. He met with the company’s chairman who outlined the company's commitment to reduce emissions in line with the 2˚C scenario. It has revised targets for net carbon emissions to 520kg CO2 per tonne of cement by 2030, with an interim target of 560kg CO2 per tonne by 2022. These targets form part of the short-and long-term incentive plans for executives. The company also announced a CHF160 million investment to reduce its carbon footprint in Europe and has appointed its first Chief Sustainability Officer.

Outcomes
ESG Topic
Climate Change|Company leadership issues
Conducted by
Objectives

 

To discuss succession planning and coal exposure

 

Scope and Process

Our analyst met with the chairman of a global commodities producer and trader. The discussion focused on succession planning and questions around its fossil-fuel business.

The management team is largely unchanged since the company listed in 2011, so the recent senior retirements could present an opportunity to build a governance structure that is optimally designed for long-term strategic decision making. Our analyst was keen to discuss how the leadership structure at the company might evolve.

He also talked about the company’s coal exposure as there is an imperative to reduce carbon emissions. Coal is seen as the easiest fossil fuel to replace with cleaner alternatives and the company has set limits for future coal production. The analyst was interested in getting more colour beyond simple targets to help build a better understanding of how the coal business will fit into the overall company’s future plans. He questioned them further about the strategic future for this business, and their position on options such as selling low value assets or gradually running down capacity –other than to maintain safety and operating standards –without reinvesting.

Outcomes

11.2. Additional information. [Optional]


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