Description

In the fifth and last episode of our series on Shareholder Stewardship, Caroline Le Meaux, Global Head of ESG Research, Engagement, and Voting, and Edouard Dubois, Head of Proxy Voting, engage in a dynamic conversation on voting at annual general assemblies and how it is most effective when coupled with engagement with companies. Dialoguing with companies is very important in the voting activity: it can lead to improvements in companies strategies before or after the AGM has taken place.

This episode will explore what proxy voting is, and why it is important in an overall stewardship strategy of an asset manager. Many themes will be touched upon, including board compensation, Say on Climate resolutions, and filing shareholder resolutions to accelerate improvements in the climate strategy.

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Transcription

• Disclaimer

  Welcome to our podcast series, Outer Blue Responsible Investing. Over our five-episode series, we will dive into the power of responsible investing and the critical role stewardship plays in shaping the future of sustainability. In each episode, we bring together leading responsible investment experts to discuss how shareholder engagement and voting efforts are driving real impact in the economy, whether it's influencing corporate behavior or fostering accountability. Amundi is here to explore the strategies that make a difference. So let's get started.

• Caroline Le Meaux

  Hello everyone. I'm Caroline Le Meaux. I'm the Global Head of ESG Research, Engagement and Voting. And we are today here to present you our voting activities.

• Edouard Dubois

  Thank you, Caroline. Hello, everyone. My name is Edouard Dubois. I'm the Head of Proxy Voting at Amundi, based in Paris. So what we wanted to discuss today is Amundi's voting approach and we wanted to start by explaining what is a vote. So through their investments, shareholders provide capital to companies and in exchange they receive certain rights, including the right to get dividends, if any, but also a political right, the right to vote at the annual meeting of shareholders and they will be able to use that right once a year. The content of the meeting agenda is defined by each market regulation. So a Japanese meeting is not the same as a French shareholder meeting. The proposals are usually centered on corporate governance topics around issues such as shareholder rights, the board composition, capital related operation but voting on executive remuneration for example is mandatory in Europe in the UK in the US and Canada but not in the rest in the world. So for example Japanese meetings usually do not have a vote on executive remuneration. Moreover there are no specific routine proposals regarding companies sustainability strategies or their policies So it's important to be aware that shareholder meetings are regulated events and are mostly focused on corporate governance issues. But that does not mean they are not important. Obviously, having well-governed firms is paramount in order to reduce risks for our clients. So Amundi considers exercising voting rights to be a central dimension of our role as a responsible investor. As an asset manager, we have a duty to protect the interest of our clients, and that means using our voting rights to defend minority shareholder rights and to improve ESG practices. That's why our objective is to vote at 100% of the meetings for all our portfolio companies. We apply one voting policy which is public on Amundi's website, and it's the same policy that we apply for all our funds that have delegated voting to Amundi. Because we analyze all proposals from the point of view of an investor, and either we consider that a proposal will improve corporate governance, or it will not. Either a shareholder proposal is about a material issue, and we believe it is in the interest of shareholders to support it, or it isn't. And so this decision cannot change depending on the fund strategy. And that's also why it's very important for us when we assess this materiality of a proposal to be able to work with our colleagues from the ESG research team. And maybe you can speak about how we can operate.

• Caroline Le Meaux

  Yes. In fact, there is not a lot of ESG resolution in an AGM. You will have some shareholders resolution onclimate. But it's only around 300 resolutions out of more than 100,000, so less than one person that are focused on ESG. So how can we express our view on a company using our voting rights when we want to assess and express our view on? ESG quality of the company. So first we are looking at, we are using the compensation resolution. So because we ask for compensation to include ESG criteria in variable remuneration. That's the first way we can express our ESG view. Then we also look at shareholders resolution and say on climate, assessing each of those resolutions, one by one, with the help of ESG analysts. And then we have a list of companies that we think are a little bit underachieving their peers from an ESG point of view. So on a yearly basis, we fix this list. These companies could be a little bit behind because of climate reasons or because of biodiversity reasons or because of social reasons. For those we will use our voting power to escalate and express our concerns, holding the board member responsible for the lack in the ESG strategy of the issuers. So for those companies, we will vote against one or several resolutions on the discharge of the board or the renewal of board members.

• Edouard Dubois

  I really believe this is a key differentiator in Amundi's voting approach. The fact that we are willing to hold board members accountable regarding the sustainability and climate policies and strategies. So it goes beyond just looking at the level of board independence and board diversity. Obviously, these are important issues that we also monitor, but it also involves the will to vote against these boards. But it's also very important to be transparent with companies and to explain why we are voting against their re-election. And that's something that we really try to do as much as possible by sending what we call voting intention alerts. We do that with more than 1,000 companies and we explain in details why we are voting against the re-election.

• Caroline Le Meaux

  In terms of numbers, it's quite significant because around 8% of our voting universe has some kind of escalation, and it will cover almost all sector, but it's true that it's a little bit skewed towards utilities and oil and gas companies. Because for those universes, almost 40%, but less than 40% of the universe faces some kind of escalation using our voting power. Whereas, as I said, the average is more around 8%. Regarding this, if we focus now on shareholders resolution, what is the trend? What can we say around the dynamic shareholders resolution and say on climates?

