Active stewardship is an ongoing process and is not limited to circumstances where escalation is deemed necessary. Engagement can take various forms, including:
Face-to-face meetings and conference calls with investor relations, executive directors and senior management, board chairmen and non-executive board members, company secretaries, as well as heads of operational, controls and sustainability functions.
Formal letters to boards and management.
Dialogue and collaboration with other shareholders.
Public interventions (exceptionally), through co-filing/filing shareholder resolutions, speaking at shareholder meetings, and commenting in the media.
Common engagement activities relate to an investee company’s strategy, operational or financial performance, capital management, and corporate governance, as well as environmental and social risks and impacts. Should the investment teams have concerns that cannot be resolved through normal interactions with investee companies, they may start a more focused engagement.
To engage in a more public way where a company does not respond constructively or the shareholding is insufficient for an effective escalation on a standalone basis, asset managers might consider following options:
Voting against resolutions at shareholder meetings
Expressing concerns through company advisers
Collaborating with other institutional investors
Co-filing/filing resolutions at shareholder meetings.
How does it work? – take Allianz Global Investors as an example
Public Policy Engagement – German Code of Corporate Governance: AllianzGI responded to the public consultation for the annual revision of the German Code of Corporate Governance. Our comments and suggestions for further improvements to the code focused on protecting minority shareholder rights; the composition, role and oversight of supervisory boards; managing company compliance; and management board compensation.
Individual Company Engagement – Mining sector and environmental issues: We engaged with a mining company on its management of climate change related risks. It was encouraging to learn about their efforts to decarbonise operations with improvements in energy efficiency and investment in new technologies. If implemented, these will prepare the company to better mitigate the potential financial impacts of tightening carbon regulations. We encouraged the company to continue embedding carbon considerations into strategic planning and will monitor its progress.
Collaborative Engagement – Reducing supply chain risks in Bangladesh’s garment sector: In 2013, AllianzGI signed the first investor statement calling on retailers to collectively pledge to implement the core labour standards of the International Labour Organization and join either the “Accord on Fire and Building Safety” or the “Alliance for Bangladesh Worker Safety”. Increased supply chain transparency, with a common standard for auditing suppliers and sharing findings, has driven positive change. We believe Bangladesh can be a showcase for industry collaboration, particularly as regulations to combat modern slave labour are refined.
What is the outcome?
The majority of the meetings with companies are aimed at enhancing asset managers’ knowledge of their business, management, performance and value drivers. Active managers are ideally positioned to engage in dialogue with investee companies and proactively seek to present their viewpoint, request change where necessary, and monitor the results of the engagement.
Source: Allianz Global Investors; Sustainability Report 2019; April 2020.