Responsible investment (RI) mutual fund companies use a wide range of strategies to incorporate environmental, social and governance (ESG) factors when making investment decisions. But during springtime, corporate engagement and proxy voting are front and centre.
Proxy season refers to the period between April and June when most companies hold their annual meetings. Rather than attending these meetings physically, most investors vote by proxy. These votes enable shareholders to influence a company’s operations. Proxy voting is thus an important tool for responsible investors as it provides an opportunity to engage with companies to improve their sustainability performance and enhance shareholder value.
ESG issues have been increasingly prominent at annual meetings in recent years. Although climate change and gender diversity appear to be the most common areas of focus in 2018, Canadian RI mutual fund companies also are pressing for progress on opioid accountability, access to medicines, indigenous rights, antimicrobial resistance and other material ESG issues.
Toronto-based NEI Investments is focusing on 13 ESG themes this year, including climate change, biodiversity, responsible tax practices, executive compensation and more. One notable focus area for the firm is pharmaceuticals; specifically, opioid accountability and responsible drug pricing. As the lone Canadian member of the Investors for Opioid Accountability (IOA) coalition, NEI is seeking accountability from opioid manufacturers and distributors for the opioid crisis that’s causing tens of thousands of deaths annually in North America. NEI will also be supporting proposals filed at pharmaceutical companies that are raising drug prices to drive revenue growth.
Another noteworthy action from NEI is its engagement with Wells Fargo & Co. NEI co-filed a proposal to ask the San Francisco-based multinational financial services firm to review its business standards to address the root causes of recent scandals that have diminished Wells Fargo’s reputation and value. Following this engagement, Wells Fargo agreed to conduct a review and NEI was able to withdraw the proposal. NEI will continue to provide input on the review over the coming year.
Vancouver-based Vancity Investment Management Ltd. (VCIM), which manages the IA Clarington Inhance SRI mutual funds, has engaged with 23 companies this year on climate change, gender diversity, indigenous rights, living wages, anti-microbial resistance and other ESG issues.
A key issue for VCIM is bank financing for pipelines and the need for the free, prior and informed consent (FPIC) of indigenous peoples. VCIM engaged with Bank of Nova Scotia, Royal Bank of Canada and Canadian Imperial Bank of Commerce on this issue and analyzed each bank’s process for evaluating risks associated with project finance. VCIM encouraged the banks to adopt a uniform standard to obtain FPIC from indigenous peoples. The banks reaffirmed their commitments to the Equator Principles as guidelines to address environmental and social impacts.
VCIM also engaged with four pharmaceutical companies on supply chain management and risk mitigation concerning antimicrobial resistance. Denmark-based Novo Nordisk A/S recognized the need for collective action to address the problem, and its holding company launched REPAIR Impact Fund, which is dedicated to investing in companies that are combating antimicrobial resistance.
Lévis, Que.-based Desjardins Group is focusing on gender diversity and climate change in 2018. As a member of the 30% Club — a network aimed at promoting more women on boards — Desjardins Funds has been active this proxy season responding to the lack of women’s representation on corporate boards. To date, the firm has voted against the chairperson of the nominating committee, or the board of directors, of 11 companies due to a lack of female representation on their boards.
On climate change, Desjardins Funds has been voting in favour of shareholder proposals aimed at reducing greenhouse gas (GHG) emissions and assessing the impact of a rise of 2°C in the average global temperature on the company’s operations. For example, Desjardins Funds voted for a proposal addressed to Laurentian Bank of Canada on climate risk disclosure and another proposal addressed to Emerson Electric Co. on the adoption of quantitative, company-wide GHG emissions reduction targets.
Toronto-based RBC Global Asset Management Inc. (RBC GAM) also has prioritized climate change and gender diversity through its proxy voting and engagement activities. RBC GAM has supported the majority of shareholder proposals addressing climate change-related issues in 2018. To date, the firm has found climate change-related shareholder proposals to be well targeted, focusing on issuers for which climate change is a material risk. For example, RBC GAM supported proposals requesting the adoption of GHG emission targets at Fluor Corp. and L3 Technologies Inc.
In addition, RBC GAM has enhanced its proxy voting guidelines on gender diversity this year. The firm now requires issuers without a female director to have a diversity policy that both commits to increase gender diversity on their boards and discloses measurable targets to meet such commitments. Engagements on this issue are ongoing, but have been positive to date, as boards increasingly recognize the benefits of diverse directors and opinions.
These are just some of the many examples of RI mutual funds going to bat for their unitholders to manage exposure to ESG risks and opportunities. These examples demonstrate how RI can actively promote the adoption of more responsible business practices. This is good for society and your clients’ portfolios. As the RI movement continues to grow, advisors stand to benefit the sooner they incorporate it into their practice.