Shareholder resolutions – One size does not fit all

Active ownership through engagement and voting shall ensure that our investments comply with DNB’s Group Standard for Responsible Investments. Our overarching aim is to influence companies to improve their practices, thereby securing long-term shareholder value and managing Environmental, Social and Governance (ESG) risks and opportunities in the best interest of our clients, as required as part of our fiduciary duty.

We engage with companies both reactively and proactively either directly or through investor collaborations. As highlighted by academic research, collaborative engagements can lead to both increased risk-adjusted returns and sustainability.

The ability to raise shareholder proposals and to vote on raised proposals provides an opportunity to flag important risks and signal a desire for change – all while pushing companies to adopt best-in-class ESG practices.

Companies should have sustainable business models and practices. An important element of this is having strong corporate governance. Furthermore, we expect companies’ Board of Directors to ensure their companies can deliver long-term value creation by addressing material risks and opportunities associated with sustainability. As a minimum, the companies should operate in accordance with generally accepted guidelines for responsible business.

Our voting guidelines state that we shall vote at all Norwegian company AGMs where we have holdings, and we have adopted a systematic approach to determining which global companies’ AGMs we will vote at. Factors considered in this regard include: large holdings, major part of our active portfolios and strategically important items, including those focusing on ESG topics.

In addition, we must be mindful of local and regional differences in voting practices. These may occur due to factors such as legal/regulatory frameworks and cultural differences. Therefore, in addition to applying our global guidelines, we also seek guidance from other sources, such as recognised local corporate governance codes. We encourage companies to identify and explain any deviations from these local codes. Two examples of local codes are the Norwegian Code of Practice for Corporate Governance (NCGB or NUES) and the Swedish Corporate Governance Board’s guidelines which are widely used in Sweden.

The Norwegian Government Pension Fund Global (GPFG) recently published an asset manager perspective on shareholder proposals on sustainability. Within this, the GPFG highlights the needs for evaluations of “materiality, prescriptiveness and a careful consideration of company context” when voting on shareholder proposals, including those focusing on environmental and social (E&S) aspects of companies’ activities. It is also important that shareholder proposal do not seek to micromanage company boards. We support these views and practice this in our own engagement and voting approach.

Voting should always be considered case-by-case, this also applies to voting on E&S related proposals. As part of our approach, we analyse each proposal with reference to our guidelines to ensure that the companies have strong governance practices, and where appropriate, adopt best-in-class policies regarding E&S factors. We receive detailed tailored analysis from our proxy voting consultant which is aligned with our own tailormade voting guidelines. This information guides our voting decisions as it is used as part of our internal assessment and in discussions with our Portfolio Managers. We have also had several company dialogues in association with our voting activity. Engaging pre and post general meetings provides us additional information for basing voting decisions on that supplement our tailored analysis from our proxy voting advisor.

A good understanding of the E&S proposals is crucial in order to ensure voting decisions are aligned with the duties and objectives we have as an asset manager. Voting decisions are an integrated part of the continuous work on company dialogues.

We have voted at about 200 company general meetings by the end of June. Of these we voted against at least one of the companies’ recommendations at approximately 30 % of meetings.

Transparency is key and we therefore publicly disclose how our engagement policy has been implemented. This disclosure includes an explanation of voting decisions at general meeting where we have voted against the companies’ recommendation.

Shareholder resolutions have traditionally primarily addressed on questions of corporate governance. As an increasingly important tool for investors, we are continuing to see credible shareholder proposals related to E&S factors. In 2019, we saw resolutions submitted to address social issues outpaced environmental issues, and so far in 2020 this trend continues. So far, there are very few resolutions put forward in Norway. This could be a consequence of tight relationships and dialogues between shareholders and management/Board in Norwegian companies.

E&S proposals tend to focus on company’s operations and their impacts, for instance climate change strategy and human rights policies. However, for E&S proposals it may be challenging for investors to apply a set of standardised voting decisions as these proposals address broad and complex issues with a multiple of stakeholders involved. Therefore, we employ an individual analysis and evaluation of each proposal, considering credibility, local adaption, industry, and company-specific considerations to ensure we make the correct voting decision.

It is also important to note that, despite the rise of E&S proposals, a significant number are withdrawn before reaching a vote. The withdrawal is often due to shareholder dialogues with the company beforehand, where companies agree and commit to the proposals in some form before the annual general meeting. Dialogues and engagement before the annual general meetings (AGM) are just as important as the actual AGM, and we look to do this whenever possible.

So far this year, we have voted at five AGMs on shareholder resolutions on the topic of climate change. Though climate is still an important focus of shareholder resolutions, proposals covering social topics have received increased attention as a result of COVID-19. So far, we have voted at nine company meetings on topics related to social factors. We support ESG shareholder proposals that enhance long-term shareholder and stakeholder value while aligning the interests of the company with those of society at large.

In short, voting activity, including shareholder proposals, is a key part of the active ownership work. The implementation of our voting guidelines must take into consideration each company’s unique situation and is an integrated part of the continuously ongoing company dialogues.

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