AXA Investment Managers (AXA IM) has said Covid-19 prompted more engagement with companies in a six-month period than ever before, as it “doubled down” on its conversations surrounding public health, human capital and shareholder rights.
In its H1 2020 Stewardship Report, the group revealed it has engaged with 181 issuers during the lockdown period – the highest ever number and in comparison with 77 engagements in H1 2019 – and voted in 4,300 shareholder meetings.
Yo Takatsuki, head of ESG research and active ownership at AXA IM, explained: “The first six months of 2020 can be divided into two very distinct halves. Our engagement programme came in two highly-contrasting segments – business as usual before the Covid-19 lockdown, and then an altogether quite different period when we were all confined to our homes from mid-March onwards.”
Overall, AXA IM voted against management on at least one resolution at 64% of company meetings, a notable increase on last year, and supported 72% of the 39 climate change-related shareholder resolutions proposed at 32 company general meetings. The report also said AXA IM enhanced its voting policy on board gender diversity, time commitment of directors, auditor rotation, and integration of non-financial ESG metrics into executive compensation.
Additionally, the group challenged company boards on worker rights and employee safety.
Takatsui said engagement in the first three months of the year was largely centred around areas the team considered “most urgent and material for investors” such as climate change, biodiversity, human capital as well as gender diversity, public health, data privacy and corporate governance.
“We continued to participate in the Climate Action 100+ investor group, where we lead engagement with numerous companies in carbon-intensive sectors – and have started an initiative with state-owned oil and gas companies. This period also saw significant climate-related commitments being announced by European energy companies. These were major milestones, a decade in the making.”
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He added they also started their work as co-chairs of the newly established Climate Transition Finance Working Group.
Takatsui explained: “This was set up under the auspices of the Green and Social Bond Principles to press forward the concept of transition financing – where companies in carbon-intensive sectors raise funds in capital markets for their decarbonisation efforts. The group has attracted more than 80 institutions ranging from corporates, investors, investment banks and other stakeholders. A Working Group event hosted in February in London focusing on concepts such as science-based targets, and alignment with the +1.5 degrees celsius pathway, envisaged under the Paris Agreement.”
However, as Covid-19 spread out of Asia into Europe and the US in Q2, Takatsuki said conversations with corporate senior management ramped up and the “dynamic of engagement completely changed” as workforces transitioned to remote working.
“What is noteworthy is just how quickly both our colleagues and the representatives of investee companies adjusted to this ‘new normal. It meant that disruption was kept to a minimum, and by April, engagement dialogue had largely resumed. This is an important time of year as companies solicit the views of investors ahead of annual shareholder meetings.”
He also said the team observed early on that the crisis had brought public scrutiny on their ESG-related practices and conversations with companies revealed the strain this placed on boards and senior management as they navigated the “unprecedented crisis”.
“On behalf of our clients and wider stakeholders, and despite all the challenges of this period, we engaged more companies in a six-month period than ever before – 181 issuers in 28 countries. The case studies and the statistics that follow go some way to revealing the breadth and depth of our ever-evolving active ownership programme as we strive to meet our stewardship-related duties, and drive positive impact for society and the environment.”
In the report, Irfan Patel, corporate governance analyst for AXA IM, explained how coronavirus had shaped conversations with more companies observing their impact on society than before: “We are witnessing the gradual evolution of corporate governance from a traditional shareholder-primacy approach to one in which the interests of a wider stakeholder base are taken into consideration. We note that one area of our focus in engagement discussion has been to challenge companies to establish a clearly stated corporate purpose. That purpose should not be defined solely by profit maximisation but should also express the ambition for wider societal impact.
“It is testament to just how important this topic has become in society that words such as ‘stakeholders’ and ‘company purpose’ are becoming a serious part of the everyday business lexicon.”
On the topic of human capital management, the report also said the team was encouraged to see that many companies immediately prioritised the health and wellbeing on employees.
“Our discussions revealed that some firms had learnt valuable lessons from past crises, where there had been severe operational disruption (such as major natural disasters), or more recently from any Wuhan-based factories/offices which had shut down earlier in the coronavirus’ course,” the report said.
“Unsurprisingly, our engagements around employee treatment with companies in heavily affected sectors such as aviation were difficult – many were considering potential staff redundancies.
Gender diversity voting policy
Meanwhile, AXA IM also recently announced the expansion of its gender diversity voting policy targeting companies in developed markets where less than a third of board members are not female.
In a bid to improve governance standards, the group said the target will be in place from 2021 and will enable it to hold all companies in which it invests to the same high standards of achieving greater diversity.
In addition, AXA IM will also be targeting companies in emerging markets from this year, as well as Japan, where there is not a minimum of one female board director.
Takatsuki commented: “Studies show that a well-balanced and gender-diverse board of directors leads to higher profitability and value creation, overcomes issues of group think, triggers debates and innovation, and leads to stronger diversity of representation across the organisation.
“These changes are in line with our belief that we must hold boards of directors accountable to best governance standards in their role as guardians of sustainable performance. The introduction of our 33% target for listed companies in the developed world and new policy for companies in emerging markets and Japan, is the next critical step for us as we continue to build on our voting policies around gender diversity, and make the most of our rights as an investor to engage companies in productive dialogue that makes a tangible difference.”