Updated Voting Guidelines Turn Up Heat on Virtual AGMs

Success of HSBC, Tesco resolutions show ability of investors to drive change. 

The UK’s Pension and Lifetime Savings Association (PLSA) has updated its Voting Guidelines in order to ensure shareholder voting in annual general meetings (AGMs) is undisrupted by the ongoing pandemic lockdown restrictions. The PLSA has also strengthened guidance on climate change, saying member schemes may wish to vote against companies not reporting sufficiently in line with the guidelines set by the Task Force on Climate-related Financial Disclosures (TCFD).

The trade association supports provisions introduced by the UK government to allow AGMs to take place virtually throughout the pandemic, but strongly advises investors to vote against any motion that would make virtual AGMs permanent.

“The Voting Guidelines encourage investors to seek assurances from companies that they are looking at how to use virtual AGMs to not only protect investor engagement opportunities, but increase them,” PLSA said.

The UK government has decided not to further extend the Corporate Insolvency and Governance Act 2020 (CIGA), which ends this month. This previously allowed for a relaxation of certain reporting requirements with the updated 2006 Companies Act (specifically Section 172) due to the pandemic, better enabling corporates to hold virtual AGMs.

In lieu of a permanent policy being issued in the short-term, the Chartered Governance Institute (ICSA) has published interim guidance for corporates delivering AGMs in the ensuing months.

Clear TCFD commitment needed

Pension scheme investors need to further ensure large companies have clear evidence that they are reporting against the TCFD framework, or are in the process of doing so, PLSA added. The updated Voting Guidelines call for investors to consider voting against a company’s climate change and sustainability policy if there is no clear demonstration of imminent or current TCFD alignment.

This follows UK Pensions Minister Guy Opperman’s decision to delay the implementation of mandatory TCFD reporting for pension schemes by an additional seven calendar months from their individual year-end dates.

The PLSA also said pension fund investors “must be watchful” as to how companies’ response to the pandemic has impacted their governance and workforce practices.

“AGM season is an opportunity for pension scheme trustees and their asset managers to engage with company directors, to revisit environmental, social and governance policies and seize the chance to build back better than before,” said Joe Dabrowski, Deputy Director of Policy at PLSA.

Empowering the shareholder

Shareholders have been increasingly encouraged to hold companies accountable on ESG-related issues, according to non-profit organisation ShareAction.

Over the last year, investors have partnered with ShareAction to file a series of resolutions against companies who are either not following through on pledges to put climate first, or have exhibited bad behaviour.

This includes recently demanding Tesco sets a health target to increase the proportion of healthy products to 65% by 2025. The supermarket has further committed to publishing its strategy to achieve this goal and will report on progress annually.

However, the resolution is still set to be put to shareholders at the AGM, with Tesco not yet addressing remaining questions around the scope and methodology of its plans to back healthier products. Current plans exclude other parts of the business, such as convenience stores Budgens and Londis.

This week, HSBC responded to pressure from over 100 institutional and private co-filers that were pushing the global bank to provide more detail on its net-zero plans and commit to phasing out the financing of coal-fired power and thermal coal mining by 2030 in the EU (by 2040 elsewhere).

Following months of negotiations with the US$2.4 trillion coalition of investors, HSBC’s board has tabled a resolution outlining its intentions (replacing that proposed by co-filers in January) which will be placed before shareholders at its AGM of May 28.

The vote will be binding if it gains the approval of 75% of shareholders.

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