ESG Prominent during Pandemic Proxy Season

Martin Currie: Stewardship & ESG Report | Edition 1 Climate Change.

David Sheasby

David SheasbyHead of Stewardship and ESG

The second quarter of the year is traditionally the peak of the annual proxy season in Europe, the US and Asia. Despite physical distancing measures meaning that many AGMs were virtual, the season appears to have passed relatively smoothly.

In Martin Currie’s experience, companies have been very open to engagement and very responsive in the run-up to the meetings. Voting has been dominated by director elections and Martin Currie has been paying close attention, to how the nomination process promotes increased diversity on boards. 

In our discussions we have tried to gain an understanding of the process and the general approach. In some cases, this has resulted in us voting against the chair of the nomination committee where we have particular concerns.

For example, in the case of Minth, the Chinese auto parts manufacturer, we were concerned about the process to appoint a new chairperson to the board of the company and the close links to the former chair and founder of the group. We engaged with the company and the nomination committee chair on this and set out our concerns about the lack of independence and the process governing the appointment. We felt that on this occasion the company would be better served with an independent chair. As such, we voted against the appointment of the new chairperson.

New SEC Guidelines Create Concern

An important recent regulatory development in the proxy space has been the U.S. Securities and Exchange Commission (SEC) approval of final new rules on proxy voting advice. The main target of the SEC’s overhaul is proxy advisor firms themselves, but the ruling also provided guidance for investment managers, who will now be expected to wait to cast their votes until after they have given the issuer a chance to respond to the proxy advisor’s recommendation.

We are concerned that this ruling could undermine the independence of proxy advice and could prolong the voting process. We are in the process of reviewing our own proxy voting procedures to identify any adjustments that we may need to make on the back of this change.

Resilience will be a key focus going forward and there is a question about whether ESG-related pay metrics will gain more prominence to promote corporate resilience and maintain the social contract

Martin Currie

Looking Toward a Post-COVID-19 World

While remuneration has also continued to be a theme through the last quarter, the COVID-19 crisis has seen many CEOs at North American and European companies take salary and/or bonus cuts in sectors that have experienced heavy layoffs. As we move into the recovery phase, the focus will shift to the level of discretion used by remuneration committees, any one-time adjustments and any changes to in-flight awards – but this is more likely to be a theme for next year’s voting. Resilience will be a key focus going forward and there is a question about whether ESG-related pay metrics will gain more prominence to promote corporate resilience and maintain the social contract.

The Stewardship Matters Report summarises outcomes of critically important Stewardship and ESG activities that the Martin Currie investment team undertake on behalf of their clients and presents an opportunity to share how the firm uses their global investment reach to lead on ESG issues and continually evolve their investment approach to make better informed decisions for a more sustainable future. 

Read the full report


DEFINITIONS

AGM is an abbreviation for annual general meetings.

Environmental, Social, and Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business.

WHAT ARE THE RISKS?

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.