Our active shareholder and responsible investment approach encompass around 30% of the investment team’s time and is a core part of our activities.
Each shareholder owns a part of the business that they invest in and have the same rights. This means that Prosperity is a stakeholder in the firms in which we invest on behalf of our shareholders and that it is our job to try to ensure that management works for the benefit of all shareholders. This active shareholder approach can be expressed in three ways. We engage with the corporate management and core shareholders of the business to discuss issues of corporate governance, corporate finance and sustainable development issues. Another form is where good corporate governance practices have been or are at risk of being breached. In such cases, we take action to resolve a potential conflict or to minimise the damage where a conflict has already arisen. This activity can take many forms from negotiations, appeals to the regulatory authorities or, in some cases, legal action. The third avenue of our active approach is working with the government, regulators and legislators to improve the overall investment climate, corporate governance and stewardship aspects.
An active investment approach means helping to make our companies more profitable and valuable. Prosperity is often a large minority shareholder in many of our Funds’ investee companies, which often helps us achieve these objectives. Prosperity refers to this investment approach as “constructive activism”. PCM believes that voting of proxies is an important part of portfolio management, as it provides the opportunity to be heard and influence the direction of a company. As such, PCM has an active approach to voting of proxies and does so with a high frequency across the portfolios.
Engagement is an integral part of PCM’s research process and our dedicated investment team in Moscow regularly conducts meetings with company management in order to gain a fundamental view on how companies are using their capital and conduct their business. These meetings take place on site at their headquarters, local sites, at investment conferences and in PCM’s offices. ESG issues are part of our engagement and incorporated into our investment analysis and fundamental investment process.
PCM engages with companies and other stockholders, in particular in our top-30 holdings, in situations that are either generally important for ESG or would seriously influence PCM managed funds and mandates’ rights/interests as shareholders. PCM expects that the outcome of our engagements would be the improvement of certain ESG issues at an investee company’s level or more generally through laws and regulations.
PCM decides to engage based on materiality, but has no “minimum asset size” rule for engagements. Particular issues that could seriously influence PCM managed funds and mandates’ rights/interests as shareholders (including harm to an investee company which influence them derivatively) are prioritized. Scope of our engagement covers mainly portfolio companies, but they may also cover other issues in case of general importance to the country and the economy (and possibly subsequently to our portfolio companies).
PCM engagement processes include writing letters and emails, joining collaborative engagements, face-to-face meetings, filing shareholder resolutions, and applications to regulators and courts. In most engagements, PCM relies upon international commitments, policies, frameworks and ESG best practices. If initial engagement fails, PCM normally escalate to pursue the matter. Generally, we don’t divest because of failed engagement, unless the financial analysis or trust in management have severely deteriorated.
We track and report our engagement to clients, in case of their request, and to PRI within its reporting framework
In 2019, in total, ESG engagements covered around 90 % of portfolio, while ES engagements covered around 63 % of portfolio.
PCM believes that the voting of proxies is an important part of portfolio management, as it provides the opportunity to be heard and influence the direction of a company. PCM is committed to voting proxies in a manner consistent with the best interests of its clients.
PCM will oppose share issues which dilute shareholders without bringing adequate benefits to the investment, interested party transactions (both in ordinary course of business and asset transfers) which are designed for asset-stripping or transfer of value in favour of majority shareholder(-s) or third parties, excessive management compensation and other corporate abuses. On the other hand, PCM will support measures designed to improve corporate transparency, accountability of managers and directors, share liquidity and the like. PCM will judge genuine business transactions brought to the attention of shareholders on their merits, on a case-by-case basis.
PCM will have the responsibility of voting proxies received by clients. Each proxy proposal received by PCM will be reviewed and evaluated. Proxy proposals received by PCM will be voted via instructions to the custodian in accordance with the proxy voting policies. Notwithstanding the foregoing, PCM may vote a proxy contrary to the proxy voting guidelines if it determines that such action is in the best interests of the client(-s).
We monitor 100% of corporate actions and vote on ‘significance’ basis, which is defined through:
(a) reasons –related to our top-50 holdings and/or seriously influence our rights/interests as shareholders and/or generally important for ESG and/or
(b) outcomes – improvement of certain ESG issues at an issuer’s level or generally.
For clients who have retained voting rights and discretion in respect of investments, PCM passes on proxy proposals received to the client and/or its custodian together with a recommendation on how votes should be cast.