hongkongen
Investors use voting rights to address poor climate change policies

Investors use voting rights to address poor climate change policies

19-02-2021 | Insight
Companies that are not sufficiently decarbonizing will face opposition from shareholders, says Engagement Specialist Michiel van Esch.
  • Michiel  van Esch
    Michiel
    van Esch
    Engagement Specialist

Speed read

  • Decarbonization a hot topic at the upcoming shareholder AGM season
  • Investors can vote against reappointment of directors for bad practices
  • Gender diversity and executive pay can also trigger investor ire 

As the season for annual general meetings (AGMs) approaches, he says investors including Robeco are ready to use their powers to oppose non-climate friendly policies, including votes against the reappointment of directors.

“For companies that are poorly addressing climate risk, we will also hold the board accountable by voting against either the chairman of the board, the chairman of the sustainability committee and the report and accounts,” Van Esch says. 

“Investors with their own mandates to decarbonize portfolios are increasingly declining to ‘rubber stamp’ normally routine AGM business. This is a practice we began last year.

“We developed a framework to assess where we support shareholder resolutions on climate change mitigation and where we don’t. But it continues to be a moving target, as the expectations for companies to decarbonize are becoming more demanding.” 

Stay informed on Sustainable Investing with monthly mail updates
Stay informed on Sustainable Investing with monthly mail updates
Subscribe

Shareholder resolutions

One way that investors can seek change is through shareholder resolutions asking for some aspect of the company’s business to be improved. If enough shareholders support the resolution, the company comes under pressure to adopt it.

“We voted in favor of 70% of environment-related shareholder proposals last year, since we are generally very supportive of shareholders using their rights to drive progress on climate,” Van Esch says. “But there are some conditions for our support.”

“We would normally support any resolution asking for risk mitigation analysis, a request for a strategy on climate, and any reporting based on the guidelines from the Task Force for Climate-Related Financial Disclosures.”

“However, it is important to bear in mind that proposals should be aimed at supporting a company in taking its next steps in the climate transition. Proposals that seek to ban the use of so-called transition fuels, or in certain conditions would emphasize an absolute target over an intensity targets, could actually be counter-productive.”

Taking the initiative

It’s also important to note that many companies deserve praise for taking their own initiative in decarbonizing, Van Esch says. “When considering a resolution, we also take a company’s own performance and plans into account, including its responsiveness to engagement, the concreteness of its climate program, and quality of reporting,” he says.”

“For companies that do very well on these aspects, their own plan actually might be better than what is proposed via a shareholder request.” 

“Another interesting development is that we’ve seen a management proposal asking for shareholder support on its climate strategy, a so-called ‘say on climate’. We welcome such management proposals and hope to see them on agendas more routinely.”

Gender diversity

The issue of women on boards is another issue of concern for shareholders. Many studies show that companies with more women in senior management positions are actually more profitable, making it a financially material subject.

“We believe that diversity can help incorporate a variety of perspectives on key board topics,” Van Esch says. “Therefore, we will vote against the chairman of the company’s Nominating Committee if the board has not sufficiently addressed diversity.”

“For most markets, some form of soft law or guidance is in place for board gender diversity, and votes against can be triggered if companies do not meet a target of having 30% gender diversity. In markets where there is no such guidance, votes against are triggered if there is no gender diversity at all at the board level.”

“In general, we will support shareholder proposals that aim to improve a company’s nomination policies to leverage the benefits of diversity beyond gender and to promote a culture of inclusion.”

Executive pay

And then there is the traditional AGM staple: the thorny issue of executive pay, particularly when it doesn’t tally with the company’s performance in the prior year. Robeco assesses remuneration proposals based on four things. These are the structure of the pay plan; the degree to which pay is aligned with performance; the transparency and accountability of the board over the issue; the inclusion of relevant sustainability aspects, and how appropriate the amount of pay is for the organization.

“There is always plenty of attention for remuneration plans, but in the 2021 AGM season (much like last year) there are a couple factors that are going to make it more interesting,” Van Esch says. 

“First of all, there will be much more engagement with EU companies because of the amendment to the Shareholder Rights Directive (SRD II) requiring more frequent shareholder approval of compensation plans. Our engagement on executive remuneration is going to be closely aligned with our expectations when we vote on these topics.”

“Companies that do not meet investor expectations on remuneration will probably have to do much more consultation on the topic in the coming years – we already see that happening now,” Van Esch says.

Complications of Covid-19

Another complicating factor is the Covid-19 crisis. “Many companies have had to make difficult decisions, on cost cutting, capex spending, letting people go, requesting or accepting state aid, and cancelling dividends,” Van Esch says. 

“So, what is an appropriate remuneration package for executive management in this context? Theoretically, most remuneration policies would reward management with higher pay when performance is strong, and lower pay out when things are looking down. In practice, such mechanisms can have design flaws that pay well when the sky is the limit but do not adjust in a downturn.”

“That is something we will look out for this season, especially in relation to any Covid-19-related impacts on the company.” 

Robeco’s full voting policy is available

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.

Logo

Disclaimers

1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree