Engagement and voting in practice

Early in 2022, Royal London Asset Management engaged with Amazon to discuss its climate commitments, employee relations and governance practices around tax disclosures. Several of the topics discussed formed the basis of shareholder proposals tabled at the 2023 AGM, with a record 18 resolutions submitted for consideration.

Engagement focus - Royal London Asset Management meeting with Amazon

Climate reporting

Amazon reiterated its commitment to disclosing how it’s tackling its climate commitments and will only turn to carbon offsets as a last resort. The company noted that some parts of its supply chain (for example freight and shipping) are harder to decarbonise, and it doesn’t yet have a clear plan to tackle this.

Employee relations

Amazon continues to push back against unionisation, claiming that unions work against company and employee best interests. However, it agreed to at least have a conversation with the union if employees voted in favour of one. Employees have since voted to support forming a union at Amazon’s fulfilment centre in New York.

Tax disclosure

There’s been concern around Amazon’s level of tax disclosure. During its engagement with Amazon, Royal London Asset Management emphasised the importance of clear and transparent disclosure on tax. However, Amazon remained firm on not disclosing more information.

2023 AGM shareholder proposals - voting activity snapshot

Tax transparency

Royal London Asset Management voted in favour of a proposal for increased disclosure on tax to help shareholders assess Amazon’s tax-related risks. This vote reinforced Royal London Asset Management’s previous discussions with the company about its disclosure approach.

Animal welfare standards

Royal London Asset Management abstained on a vote for a report evaluating animal welfare standards at Whole Foods, bought by Amazon in 2017. Shareholders had tabled concerns about Whole Foods’ animal welfare practices. While Royal London Asset Management supports better disclosure, Amazon is considered open in its approach to this issue, promotes high standards and has shown itself quick to act in response to any identified issues in the supply chain. Royal London Asset Management also considered the proposed timeline to report on this issue was overly pressured.

Climate risk in employee pension default options

Royal London Asset Management voted against a proposal requesting that Amazon reports on how it’s protecting pension scheme members with a longer time to retirement from climate risk in the company’s default investment options. While Royal London Asset Management saw the merit of the ask, it believes that this is already the case, with employees able to choose where their pensions are invested from a large number of options.

Third-party assessment of freedom of association

Freedom of association allows workers and employers to create and join organisations of their choice without fear of reprisal. That includes joining unions and bargaining collectively for better working conditions. Royal London Asset Management voted in favour of a request for Amazon to disclose how it ensures workers’ rights in this area, particularly since there have been some significant controversies about Amazon’s labour practices and apparent anti-unionisation rhetoric at some sites.

Employee salary considerations when setting executive compensation

Royal London Asset Management voted against a proposal to take into consideration employee salaries when setting executive pay. It believes that these decisions are usually best left to the compensation committee, which has access to a greater degree of information than shareholders.

Royal London Asset Management also voted against a Board-tabled executive compensation proposal as it believes the compensation structure falls short of best practice standards, with a lack of performance-related incentive plans and a reliance on discretionary grants.

BP plc

As a signatory of the Net Zero Asset Managers initiative¹, Royal London Asset Management looks to influence companies to adopt emissions reduction targets and climate transition plans that support the goal of net zero greenhouse gas emissions by 2050 or earlier. Royal London Asset Management has developed a Climate Transition Assessment, which uses 12 indicators to help assess companies’ climate transition plans, such as BP’s (the energy business) and it expects to influence decarbonisation through this approach.

Engagement and voting activity around BP’s climate plan

BP’s climate plan was approved by shareholders at the 2022 Annual General Meeting (AGM). In February 2023, BP announced changes to this plan on the back of changing political sentiment across Europe and US, with governments looking for increased oil and gas production in an attempt to lower energy prices in the short term.

BP insisted that these decisions weren’t a change in strategy and stressed its commitment to reducing global emissions through further investment of up to $8bn in cleaner technologies.

However, Royal London Asset Management wasn’t comfortable with the lack of shareholder consultation on the changes to the climate plan. It believed BP should have given shareholders the opportunity to vote on the new plan at the 2023 AGM.

