Railpen, the fiduciary and investment manager of the £34bn (€40bn) UK railways pension schemes, has published its global voting policy for 2024, setting out the expectation that companies report using the disclosure requirements developed by the International Sustainability Standards Board (ISSB).

It said that it had clarified its expectations with regard to disclosure, while recognising that good disclosure did not necessarily equate to good practice, and that companies should use the new S1 and S2 standards on sustainability- and climate-related risks “as a minimum, but not necessarily as a maximum”.

The ISSB published IFRS S1 and IFRS S-2 in June, ushering in what it hopes will be a new dawn in global corporate sustainability reporting although some lament its focus on the impact of ESG issues on companies and not also the impact of a company’s activities on the environment and on society.

Railpen also said it had strengthened its voting lines on how companies both disclose their approach to just transition considerations and implement climate transition strategies that better manage the risks and opportunities arising from a just transition.

Overall the global voting policy reflects Railpen’s four corporate governance themes of board composition and effectiveness; corporate culture and purpose; remuneration and alignment of incentives; and shareholder rights, risk and disclosure.

Late payments

The new policies for 2024 AGM season include the introduction of voting sanctions for UK companies that have continuously paid their small- and medium-sized suppliers late or have a long-standing record of outstanding payments.

Railpen said that there is a growing body of evidence demonstrating the financial materiality of a company’s treatment of its key stakeholders – this includes its suppliers, many of which rely upon stable, predictable payment streams for their ongoing financial viability.

It added that a record of late or outstanding payments to suppliers can increase a company’s operating costs over the medium-term, as well as damaging goodwill amongst both suppliers and customers.

“Voting is a fundamental tool to help us push for positive change to drive real impact on behalf of our members”

Michael Marshall, head of sustainable ownership at Railpen

As a result, from 2024, where a UK company has since 2018 been consistently and each year paying its suppliers late, or has a record of outstanding payments, Railpen said it will consider a vote against the Report and Accounts and/or any relevant executive directors.

No to ‘dual-class enablers’ 

Another aspect of the updated voting policy is voting against “dual-class enablers”.

There has been extensive discussion among UK policymakers about how to rectify the recent decline in IPOs as the current government looks for ways to boost economic growth and maintain the City of London’s reputation as global financial centre. One suggestion is to weaken protections around dual-class share structures, which Railpen opposes for likely to have a detrimental effect for long-term investors as well as being unlikely to deliver desired benefits.

Railpen said that long-term corporate success requires the shareholder voting rights to be directly linked to the shareholder’s economic stake.

As a result, Railpen said it will continue to support ‘one share, one vote’, and – for all new company IPOs with dual-class share structures and a sunset clause of more than 20 years from the date of the IPO – be minded to vote against the election of all individual board members both in their capacity as a director at that company and at any other company where these individuals hold a board seat.

Michael Marshall, head of sustainable ownership at Railpen, said that thoughtful voting alongside constructive engagement with portfolio companies supports Railpen’s objective of enhancing long-term investment returns for beneficiaries.

“Railpen’s Sustainable Ownership team is critical to ensuring the assets we are invested in can grow and prosper over the long-term, that is why we believe engaging with companies is so important and voting is a fundamental tool to help us push for positive change to drive real impact on behalf of our members,” he said.

Caroline Escott, senior investment manager at Railpen, added: “Although policymakers in the EU and the UK may be considering a “race to the bottom” on corporate governance standards, in 2024 we will continue to use our voice to advocate for the strong shareholder rights and effective corporate governance, which ultimately benefit both investors and companies.”

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