Asset owners are turning their attention to the top management of companies they own, their decisions on ESG and pay in this annual general meeting (AGM) season.

The UK’s Universities Superannuation Scheme (USS) has drafted a new stewardship and voting policy which has a more direct effect on responsible directors if, among other things, a company hasn’t disclosed a climate transition plan, doesn’t meet the scheme’s diversity expectations, or where executive pay doesn’t align with company performance, it said.

“Looking ahead to the 2023 voting season, we’ll consider voting against management on various systemic risks that have a financial impact,” a spokesperson for the scheme told IPE.

For example, it will target managers if a bank hasn’t publicly disclosed climate transition plans, an oil and gas company hasn’t disclosed a breakdown of money spent on new, or expanding, projects that will add to their carbon footprint, and if a UK company doesn’t comply with the Modern Slavery Act reporting requirements, the spokesperson added.

Norway’s Government Pension Fund Global (GPFG) is exercising its voting rights at AGMs this season specifically on climate, diversity at board level, and executive pay.

The fund considers crucial to improve the quality of companies’ boards with a broad range of perspectives, competences and backgrounds at top management levels.

“We expect boards to have an appropriate gender balance, and we will increasingly vote against in instances where this is not the case,” a spokesperson told IPE.

Just last week Norges Bank Investment Management (NBIM), which manages Norway’s NOK14trn (€1.2trn) sovereign wealth fund, increased the gender diversity of its leader group – and the team’s size – with a new appointment.

On the question of pay, the fund will focus on CEO packages of $20mn or more, and on cases where outcomes are unusually costly, and incentives are not clearly aligned with shareholders’ interests.

“In these instances, we have more stringent requirements for a good structure, such as a five-year time horizon for equity vesting,” the spokesperson added.

Cometa, the largest Italian pension funds, has already voted against the remunerations of the CEOs at Apple, Siemens, Compass Group and Deere & Co AGMs.

At Apple’s meeting, the pension fund opposed the re-election of non-independent directors, in favour instead of equal pay, human rights, and diversity at the company.

According to Cometa, the compensation of CEO Tim Cook is equal to 1,177 times the average wages of the workers at the company. Moreover, ESG objectives are only communicated ex-post, thus preventing a clear assessment of the link between the CEO’s bonus and sustainability goals, it said in a statement.

Climate and corporate governance

In Italy, in addition to Cometa, other pension funds that will exercise their voting rights autonomously include Fondo Espero, the pension scheme for education staff, and Fondenergia, the pension fund for workers in the energy sector.

Further Industry-wide pension funds are pushing pension funds association Assofondipensione to open up discussions on the possibility of exercising voting rights and active ownership at AGMs, with ESG and SRI among the topics on future agendas, Giovanni Maggi, the assopciation’s president, told IPE.

For USS, climate change brings with it enormous financial and environmental risks, therefore it expects invested companies to disclose their climate transition plans to track, support, or challenge progress.

“We’ll consider voting against management at companies that have a Transition Pathway Initiative (TPI) score of less than three. We’ll also continue to use our voting power at this years’ company AGMs to support appropriate climate-related resolutions,” the spokesperson said.

At the same time, the scheme intends to encourage further climate-related developments and companies in their efforts to fulfill climate plans, pushing for change if firms lag behind climate ambitions or disclosures.

USS also considers how to identify and prioritise other risks as an investor with a long-term view, looking to address additional systemic risks that may have a financial impact like biodiversity loss or antimicrobial resistance.

“These are very challenging issues for individual pension funds to address so we will likely collaborate with others to address them,” the spokesperson said.

Ethos Foundation has sent a letter, together with 21 investors, to the Legal Affairs Committee of the lower house of the Swiss parliament, the National Council, asking to pass legislation demanding companies to respect human rights and the environment. 

The co-signatories of the letter include AkademikerPension, PGGM Investments and Unigestion, among others, with a combined total assets of CHF459bn.

The members of the committee will discuss this Thursday the possibility of extending the duty of care for companies based in Switzerland, it said.

Investors are demanding the establishment of an independent supervisory authority to monitor and sanction companies not complying with corporate environmental and human rights due diligence.

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