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Pendal

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

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.

Pendal Australia's policies and processes in relation to proxy voting can be found in our firm's "Proxy Voting Policy" and "Principles of Internal Governance and Asset Stewardship" both documents are available on our website:

https://www.pendalgroup.com/about/corporate-governance/

These provide an overview of our policies and procedures in relation to proxy voting, including our approach to ESG issues. Pendal Australia's overarching principle is that voting on resolutions should be cast in a way designed to ensure that proxies are voted in the best interests of clients. Our belief is that ESG matters are best dealt with by ensuring appropriate board structures are in place, incorporating a broad level of experience and range of backgrounds, thereby ensuring proper oversight and improved transparency for investors to better assess performance.

As an active investment manager, Pendal Australia's investment framework includes conducting extensive research and analysis on companies in addition to actively engaging with management. Our team of experienced investment professionals are involved in the review of the proxy votes we make. This includes sector specialists and Portfolio Managers as well as our specialist ESG team, Regnan, and our Head of RI. As such we believe our collaborative process enables us to formulate well-informed voting decisions.

​Voting decisions are made on a case-by-case basis by an assessment of the matter at hand and after taking into consideration the likely effect on the performance on the portfolio or fund. In all cases, we consider all of the
 relevant information and, where appropriate, the Analyst or Portfolio Manager responsible may consult with external sources, such as by engaging with the relevant company to obtain further details or clarification on the matter or an external corporate governance advisor, before making a final recommendation. In cases where we have concerns on a resolution, our policy is to initially engage directly with the company and advocate for change privately.

An external proxy voting system is used to support the administration of Pendal Australia's proxy voting-related requirements, including functions such as vote notification and record keeping. Once a corporate action is identified by the provider, the portfolio management team reviews and advises on how it should be voted and proxy voting is performed within the deadlines and in accordance with mandate requirements where reasonably possible. The performance of the outsourced administrator is reviewed and monitored by Pendal through a number of key reporting and meeting structures.

The Governance and Risk Management Frameworks within Pendal include various mechanisms to identify and escalate incidents which include the breakdown of controls or breach of policies, including the Proxy Voting Policy. Where exceptions to the Policy arise these would be reported, assessed and escalated in line with relevant policies and procedures and rectifications / remediation actions taken.

12.3. Additional information.[Optional]

Pendal Australia considers the exercise of voting rights as an important part of asset stewardship.

We recognise that we have the potential to influence investee company policy on matters of corporate governance by virtue of significant holdings in those investee companies, which are held on behalf of our clients.

Pendal Australia's policy is based on the following principles:

  • Any votes cast will be cast in the best interests of clients.
  • Pendal Australia will carefully consider whether to vote in favour of a Board or management recommendation and each proposal considered on its own merits. However, where Pendal Australia believes that a recommendation is not in the best interests of our clients, the recommendation will not be supported.
  • Pendal Australia opposes different voting right share classes and any poison pill takeover defences.
  • Resolutions involving contentious issues will be dealt with thoroughly and thoughtfully and in the best interests of clients. Contentious issues may be defined as:
    • Any issue where there is the likelihood of Pendal Australia voting against a Board sponsored resolution.
    • Any issue where there is a likelihood of Pendal Australia voting against a current Director standing for re-election.
    • Any issue involving a resolution that is not in line with ASX Corporate Governance Principles and Recommendations.
    • Any other issue or resolution which may be contentious, taking into account industry conventions, relevant laws and media coverage.

There may be circumstances where Pendal Australia does not exercise a proxy vote. Circumstances surrounding the non-exercising of proxy votes are carefully considered by Pendal Australia. Such circumstances may include:

  • Where exclusions may arise from the Corporations Act or any conflict of interest; and
  • Where Pendal Australia has already made a decision to dispose of the securities.

Pendal Australia publishes a summary of all Australian proxy voting records for the previous year on an annual basis in accordance with the Financial Service Council Standard No. 13 Voting Policy, Voting Record and Disclosure (26 March 2013). The record is published on Pendal Australia’s website: www.pendalgroup.com.