• Edouard Dubois

  So what is true for the last three years is that we have seen more and more shareholder proposals filed on governance, but also on social, environmental and climate issues. And we do believe that they can be a very efficient device for shareholders to sometimes to escalate concerns with companies. But this last year, we have seen a bit less of these proposals being filed, probably because the level of support has been declining, especially last year. So obviously, that has an impact on the willingness from minority shareholders to file these proposals. And also we see more and more proposals filed by conservative organizations. So that's why it's very important for us to always think about what are the objectives of the proponent. And that's the reason why we have this case-by-case approach regarding shareholder proposals. When we think about the impact that we have through our votes, only looking at how many shareholders' proposals we supported obviously can be interesting, but it does not give you the whole picture. And as I said, it's also very important to look at if shareholders were willing to vote against the board members or not, in addition to a support of shared proposals.

• Caroline Le Meaux

  Yes, and it's interesting. I mean, voting is really important, but to get the maximum impact, as you said, Edouard, previously, we need to explain to the issuers the reason why we are voting against something to get the maximum impact. Just voting is not enough. So that's why the team is, whenever possible, contacting the company to explain our vote and it has a good impact on that one. And if we want to assess what could be the impact, I think usually people will discuss why. There are not a lot of resolutions that get voting, particularly for the one supported from management with less than 50% support and for shareholders resolutions that have more than 50%. But the thing is, the impact starts much more before this threshold of 50%. And we have multiple examples where we have seen a company improving even if we didn't reach the 50% threshold.

• Edouard Dubois

  Exactly. I mean, part of the impact that we can have happens before the AGM because our objective is actually not to vote against, but to support management proposals. And what can happen sometimes is that when we engage with the company ahead of the AGM, maybe they will decide to change their policy or they will make public commitments. It could be, for example, to improve the gender diversity of the board. And that means that we will be able to support instead of voting against some board proposals. And for us, that's a win. And sometimes it happens after the AGM and very often it's because proposals may have received a high level of of dissent during the AGM. What we consider usually to be a high level is more than 20% of votes against management. And this happens quite frequently, actually. And at this point, investors will expect companies to provide an answer, to engage with their shareholders to understand why they were dissenting and Amundi has actually sent letters to board chairs for the last two years to actually ask them to respond to this dissent. And we have seen more and more companies responding to their shareholders. We believe it's very important because if they don't do that, the risk is that year after year, the level of opposition will continue to grow. And we have seen a proposal being rejected by shareholders at a French company. And this was after multiple years of high dissent.

• Caroline Le Meaux

  Yes, as you said, the engagement and then dialoguing with companies is really important in the voting activity. And as you said, we have seen some improvement of companies following high dissent in a resolution. And we have seen the example of Martin Marietta, a company where Amundi was lead for Climate Action 100+. We have been engaging the company for multiple years andd at some point, we thought that we needed to file shareholders' resolution to a little bit accelerate the dialogue around their climate strategy. And following the AGM, the 2023 AGM, the company reached out and we had a very strong dialogue with them. We ended up with the company improving a lot its climate strategy because they joined SBTi in September 2023 and they released some new targets. Even though there is still a lot to do regarding the climate strategy, they have improved a lot following the resolution that we co-filed.

• Edouard Dubois

  A comment that we have heard many times these past years is the fact that the quality of shareholder proposal is decreasing. Would you want to comment on that?

• Caroline Le Meaux

  Yes, because we are reviewing all shareholders' resolutions that are related to environment and social, and I can say that I can do it. I do it myself. based on the proposal from the corporate governance analyst and the ESG analyst. And I can tell you that I disagree truthfully with that. The people who have co-filed as a resolution are learning over time, and the quality of the resolution is improving. They are less biting and more in line with science and the well-known framework and the quality of the resolutions has improved over time.

• Edouard Dubois

  And I guess this is something that we can see through our support level as well because since the beginning of the year again we have been supporting more than 80 percent of climate and social related proposals. So this does show that we have not seen a decrease in quality and we still see this mechanism as a very effective device to really push companies to improve their reporting and their practices. So this is something that Amundi is willing to continue to use in the future with this idea that shareholder proposals is one tool in the toolbox that we can use. Are there other tools that Amundi is using?

• Caroline Le Meaux

  I mean, we are assessing the shareholders' resolutions. We are co-filing resolutions. But for example, it's a mix of everything that really is impactful. And for example, it would be the same with J-Power, We were collaborating with other peers where we have co-filed two years in a row he same resolution. And then following this filing, we continue the engagement. We somehow start engaging with other issuers from the same ecosystem. So part of the engagement is we need to be consistent over time. We need to be passionate because after three to four years of engagement where we had the impression that we didn't really succeed, suddenly the company did improve its credential. So, they are still not on the 1.5 pass, but they announced that they will close more than five coal power plants, which is really massive for the company. So, this is something that shows that voting matters, that engagement matters, but we still need to be very patient because it takes time.

• Edouard Dubois

  Thank you. And I guess for anybody who wants to know more about the Martin Marietta, Jay Power or voting approach in general, these are some of the case studies covered in Amundi's Engagement Report, which is available on our website.

• Caroline Le Meaux

  Thank you, Edouard.

• Edouard Dubois

  Thank you.

• Disclaimer

  Thank you for tuning into this episode of Outerblue Responsible Investing. We hope today's conversation has shed light on how stewardship, shareholder engagement, and voting can shape the future of sustainability. As we continue to navigate the path toward a more sustainable financial system, your role as an engaged investor is key. Tune in next time to hear more on Amundi's insights. Until then, keep exploring the power of stewardship. This podcast is only for the attention of professional investors as defined in Directive 2014-65-EU dated 15th of May, 2014, as amended from time to time on markets and financial instruments called MIFID II. Views are those of the author and not necessarily Amundi Asset Management SAS. They are subject to change and should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi products or any other security fund units or services. Past performance is not a guarantee or indicative of future results.