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Bonuses, net zero and Ukraine: what to expect in AGM season

The assembly season is in full swing. This year, multi-year shareholders’ questions around wages, climate change and diversity will be asked against the background War in UkraineWhich threw the usual preparatory work off track.

Transactions and major strategic changes have been postponed, according to many consultants. Meanwhile, Activist investors Increasingly shaping the conversation in British conference rooms. These investors – who seek to capitalize on shareholder dissatisfaction after a period of low performance – are now on the register of shareholders of at least nine companies in the FTSE 100, including Rolls-Royce, Unilever and GlaxoSmithKline.

Annual meetings are held against a The deteriorating global economic backgroundAs Russia’s invasion of Ukraine imposes a severe stagnation shock and the return of the corona virus to China once again threatens global supply chains.

The way asset managers vote in investee companies will remain under intensive scrutiny, highlighting widespread concerns that large investors often declare their environmental, social and governmental authority but fail to back decisions.

as per Recent research By ShareAction, a charitable investment charity, only 30 out of 146 (21 percent) of ESG’s resolutions received majority support for a proxy vote last year. About one in three environmental decisions received majority support, but the asset management industry failed to support most of the proposals that focused on social issues.

Rolls-Royce is one of many companies in the UK under pressure from activist investors © Peter Nichols / Reuters

The six largest asset managers (BlackRock, Vanguard, Fidelity Investments, State Street Global Advisors, Capital Group and JPMorgan Asset Management) all supported less than 40% of the decisions voted for in 2021. Some investors have said that more and more investors are connecting the E with the S and the G, rather than seeing them as three separate issues.

Here are some of the major issues that need to be addressed.

Russia / Ukraine

Directors expect the conflict to be resolved from their annual meetings – both to explain and to assess the conflict Exposure to Russia and UkraineAnd describes what they are doing to help the humanitarian cause.

“In this season of meetings and looking ahead to the next 12 months, it is impossible to ignore what is happening in Europe to see what impact and what position will be taken in this regard,” said Moni Manninges, Hargreaves Lansdown’s non-executive director. Easy Jet and Instec Bank.

Sir John Parker, who is chairman of Laing O’Rourke and director of Carnival Corporation, agreed. Issues directly and indirectly related to the crisis in Ukraine will be a major issue for General Assembly meetings, including “assets stuck in Russia and reductions,” he said.

Russia may still appear as a battlefield for activists in the UK plc. This was the case in France, where activist investor Clearway Capital acquired a position Total French oil captain And wrote to the board, urging him to step down from its activities in Russia in light of the war – or to face a vote on the issue at its shareholders’ meeting in May.

climate

“When it comes to climate change, it’s a season of meetings around the nuances and details,” said Mirza Beige, head of global ESG investment at Aviva Investors. “Companies have already set longer-term milestones to reach a net zero path by 2050. Now, shareholders are looking to see details on how they plan to achieve these goals: investment plans, mergers and acquisitions, and incentive arrangements.”

Expect critical climate votes for shareholders at the board meetings of banks like Barclays, HSBC, Deutsche Bank and BNY Hotel, as well as service and mining companies.

especially, The financial sector Dealing with growing calls to shrink business with high-carbon sectors and keep some of the promises it has already made to tackle global warming.

Investors increasingly want to use wages as a weapon in dealing with the climate crisis. Allianz Global Investors, one of Europe’s largest asset managers, and activist Cevian Capital have said they will Vote against Large companies in the UK and Europe that have invested in them if they fail to link executive pay to climate goals. They call on other investors to follow suit.

AllianzGI and Cevian pointed to the disconnect between emission targets, which usually have long deadlines, and the shortening of the tenure of corporation heads. This means that most senior executives will move on before net zero targets take effect, giving them little incentive to reach them – and little responsibility if they do not. Linking executive pay to climate goals is one way to try to address that.

Caroline Le Mew, Global Head of Research, Involvement and Voting for the ESG in Amondi, Europe’s largest asset manager, said: “Because of the success around climate campaigns there will be more campaigns around other ESG issues like biodiversity, social cohesion, living wage. [and] Liability of companies in a company related to their activities. ”

The need to protect nature and end deforestation is at the heart of plans to meet global climate goals.

In the current meeting season Aviva Investors has started voting against senior directors in companies with different methods of weak biodiversity, focusing on deforestation. Its voting activity is based on the Forest 500 Index, which tracks the policies and performance of the 350 most influential companies and 150 financial institutions related to deforestation in their supply chain and investments.

pay

The median total remuneration for FTSE 100 executives fell by 9% in fiscal year 2021 to £ 2.9 million, according to Analysis of annual reports By PwC, as companies restrained executive compensation during the epidemic. Nearly a third of senior executives did not receive a bonus, twice the number they did not receive in 2020. This was as a result of non-compliance with the targets, or the award was canceled or waived.

This season investors will continue to try to ensure that companies that have taken vacation money or cut dividends will not pay bonuses.

As companies emerge from the epidemic, both the quantum and the structure of executive compensation will continue to be scrutinized, with a special focus on sectors such as mining that have benefited from the large rise in commodity prices.

The investors are Predict movement From long-term incentive programs, which typically pay off over three years based on a variety of financial performance metrics, to limited stock programs. These offer a lower fee but one that is largely guaranteed.

Lish column chart

Expect to see more “social” offers like encouraging companies to offer free shares to all employees, motivate them and allow them to participate in the success of their employer.

Property managers like Legal & General Investment Management are asking all companies to pay their employees the real living wage, which is £ 9.90 per hour in the country and £ 11.05 in London.

diverse

The focus on gender diversity has expanded to various forms of diversity, primarily ethnic. This has gained more prominence because of the Parker review, which considers how to improve the ethnic and cultural diversity of UK councils.

God last update A survey earlier this month found that the number of FTSE 100 companies with representation of ethnic minorities on their boards rose to 94, compared to 81 years earlier and 52 in January 2020.

Overall, progress in registered businesses in improving ethnic diversity – both in recognizing it as an area for improvement and adding new members to their boards – has been much faster than in improving gender representation. This will continue to be an important issue for investors with scrutiny of smaller companies beyond the FTSE 100.

“A lot of hard work on diversity has been done through the gender side of things,” said Claire Payne, senior global ESG director and director of diversity at LGIM, which this year intends to vote against five U.S. companies it believes are falling. Ethnically diverse representation.

“Investors have spent a lot of time debating the ‘why’ and formulating the business case for diverse organizations. The Black Lives Matter movement has captured public consciousness. Both of these dynamics have accelerated progress in improving ethnic diversity.”

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