Engagement and voting in practice

Rio Tinto

Rio Tinto is one of the world's largest mining and metals companies.

The issue being considered: Companies like Rio Tinto may face business risks resulting from the net zero transition, as policymakers and customers shift demand to lower-carbon steel. This could happen if they’re unable to decarbonise their production processes in line with expectations.

The engagement: With steelmaking accounting for 65% of Rio Tinto’s annual total emissions, Royal London Asset Management held a meeting with the company to assess its climate transition plan. It stressed the need for a more detailed approach to decarbonisation than outlined in Rio Tinto's plan (published December 2024). Following the meeting, Royal London Asset Management sent a letter outlining what was discussed.

The outcome: Rio Tinto was initially hesitant about setting binding emissions reduction targets. However, it’s since set a number of emissions reduction targets and revealed research and development projects to pioneer green steel technologies.

Rio Tinto is also working on a pioneering technology which could help it produce aluminium (a key material for the net zero transition) with lower carbon intensity. Royal London Asset Management believes that if the development of this technology is successful, Rio Tinto remains an attractive and competitive investment – particularly if the world starts pricing carbon emissions more highly.

Shell plc

Royal London Asset Management has been engaging with the British oil and gas major Shell for several years, meeting 12 times in 2024. It’s also voted on resolutions during this period.

In 2023, Royal London Asset Management voted against the resolution to approve Shell’s Energy Transition Strategy, due to the lack of noticeable progress against expectations. Since then, Shell has addressed some asks, but Royal London Asset Management remains concerned about a lack of mid-term emissions targets. For 2024, Royal London Asset Management chose to acknowledge this progress while retaining some concerns and upgraded its vote to abstain.

At the May 2024 AGM, Royal London Asset Management voted abstain on the shareholder resolution ‘Scope 3 target and Paris Agreement alignment’. It views Scope 3 targets as critical for oil and gas companies to align with the goals of the Paris Agreement, and Shell’s progress in this area has been mixed.

Continued engagement: Since the AGM, Royal London Asset Management’s engagement with Shell has focused on four critical areas:

• Aligning capital allocation with the goals of the Paris Agreement
• Setting expectations on future exploration and consistency with targets
• Transparency on its liquefied natural gas (LNG) growth strategy
• Developing clear offsetting principles.

Royal London Asset Management also engages with Shell in its role as co-lead of the World Benchmarking Alliance working group. Shell has taken positive steps to improve its approach to just transition, and Royal London Asset Management hopes to continue productive discussions and showcase outputs in 2025.

Voting related to nature and biodiversity

During 2024, Royal London Asset Management responded to 30 shareholder proposals related to biodiversity or nature. These proposals, involving a shareholder requesting or recommending a company to take a specific action, are put to all shareholders to vote at a company meeting.

Home Depot: Royal London Asset Management supported a shareholder proposal requesting a biodiversity impact and dependency assessment. This included the full value chain and use of sold products. It noted the steps taken by the company in relation to a wood purchasing policy, responsible sourcing supplier manual, responsible product standards and responsible sourcing report. However, Royal London Asset Management considered this shareholder proposal reasonable given the systemic importance of biodiversity loss.

PepsiCo: Royal London Asset Management supported a shareholder proposal requesting a material biodiversity dependency and impact assessment. The proposal also requested a public report identifying the company’s vulnerability to risks associated with biodiversity loss. While the company appears to be addressing these risks and disclosing its goals, there’s room for improvement in line with forthcoming disclosure requirements. Royal London Asset Management therefore voted for this proposal.

Kellanova (formerly Kellogg’s): Royal London Asset Management voted for a proposal focused on the risks associated with pesticide use, including the impact on farmworker health, soil health, biodiversity, water quality and climate. The proposal requested a report from the company on these risks. It also recommended the disclosure of any strategies, beyond legal compliance, that the company is planning to mitigate these risks.

Wider collaboration

Most of our company engagement meetings are conducted by Royal London Asset Management, and are directly with the companies we invest in. However, sometimes collaborating with other organisations to influence company behaviour can lead to more effective engagement. For example:

• when a company hasn’t responded to direct engagement
• if the issue is grave enough to warrant a collective approach
• when partnering with other shareholders or bondholders can provide better access to management or the board and amplify Royal London Asset Management influence.

Below we share some examples of Royal London Asset Management’s collaborative engagement activities during 2024.

Sharing expectations for a just transition in the banking sector

In this case, Royal London Asset Management worked together with Border to Coast Pensions Partnership and Friends Provident Foundation. Together they published guidance on investor expectations for how banks can integrate just transition considerations into credible climate transition plans.

The work underpins Royal London Asset Management’s long-term engagement with four UK banks – Lloyds, NatWest, HSBC and Barclays. And aims to turn ambition into action by providing clear expectations.

Since publication, Royal London Asset Management has held follow-up meetings with all four banks. While feedback has been generally positive, challenges were highlighted. These included how banks in emerging markets can apply just transition considerations, which Royal London Asset Management is investigating in collaboration with other investors.

Supporting board diversity

Royal London Asset Management is a member of the 30% Club and co-chair of the UK Investor Working Group. Supporting the work of these groups, Royal London Asset Management engaged with FTSE 250 companies that hadn’t met the Parker Review’s recommendation of having at least one ethnic minority director on their board by the end of 2024.

For example, Royal London Asset Management met the board chair at AJ Bell, the online investment platform and stockbroker, to discuss its progress. Ultimately, the company did appoint a director later that year and now meets the Parker Review recommendations.

What do we mean?

Stewardship means responsibly allocating, managing and looking after our customers’ and clients’ money. We do this to create long-term value for them, while also aiming to support the economy, the environment and society.

Engagement refers to structured, purposeful dialogue between investors and companies, policymakers, standard setters and other stakeholders, with the intention of influencing (or identifying the need to influence) positive change and/or improving disclosure. Engagement can take two forms:

1. Engagement for information, which describes engagements that look to uncover information or identify the need to change or influence.
2. Engagement for change, which describes engagements that look to influence change, with defined objectives and demonstrable outcomes.

Proxy voting means using rights as shareholders to vote at the annual or extraordinary general meetings (AGM/EGMs) of the companies invested in, usually electronically. Voting is used to influence companies to carry out their operations responsibly.

Just transition involves an inclusive approach which helps avoid exacerbating existing injustices or creating new ones, considering the social implications of moving fairly to a low-carbon economy.

Greenhouse gas emissions scopes: The Greenhouse Gas Protocol divides emissions into three 'scopes'. These are:

• Scope 1: Emissions resulting directly from our business activities, such as company cars and gas used in our buildings.
• Scope 2: Emissions resulting indirectly through the purchase of energy, such as through generation of the electricity we buy to light and power our buildings.
• Scope 3: All other indirect emissions resulting from our business activities across our value chain, such as the goods and services we buy, travel and waste. Emissions arising from our investments are also part of Scope 3.