The document provides broad guidelines, within which voting decisions will be assessed and implemented on a case-by-case basis. A degree of flexibility is required when interpreting the guidelines to reflect specific market, company, and meeting circumstances.
These guidelines are to be read in conjunction with our Stewardship policy. Stewardship is a fundamental pillar of our Responsible Investment (RI) strategy, and our stewardship policy sets out the core principles of how we consider ESG risks and engage with companies, in recognition of the best market practices supported by the UK Stewardship Code, as well as others. The guidelines will be updated for respective AGM seasons, to reflect the current priorities within our RI Strategy.
1. Summary of our approach to Stewardship
As a responsible asset owner, the PPF believes that integration of material environmental, social and governance (ESG) factors can enhance the value of our investments. We believe in engagement as a path for verifiable and tangible impact, focused on material issues. We are committed to supporting companies in building and sustaining good governance and progressing their practices on environmental and social matters. In order to incentivise all issuers and companies, we are committed to transparent voting following a robust assessment and review of the practices of a company.
We engage regularly with our asset managers and agents, and expect them to demonstrate clear and transparent engagement and voting practices while also acknowledging our stewardship priorities. We’ll always seek to exercise our rights as shareholders to vote our ballots, unless it is operationally impractical or prohibitively expensive, for example due to share blocking markets or overly complex Power of Attorney requirements.
For our segregated Public Equities, we work with a designated stewardship provider, EOS at Federated Hermes (EOS), who we closely align with and participate actively in client discussions defining their engagement plans. We have direct oversight of the voting execution within our segregated equity mandates in order to allow us to exercise our voting power and ensure consistency in our strategy. For our pooled equity funds, we have oversight of our managers’ stewardship activities and outcomes through regular review and quarterly reporting from them. Where possible, we set up split voting arrangements with managers of pooled funds, allowing us to instruct voting in a consistent manner. We monitor the consistency of our voting across mandates, in particular for any companies and issues with significant importance.
2. Our voting principles
We are guided by the best practice as demonstrated by our stewardship provider, EOS, and our voting principles closely align with their global voting guidelines.
No abstentions: We aim to take an active position on matters open to vote and aim to either vote in favour or against a resolution and only abstain in exceptional circumstances, such as where our vote is conflicted, a resolution is to be withdrawn, or there is insufficient information upon which to base a decision.
Support for management: We seek to be supportive of boards and to recommend votes in favour of proposals unless there is a good reason not to do so in accordance with our voting guidelines, global or regional governance standards or otherwise to protect long-term shareholder interests.
Consistency of voting: We aspire to be consistent in our votes and positions in regards to specific companies or issues across our entire portfolio. We seek to provide clarity of our positions through our asset managers and designated stewardship provider, in accordance with our RI Strategy and stewardship priorities. However, we recognise the limitations of investing across a range of mandates, especially the challenges of implementation within pooled funds at times, and we do this on a best effort basis.
Engagement: Engagement is a fundamental aspect of our RI strategy, which we apply across all asset classes. Within our Public Equity portfolio, we have identified a list of high priority companies (“watchlist” companies) we’ll endeavour to engage with prior to voting against a resolution, if there is a reasonable prospect that this will either generate further information to enable a better quality of voting decision or to change the approach taken by the company. We’ll also seek to inform such companies of any anticipated votes against management, together with the reasons why, through our designated stewardship provider. For non-watchlist companies, we will inform companies on a best effort basis.
On matters related to good governance such as Board independence, competent leadership, separation of the roles of the governance roles, we leverage off the deep expertise and recommendations of our stewardship provider.
3. Key themes for 2023
With a specific focus on material issues, we identify key ESG matters that are of particular importance in a specific AGM season and highlight them through targeted engagement. Where we feel that companies are consistently unreceptive to engagement on certain issues, we will consider employing escalation techniques such as voting to oppose relevant board members or resolutions.
Climate change is a key area of focus for us, and net zero stewardship is a fundamental part of our approach to management of climate-related risks. Read our Climate change policy for more details. Through our stewardship provider and participation in collaborative initiatives, we expect tangible progress around net zero and work with both our managers and companies to encourage the transition to a low carbon economy.
In order to measurably track and encourage progress on climate, we utilise the management quality assessment of companies that are analysed by the Transition Pathway Initiative (TPI). We are also informed by the Climate Action 100+ Net Zero Benchmark for those companies included in this assessment. We also will be guided in our voting by the industry initiatives around net zero alignment for both asset owners and our asset managers.
For 2023, we have increased the thresholds for climate-related voting guidelines as noted below:
Transition Pathway Initiative: Management Quality score: All European and Australian companies in all sectors below Level 4 [new]; all coal, oil, gas, utilities and automotive companies below Level 4 [vs. Level 3 for autos 2022]; below Level 3 for all remaining sectors/companies in US and Asia and Emerging Markets;
Climate Action 100+ Benchmark: Companies that have no medium-term targets in place as identified by indicator 3 of the Climate Action 100+ Benchmark [new];
Coal: Companies identified as expanding coal-fired infrastructure by the Global Coal Exit List or companies that have significant dependence on coal without a sufficiently ambitious timeline and strategy for coal phaseout;
Deforestation: Companies that score below 10 on the Forest 500 ranking (assesses companies’ disclosure and management of deforestation risks); Financial institutions that score 0 on Forest 500 ranking.
