UK Stewardship Code: LOIM confirmed as signatory for 3rd year

For the third consecutive year, LOIM has qualified as a signatory to the UK Stewardship Code, which sets high standards for reporting on the outcomes and integrity of the engagement, proxy voting and policy advocacy exercised by asset owners and investment managers.

As we entered our fourth year of reporting, we reflected on the uniqueness and maturity of our stewardship approach. We chose to align our disclosures with the organisation of our activities and highlight the outcomes of our efforts. 

At LOIM, stewardship is delivered through our holistiQ platform and covers all investment strategies managed by the business. Our work is supported and shaped by the firm’s culture and governance, our sustainable-investment and risk-management approaches, and ultimately our clients’ needs.
 

Need to know LOIM has retained signatory status to the UK Stewardship Code. Our report shows the continued improvement and consolidation of our approach, which focuses on the systems changes necessary for the transition to a CLIC® economy Our chief engagement topics of 2022 were disclosure on carbon emissions and broader sustainability data, followed by net zero and natural capital Climate-related shareholder resolutions are becoming increasingly demanding. In the recent annual general meeting season, proxy voting was a key tool in efforts to convert companies’ climate disclosures into action

Stewardship for the CLIC^® transition

The Financial Reporting Council (FRC), which developed and upholds the Code, defines stewardship as the “responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society”. 

At LOIM, stewardship is fundamental to our approach of investing in the CLIC® transition, which is being driven by the transformation of three global systems – energy, land and oceans, and materials – and accelerated by carbon pricing. Through stewardship, we aim to encourage companies to develop and enhance sustainable business models aligned with such an immense shift. 

This involves tackling transition risks arising from systems changes and seizing key opportunities, while also supporting high-quality corporate governance. By addressing these issues at the company level – and across the value chain – we aim to contribute to reducing systemic risk and the promotion of a well-functioning financial system.

The FRC relaunched the Code in 2020 to strengthen its focus on stewardship outcomes and heighten reporting standards. LOIM was among the first cohort of signatories and has achieved this status each subsequent year. All current signatories are listed here.
 

Priorities in the past year

Driven by systems changes that are rewiring the economy, the CLIC® transition is a major source of investment opportunity while also having clear risks and broader implications for society and the environment. It therefore informs our stewardship activities. 

In 2022, our stewardship priorities were as follows: 

1. Encouraging companies to align with transition pathways. In our view, aligning with the CLIC® transition is crucial for companies to maintain and increase their value in years to come, while also helping to drive changes that benefit society at large. This requires businesses to understand how they are navigating the risks and opportunities being created as systems changes and carbon pricing transform industries. 
2. Promoting and upholding best-in-class business practices. Sound, robust business practices reflecting a coherent framework that is aligned with a company’s vision and mission are key elements in creating value over the long term.
3. Managing controversies. We face situations in which companies are subject to unexpected controversies as well as those that are in-the-making. As active owners, we engage with companies exposed to certain levels of controversy, allowing us to form an in-depth understanding of the risk – and the remedial action that can be taken. While divestment is always an option, we regard it as the last step in our stewardship escalation mechanism. 
    

Engagement in 2022

We define an engagement as the sum of all interactions with one company, on a single issue, during a specific reporting period. We initiate and maintain a constructive dialogue with companies throughout the investment lifecycle. The overall purpose is to help drive companies towards sustainable business models and integrate the outcomes into our investment views.

In 2022, the most prevalent engagement issue was the need for improved transparency on ESG matters and emissions data under the Taskforce for Climate-related Financial Disclosures (TCFD) framework (see figure 1). Adequate reporting on these metrics is essential for assessing the sustainability profile of a company. It also helps the business prepare for future legislation – especially policies regarding carbon-data disclosure. 

FIG 1. LOIM engagements by primary issue in 2022

Source: LOIM at 31 December 2022. For illustrative purposes only.
 

Proxy voting in 2022

We reviewed, analysed and instructed votes at 2,654 shareholder meetings in 2022. This resulted in more than 31,781 voting items across 58 markets. At 63.6% of all meetings, we voted against management on at least one resolution (see figure 3). On a per-resolution basis, we voted against management for 11% of all resolutions (see figure 3).
 

FIG 2. Voted meetings by region in 2022
 

Source: LOIM at 31 December 2022. For illustrative purposes only.
 

FIG 3. Vote breakdown on a per-meeting basis in 2022

FIG 4. Vote breakdown on a per-resolution basis in 2022

 

Source: LOIM at 31 December 2022. For illustrative purposes only.

 

Climate resolutions: the engagement-voting continuum

Shareholder resolutions are reflecting the increasingly detailed requirements placed on companies. Indeed, what sufficed in 2020 is no longer enough in 2022. This reflects investors’ higher expectations of companies’ commitment and action towards corporate governance, remuneration and sustainability issues. 

The surge in say-on-climate proposals is a case in point. Demands for companies to develop credible, science-based transition pathways are reflected in the policies and recommendations made by proxy voting agencies. Collaborative engagement networks, such as Climate Action 100+, and proxy voting alerts that highlight strengths and weaknesses in transition plans, have resulted in engagement outcomes being integrated into voting decisions.

We have observed first-hand how investors’ approach and demands for climate-transition resolutions are becoming more sophisticated and increasingly informed by engagement. The engagement-proxy voting continuum is more important than ever to encourage companies to progress from climate procrastination to climate action.
 

Continuing stewardship commitment

We are committed to investing in and engaging with companies as the CLIC® transition, driven by economy-wide system changes, unfolds. As renewed signatories to the UK Stewardship Code, our actions embody our conviction in the importance of sustainability, strong governance and transparent reporting to support long-term returns.