Royal London Asset Management met BP’s Chief Executive and other senior leaders to discuss its concerns about the updated climate plan and explain its voting rationale at the upcoming AGM. Due to these concerns, Royal London Asset Management voted ‘Against’ the re-election of the company’s Chairman at the AGM, and also wrote to the Chief Executive in June 2023 to reiterate its concerns and voting rationale.

Voting activity around greenhouse gas emissions reporting and reduction

Royal London Asset Management voted ‘Abstain’ on a shareholders’ proposal around reporting on and reducing greenhouse gas emissions. While Royal London Asset Management still largely supports BP’s approach, there are a number of areas where it wants further detailed disclosure, this is particularly true given the changes to the climate plan that BP announced in February 2023, and the fact that the plan wasn’t resubmitted to shareholders for a vote.

¹ The Net Zero Asset Managers initiative (opens in a new window) – An international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions.

Compass 

Compass is a UK company providing food contract services to businesses. The company operates across 45 countries in 55,000 client locations and employs around half a million people.  

Focus on diversity 

Royal London Asset Management invests in Compass, and as part of its regular reviews was looking at engaging with the company on its diversity policies and practices to gain greater insight and encourage increased transparency.  

The Compass board had recently established its ‘people commitments’. As part of this, it identified areas where the company could make improvements on diversity – particularly in leadership, teams and diverse talent.  

Royal London Asset Management met the company’s group chief people officer and one of its independent non-executive directors, who is also the workforce engagement lead with a focus on building relationships with employees. The meeting aimed to understand how Compass is implementing and measuring diversity activity and engagement, specifically around ethnic minorities, and how this supports Compass’s ‘people commitments’.  

Using data collated predominately on its US employees, Compass was able to prove that when it had more women in leadership teams, it has enjoyed more business success, and also has seen proportionately higher levels of engagement from ethnically diverse employees in the US. 

In the UK, Compass is focusing on diversity related to social and economic factors and plans to look at its recruitment practices to encourage more people from different backgrounds to apply for roles. On bias and prejudice issues, the company explained that this often starts with ignorance, so it’s working on addressing this through education.  

Compass has also highlighted areas where it’s looking to improve, such as the proportion of female senior leaders. 

Outcome  

Royal London Asset Management has invested in Compass for a long time and continues to see the company as a leader in diversity policies and practices. We are encouraged by what Compass is doing in terms of employee engagement and initiatives, as well as by how it’s giving investors and stakeholders greater visibility, including through publishing more information on its progress. Royal London Asset Management sees this increased transparency as a welcome sign that Compass is genuinely committed to diversity within its workplace. 

Scottish and Southern Energy  

SSE (Scottish and Southern Energy) is an energy utility company that helps produce and distribute gas and electricity to our homes. It’s one of the largest producers of wind power in the UK and has committed to become ‘net zero by 2050’ – which means that by 2050 the amount of greenhouse gas emissions produced by SSE will be equal to the amount it removes from the atmosphere. 

Royal London Asset Management’s Responsible Investment team has been champions of SSE’s strategy to move to wind power and reduce its reliance on coal and gas, which will have a big benefit for our climate. However, it has also been talking to SSE about the Just Transition – what the company is doing to make sure that its transition to lower carbon energy considers any social impact, like job losses or making energy bills unaffordable.  

What action did the engagement drive? 

Together with the Friends Provident Foundation, an independent charity working towards a fair and sustainable economic system that serves society, Royal London Asset Management’s Responsible Investment team met representatives from SSE to check its progress on net zero and a Just Transition. Following this, SSE agreed to publish a formal Just Transition strategy, the first company to do this globally. 

We see this as a great example of how engagement can lead to positive outcomes for society.  
 

Shell plc 

Engagement with Shell’s chairman

In the lead-up to Shell’s 2023 Annual General Meeting (AGM), Royal London Asset Management met the chairman to discuss progress on the company’s climate transition plans and reiterate its requests for improvements. Shell confirmed it expected to meet its 2030 targets, although it may not be a completely smooth or straight journey.