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.

The administrative and legal costs involved did not make it economical for an active manager like Pendal Australia.

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

          We strongly believe in engaging with investee companies prior to voting at their annual general meeting to 1) gain insight which may be relevant to our final voting position, 2) communicate our voting position to the company and/or 3) afford the company a right of reply.
        

15.3. Additional information. [Optional]

As an active manager and steward of our investments, we exercise our voting rights in a considered manner. We believe engagement around the vote is an important part of this. We endeavour to meet with all investee companies in advance of the vote where possible.


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]

We note that most matters related to concerns with corporate governance and executive remuneration.

While we don't communicate voting rationale publicly, we do communicate this to clients in regular reporting and on request.


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]

Pendal Australia considers the exercise of voting rights as important part of asset stewardship.

We recognise that we have the potential to influence investee company policy on matters of corporate governance by virtue of significant holdings in those investee companies, which are held on behalf of our clients.

Pendal Australia's policy is based on the following principles:

  • Any votes cast will be cast in the best interests of clients.
  • Pendal Australia will carefully consider whether to vote in favour of a Board or management recommendation and each proposal considered on its own merits. However, where Pendal Australia believes that a recommendation is not in the best interests of our clients, the recommendation will not be supported.
  • Pendal Australia opposes different voting right share classes and any poison pill takeover defences.
  • Resolutions involving contentious issues will be dealt with thoroughly and thoughtfully and in the best interests of clients. Contentious issues may be defined as:
    • Any issue where there is the likelihood of Pendal Australia voting against a Board sponsored resolution.
    • Any issue where there is a likelihood of Pendal Australia voting against a current Director standing for re-election.
    • Any issue involving a resolution that is not in line with ASX Corporate Governance Principles and Recommendations.
    • Any other issue or resolution which may be contentious, taking into account industry conventions, relevant laws and media coverage.

There may be circumstances where Pendal Australia does not exercise a proxy vote. Circumstances surrounding the non-exercising of proxy votes are carefully considered by Pendal Australia. Such circumstances may include:

  • Where exclusions may arise from the Corporations Act or any conflict of interest; and
  • Where Pendal Australia has already made a decision to dispose of the securities.

Pendal Australia publishes a summary of all Australian proxy voting records for the previous year on an annual basis in accordance with the Financial Service Council Standard No. 13 Voting Policy, Voting Record and Disclosure (26 March 2013). The record is published on Pendal Australia's website: www.pendalgroup.com.


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
91 %
Against (opposing) management recommendations
8.5 %
Abstentions
0.5 %
100%

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

88

18.4. Additional information. [Optional]

We are an Australian-based asset manager and we met with 100% of Australian companies where we lodged a vote against management. Our global equities team were not able to engage with all overseas-domiciled companies. This was in part due to logistics but also due to our comparatively small shareholding limiting access.


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.

19.3. Additional information. [Optional]

We don't have a formal Pendal-wide escalation policy, although each investment team (across asset classes) has informal processes to escalate in line with each team's investment approach. 


LEA 20. Shareholder resolutions (Private)


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

Three 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. We 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

In all cases this engagement build on multi-year discussions with the board and management of these businesses. We held detailed discussions where needed to clarify public disclosures on the methodologies to assess climate related risks within portfolios, noting that in most cases exposure to fossil fuels was relatively small. In one instance we won acknowledgement of the need for the company to play a greater role in monitoring portfolio levels risks rather than relying on external data providers. All discussions proved useful in promoting a focus on materiality given the industry's role in preventing systemic risk. In two of the three cases it was evident that the issue of publicly disclosing the results had not been considered and we were able to provide evidence of this now becoming an investor expectation within this market. All three went on to disclose the results, despite not being technically compelled to.

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. Our 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

We engaged with both the proponents of the resolution and the company to better understand the context for the resolution. In our third meeting with the company on this issue in 2019 we detected a more supportive approach to the principle nature of the resolution's ask, this view was further supported by a public statement broadly consistent with the resolution. 

