Six investment professionals tell Investment Week how engagement has altered corporate practices and mitigated social and environmental risks.
Juliana Hansveden, lead manager of Nordea's Emerging Stars Equity strategy
Varun Beverages is an Indian company that manufactures, bottles and distributes carbonated soft drinks and non-carbonated beverages, including bottled water.
The company has 32 Indian manufacturing plants and six plants outside India. Varun uses significant amounts of groundwater and freshwater in its products – a scarce resource in these locations.
We have engaged with Varun around its water management since 2018 to ensure it does not risk the lives and ecosystems around its operations by drawing too much groundwater or freshwater from local sources.
As a result, Varun has implemented several water management programmes. It has reduced the water needed in the manufacturing process and improved its replenishment of water through factory harvesting and pond harvesting. In addition, the company now recycles 100% of its wastewater.
The group's water usage and recharging are also audited by a third party and extensively reported in its shareholder reporting.
Going forward, we would like to see Varun expanding its water recharge activities to plants currently not in water-stressed areas and to continue to increase transparency around its long-term water management strategy.
Sawan Kumar, head of stewardship at Evenlode Investment
Wolters Kluwer is a diversified B2B media company with operations globally across four segments – health, governance risk and compliance, legal and regulatory, tax and accounting.
We identified the company's weak remuneration policy and voted against management due to executives being assessed on metrics that were basic in nature – relative total shareholder return and earnings per share.
Evenlode was invited to a large shareholder engagement exercise last year. This provided investors with an opportunity to voice any concerns and highlight changes they want to see to the remuneration policy.
As a result of the shareholder engagement process, the company emphasised its remuneration structure will be closely linked to its strategic and financial objectives with a particular focus on ESG-related metrics.
Positive amendments were made with additional short-term incentive plan measures, increasing the weighting and hence importance of ESG-related metrics.
The company also added further quality measures, such as return on invested capital to the long-term incentive plan (LTIP), which complemented the existing metrics well. In addition, it committed to disclosing LTIP targets on a prospective basis.
Jonathan Bailey, head of ESG investing at Neuberger Berman
Through our NB Votes initiative, we publish our vote intentions ahead of select shareholder meetings. Regarding remuneration, we expect compensation committees to design, adopt and clearly articulate a strong link between executive compensation and performance.
In response to the Covid-19 pandemic, Heineken decided to forfeit the 2020 bonus and 2018-2020 long-term incentive plan for management board members.
While we commended this decision, we had concerns with the quantum of the severance payment made to the former CEO. The Dutch Corporate Governance Code recommends payments of a maximum of one annual base salary.
However, this payment was upwards of four times the former CEO's salary. Under Dutch tax law, the company must pay substantial additional taxes due to the size of the severance payment.
We recognise the terms of the severance payment were part of an employment agreement predating the Dutch Corporate Governance Code and expect the company will not agree to such severance payment obligations in the future, but we opposed the remuneration plan to signal our disapproval with the size of the severance payment.
Adam Khanbhai, manager of Strategic Equity Capital plc and investment director at Gresham House
Inspired Energy is a leading UK corporate energy services and procurement specialist, which works with corporate energy consumers to optimise their energy costs.
Gresham House invested in the company when it listed in 2011 but worked with the team on areas such as governance structure and management incentives prior to IPO.
Since listing, we have worked closely with the company on various issues, including board composition and succession planning, executive remuneration, and corporate strategy.
In 2019, we provided additional capital allowing Inspired Energy to acquire optimisation specialist Ignite Energy – thereby supporting the company's strategic development from a consultancy with a narrow focus on energy procurement to one also helping clients to reduce their energy usage and environmental impact.
Further strategic progress was achieved this year with the launch of Inspired ESG, a division focused on helping clients measure, monitor and improve their broader ESG impact.
Given our large ownership stake in the business, we continue to work closely with the board and management team to ensure continued focus on delivery of ESG strategic objectives.
Louis Larere, co-portfolio manager of the OYSTER Sustainable Europe Fund and head of SRI strategies at Zadig Asset Management
SPIE is a European leader in energy services with €7bn in revenues. We have always thought of SPIE as a company doing a lot to address sustainable goals but communicates this too little.
Because of its limited disclosure, in 2019, SPIE was rated BBB by the MSCI and High Risk by Sustainalytics.We have been in close contact with SPIE since its IPO in 2015 and increased our contact in 2020 with five meetings throughout the year to push for improvement on reporting and ESG communication.
The company has recently hired Isabelle Lambert as head of ESG to work alongside investor relations. The new team has acted quickly to improve communication and we have seen upgrades at the MSCI and Sustainalytics.
SPIE, which is already a low carbon dioxide emitter, has committed to electrifying its vehicle fleet and has planned an investor event dedicated to ESG.
Longer term, we consider a separation of the chairman and CEO roles as necessary to further improve governance practices and prepare for a clean succession.
Iona Dent, financials sector equity analyst at T. Rowe Price
FirstRand, the second-largest bank in South Africa by assets, provides a comprehensive range of retail, commercial, corporate, and investment banking services.
We saw significant improvements in the group's level of ESG disclosure over the past year, particularly in relation to climate change. Having been the worst of the 'Big 4' South African banks on climate-related disclosure, FirstRand now ranks as second best and above average versus the broader emerging markets banking peer group.
Outside of its climate strategy, FirstRand continued to generally score well in both the social and ethical criteria in our Responsible Investing Indicator Model (RIIM) framework. Gender and minority group representation among the bank's employees were strong relative to sector peers.
We voted with the majority of shareholders (59%) against a pay-related proposal tabled by FirstRand at its 2020 annual general meeting – specifically due to problematic retention awards designed to compensate executives for long-term incentive plan awards that lapsed due to the impact of the pandemic. We have since engaged with company management to understand how they plan to respond to shareholder concerns.
With AGM season in full swing, the perennial question of whether engaging with companies can truly effect change returns to the forefront of investor thinking.
With AGM season in full swing, the perennial question of whether engaging with companies can truly effect change returns to the forefront of investor thinking. This year, agendas are packed with issues...