Climate related Shareholder Proposals: For Europe, we will be reviewing any shareholder proposals related to climate change internally.
Companies on the PPF’s Climate Engagement Watchlist: Shareholder meetings at companies on our Climate Engagement Watchlist will also be reviewed internally by the ESG Team. This process will allow additional analysis around the progress being made against our internally set targets. A vote against management may be necessary if we consider there has been inadequate progress.
Assessing human rights laggards
For 2023, the guidelines have been refined to target laggards across several focus areas.
We may recommend a vote against responsible directors if:
General failings: a company is in clear breach of its applicable regulatory responsibilities (e.g. UK’s Modern Slavery Act), or has caused or contributed to egregious, adverse human rights impacts or controversies, without providing appropriate remedy. Also, as evaluated by the engagement manager and/or severe controversy scores by third-party ESG data providers. See more on Modern Slavery below.
Benchmark laggards: a company scores significantly lower than industry peers (bottom 15-20%) within credible external benchmarks of companies on human rights, without providing a sufficient explanation or a commitment to improve:
- 2022 Corporate Human Rights Benchmark (ranks some of the world’s largest companies on the policies, processes, and practices they have in place to systematise their human rights approach and respond to serious allegation)
- 2022 Ranking Digital Rights Index (ranks some of the world's largest technology companies on their commitments and policies affecting users' freedom of expression and privacy rights)
- 2022 BankTrack Human Rights Benchmark (ranks some of the world’s largest banks on their progress towards fully implementing the UNGPs)
- 2020/2021 Know the Chain Index (ranks some of the world’s largest companies on their current corporate practices to identify and eradicate forced labour risks in their supply chain).
Modern Slavery will continue to be a topic of key focus in the UK. Given the systemic nature of modern slavery and the serious risk it poses to businesses and investors, we expect all UK businesses covered by the Modern Slavery Act (the Act) to meet the reporting requirements of the Act. We further expect the members of the FTSE 350 to be leading in this area, and to take substantial action to address the prevalence of slavery within their supply chains.
The quality of reporting delivered under Section 54 of the Act can act as an important marker for how seriously senior management are taking this risk. It improves accountability and enables companies to identify the areas of their business most at risk. Companies which meet the reporting requirements and clearly disclose the areas of their businesses most susceptible to modern slavery benefit from increased investor confidence. Conversely, non-compliance with the Modern Slavery Act poses as a serious risk to long-term investors.
In 2023, we will continue as members of the PRI collaboration initiative Votes against Slavery. The purpose of this initiative is to engage with FTSE 350 companies around their public disclosure in compliance with the Act, by writing to the board of each non-compliant company with a targeted letter explaining the nature of non-compliance, and the steps needed to achieve compliance.
We will again consider withholding our support for the approval of the annual report and accounts at the company’s next AGM, should the required changes to achieve compliance not occur prior to the annual general meeting All non-compliant companies have been contacted and details of perceived non-compliance communicated.
Diversity & inclusion
We believe that board members should broadly reflect the diversity of society and that there is value in diversity of thought, skills and attributes.
We will consider voting against relevant directors and/or the chair where we determine that board diversity (by gender, ethnicity, age, relevant skills and experience, or tenure) is below minimum thresholds and we determine the company is making insufficient progress on diversity. Thresholds may be set at a market level (for example around gender and ethnicity) or may be applied globally (for example around skills and experience).
Building on existing voting criteria around gender diversity, in the UK we support the changes to the FCA’s listing rules for board diversity and expect companies to disclose whether they comply – or, if not, why – with the following targets: at least 40% of board seats and at least one senior board position (Chair, CEO, CFO or SID) held by a woman, and at least one board seat held by someone from an ethnic minority background.
In 2023, we consider the following to be minimum expectations and will likely oppose the chair or other responsible directors if not met:
FTSE350 boards to comprise at least 33% women and executive teams to have at least one female member
FTSE100 boards to have at least one member from an ethnic minority background (we will extend this to the FTSE350 from 2024)
Women to comprise at least 25% (FTSE100) or 20% (FTSE250) of the combined population of the executive committee and its direct reports.
In Japan, we are likely to vote against the nomination committee chair or board chair at TOPIX100 companies if less than two directors are female. This builds on the prior 2022 guideline requiring 10% of directors to be female. Below the TOPIX 100, the requirement will be at least one female director.
In Malaysia, following the updated Corporate Governance Code, our minimum female representation at board level is being increased to 30%. Previously 20% of the board was required to be female.
Executive committee diversity
Following the introduction of executive committee/C-Suite diversity expectations in 2022, we have extended these requirements in the UK from the FTSE 100 to the FTSE 350 this year.
Companies within the FTSE 100 are now expected to comprise at least 25% females and FTSE 250 executive committees to have at least 20% female representation.
All other gender diversity targets introduced within in the US, Australia, Denmark, France, Germany, Italy, Netherlands, Spain and Sweden will stay the same as for 2022.