Outcomes
ESG Topic
Political spending / lobbying
Conducted by
Objectives

This company was subject to a shareholder resolution seeking that it suspend memberships of industry associations where a major function is climate related advocacy inconsistent with the Paris Agreement. We sought in our engagement to understand progress made since similar previous discussions with the company on this matter and to test the effectiveness of its influence within those associations it supports in order to shape voting intentions.

Scope and Process

We continued what have been multi year discussions with the company's board and management via participation in ESG briefings and follow up discussions. (In all we have held six engagements since 2015.) While we noted improved transparency and governance of this issue inconsistencies remained and saw the resolution as a tool by which investors can communicate ongoing interest in the effectiveness of the company's stewardship of advocacy positions it influences. We again met with the company following the AGM where it demonstrated an increasing control of industry association exposure, including some success in disciplining its governance, although risk exposure remains.

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Under UK listing rules this company was preparing a revision of its remuneration policy and approach for which shareholder endorsement is required. It proactively sought feedback from a range of investors as part of the process. Specifically we sought that:

  • the company did not lose sight of the role of remuneration in motivating management
  • performance was disclosed transparently to enable investors to effectively assess the robustness of the plan
  • the board retain its discretion over the plan and that it set out clearly the context for its application, including when it is exercised
  • provide constructive input into the creation of a remuneration plan that was supportable by investors
Scope and Process

During a meeting with the newly appointed remco chair in 2018 we encouraged the company to consider the stakeholder management requirements associated with the development of remuneration approaches, This is especially in light of the differing views on investors on the topic. In 2019 the company undertook extensive investor engagement in reviewing its remuneration plan and approach. We provided input on the items for consideration and again met with the company where it presented a first draft of its planned approach. We tested whether the plan had any areas of unnecessary complexity and reaffirmed the need for disclosures to include a transparent and balanced discussion on performance. We will continue to monitor these aspects as the plan is implemented.

Outcomes
ESG Topic
Climate Change
Conducted by
Objectives

To assist in deliberations on two climate-related shareholder resolutions, one on transition targets and pathways, the other on associated lobbying by industry associations we met with the company seeking to:

  • Clarify the company's position with respect to the Paris Agreement which was ambiguous in public disclosure
  • Seek to test the effectiveness of the company's disclosed mitigation strategies
  • Encourage more active participation in the governance of industry associations
Scope and Process

In all we have met with the company on its management of climate related risks five times since 2015, including meetings with both management and the company chair. The resolution provided a trigger to again meet with the chair. The meeting and follow up discussions with management provided an opportunity to set out why current disclosures did not provide sufficient detail to provide investor comfort that climate related risks were sufficiently managed. The company acknowledged that there were opportunities to play a more active role within the industry associations, an avenue it stated that it had not previously considered. We will continue to provide specific feedback on disclosure challenges and monitor progress.

Outcomes
ESG Topic
Diversity
Conducted by
Objectives

We engaged with a company involved in social infrastructure, with healthcare and childcare assets. Absence of female directors on the Board was a key concern given the childcare sector’s high representation of women.

Scope and Process

We begun engagement on board diversity in Nov 2017. We gave the company12 months to address the issue. We warned that we would not support rem report at the 2018 AGM if there was no progress on this matter. By the 2018 AGM no female directors were appointed – we voted against the rem report and continued to engage on the issue. In August 2019, the company appointed its first female director to the board. She has deep experience in property finance and social enterprise.

Outcomes

21.2. Additional information. [Optional]

Regnan is Pendal's in-house specialist ESG research, engagement and advisory team. Even though Regnan is wholly owned by Pendal, we classified the engagements mentioned above undertaken by Regnan as service provider engagements rather than internal engagements. This is due to the fact our investment teams also conduct engagements separate to the Regnan program, and Regnan also represents several other institutional investors in its program.


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