2022 proxy voting season: our focus on sustainability and governance

    investment viewpoints

    2022 proxy voting season: our focus on sustainability and governance

    Rebeca Coriat - Head of Stewardship

    Rebeca Coriat

    Head of Stewardship

    Through our stewardship activities, we aim to protect and enhance the long-term value of the assets entrusted to us by our clients. Engagement and proxy voting are the two key tools in this. Here we look ahead to the 2022 voting season. 

     

    Need to know

    • Proxy voting enables us to hold companies accountable to their commitments (or lack of thereof) to the sustainability themes that we have identified as key drivers of returns.
    • LOIM is a member of or signatory to numerous organisations that support us in our work to encourage companies to develop and disclose their net-zero business plans and strategies.
    • As we embark on the 2022 voting season, our emphasis on strong governance and the sustainability transition will again be front of mind, along with prioritising corporate citizenship.

     

    Proxy voting: part of our investment activity

    Exercising voting rights on behalf of our clients allows us to express views on critical matters affecting the long-term performance of portfolio companies, while also analysing their impact on society and the environment. In doing so, we consider matters such as:

    • Strategy and corporate governance
    • Share capital management and shareholders’ rights
    • Remuneration
    • Transparency and disclosures
    • Audit issues
    • Social and environmental matters – especially the transition to a low-carbon, climate-resilient and nature-positive economy

    These areas of focus reflect our belief that sound and solid corporate governance structures, and the effective management of social and environmental risks, create a framework in which a company can be run in the long-term interests of its shareholders and stakeholders.

    Proxy voting enables us to act on this belief. We can hold companies accountable to their commitments (or lack of thereof) to the sustainability themes that we have identified as key drivers of returns. These eight themes are codified in our proprietary CLIC™ framework, which captures the global transition to an economy that is Circular, Lean, Inclusive and Clean. As such, proxy voting is integrated into our investment process.

     

    Acting on stewardship priorities
    Proxy voting supports our implementation of LOIM’s three stewardship priorities:
    3 Stewardship priorities.svg
    In line with our stewardship escalation policy, we take an incremental approach in holding companies accountable for lack of progress.

     

    2021 proxy snapshot: voting on climate

    We are members of Climate Action 100+, the Net Zero Asset Managers’ Initiative and Finance for Biodiversity Pledge, among other sustainability-focused investor initiatives. We also support the IIGCC’s Investor Position Statement - Vote on Transition Planning, the CDP’s Science-Based Targets collaborative engagement and are signatories to the UK Stewardship Code.  

    Together with our one-to-one engagements, these collaborative engagements support us in our work to encourage companies to develop and disclose their strategy on how they intend to become net-zero businesses by 2050 (or earlier).

    During the 2021 proxy voting season, Climate Action 100+ flagged 18 resolutions for voting, 16 of which were in scope1 for us. We voted ‘yes’ for 100% of the resolutions that were in scope for us. 

     

    Increase in voting coverage per year, 2019-20212

    Proxy voting.svg

    Source: LOIM, 2021.

     

    2022 proxy preview: focus themes

    In upcoming proxy season, our emphasis on strong governance and the sustainability transition will again be front of mind. We will prioritise votes focused on the following topics:

    • Governance
      • Strong, independent and diverse boards with an appropriate mix of skills and knowledge to support the alignment of business models with transition pathways to a sustainable economy.
      • Time commitments (time directors can commit to their roles to challenge overboarding)
      • Lobbying practices
    • Sustainability
      • Existence of certified, science-based targets – with a preference for absolute targets for decarbonisation
      • Inclusion of ESG – and, specifically, climate-related metrics – in executive pay
      • Approach to assessing impact on biodiversity
      • Share capital requests should be aligned with progress on overall sustainability metrics
    • Corporate citizenship
      • Disclosures on social commitments, diversity and inclusion, impacts on communities and reporting on progress

    Our voting on these issues will be integrated into existing and ongoing engagements – our own dialogues, and those in which we a part of a collective – with the companies concerned. Our views will reflect each company’s direction and speed of travel on governance, sustainability and other matters. The materiality of their sector in the CLIC transition will also be taken into account.

    Most importantly, companies’ progress on commitments will be considered or, in the absence of positive change, their explanations will be assessed.

    To learn more about our stewardship practices, our stewardship statement, engagement policy, proxy policy and voting guidelines, click here.

     

    Sources

    [1] Votes related to LOIM portfolio companies Proxy Season | Climate Action 100+ 

    [2] We aim to cast votes on all meetings where our holding exceeds a certain threshold or where issues of particular importance arise. In 2019, this threshold was 1% of NAV of each fund, which resulted in 35% of our equity holdings. In the same year, we voted on all of these meetings. In 2020, the threshold was lowered to all holdings with a value at or above USD 250,000, expanding our voting universe to 55% of all equity holdings. We again voted on all meetings in our universe, and on others involving important M&A or sustainability-related general meetings. In 2021, we lowered this threshold to all holdings with a value at or above USD 100,000, which expanded our universe to 78%. We voted on all meetings but understand that operational issues, including companies being listed in share-blocking markets and complications over power of attorney, resulted in some votes not being registered with companies. We will communicate this number of votes in due course.

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