AGM voting activity

Shell noted Royal London Asset Management’s request for transparency around the cost of carbon credits. Carbon credits are a mechanism that incentivises companies to reduce greenhouse gas emissions.

Royal London Asset Management also urged the company to disclose all its emission reduction targets to facilitate assessment of how these align with the Paris Agreement – the 2015 legally binding international treaty on climate change. This disclosure request included targets for emissions directly generated by Shell’s activities (known as Scope 1 emissions), but also emissions associated with activities that it is indirectly responsible for (known as Scope 3 emissions). This could include, for example, suppliers in the value chain and employees’ emissions when commuting. These Scope 3 emissions typically account for the majority of an oil and gas company’s carbon footprint so need tackling to meet the aims of the Paris Agreement¹.

Last year, Royal London Asset Management voted ‘Abstain’ on Shell’s energy transition strategy (what it calls ‘Powering Progress’). It didn’t believe the measures outlined in that strategy went far enough and also wanted to see the company’s progress on specific issues that would make Shell more robust. At the 2023 AGM, Royal London Asset Management noted the company’s considerable investment in scaling up technology that can help with emissions reductions. But in the absence of further progress against the asks in 2022, Royal London Asset Management voted ‘Against’ on the equivalent 2023 proposal.

AGM follow-up engagement

Following the AGM, in June 2023 Royal London Asset Management met Shell’s Head of Scenario Modelling. The key takeaway from this meeting was that the company’s most ambitious decarbonisation scenario, based on realistic changes in government policies and people’s attitudes, showed a rapid reduction in the demand for natural gas. But Royal London Asset Management isn’t clear about the link between Shell’s climate modelling and its decision to continue growing its natural gas business.

Lobbying activity

Royal London Asset Management took part in Shell’s Capital Markets Day in June 2023 – an annual event that gives investors and shareholders the chance to meet the company’s management and find out more about its strategy. The key takeaway from the event was that Shell’s energy transition strategy, ‘Powering Progress’, would drop investments in its power generation business. Shell also claimed that it had already reduced oil output by 1-2% as a result of selling its shale business. However, in Royal London Asset Management’s opinion this goes against supporting an actual world emission reduction as the oil was still being produced by another organisation rather than actual production being stopped.

Royal London Asset Management wrote to Shell’s Chairman following the Capital Markets Day announcements, reiterating its asks of the company including transparency around carbon credits and disclosure of emissions reduction targets. Additionally, Royal London Asset Management joined the World Benchmarking Alliance’s engagement with oil and gas companies and is co-leading engagement with Shell on what it’s doing to address the social challenges of a low-carbon transition – known as a ‘just transition’. (The World Benchmarking Alliance is an organisation focused on methodologies to identify sustainable business behaviour).

¹ Scope 3 Emissions (opens in a new window)

Tesla 

Tesla and its founder and Chief Executive Officer, Elon Musk, are often seen as having an unconventional approach to governance and management practices. This includes the approach to board diversity and independence, employment issues and net zero.

At Tesla’s 2022 and 2023 Annual General Meetings (AGMs), there were a number of votes related to governance and management practices which Royal London Asset Management voted on.

Re-election of directors

At the 2022 AGM, it was noted that the company had failed to implement a proposal, which most shareholders at the 2021 AGM had supported, to get Tesla’s board members to stand for re-election every year¹. This would have raised the board’s accountability as shareholders would have the opportunity to vote relatively quickly on directors’ decisions.

To voice its concerns over this lack of implementation, at the 2022 AGM, Royal London Asset Management voted against the chair of Tesla’s governance committee. However, on this occasion not enough shareholders voted to back the re-election proposal, so it wasn’t implemented.²

Board diversity and independence

Around board diversity, at the 2022 AGM, Royal London Asset Management voted ‘Abstain’ on a proposal to align board diversity with the profiles of Tesla’s customer base and where the company operates. Although it agreed with the principle of the proposal, Royal London Asset Management noted that implementing it would potentially skew the current board make-up towards a particular ethnic group, which would have a negative impact on board diversity.

At the 2023 AGM, Royal London Asset Management voted against the election of Tesla’s former Chief Technical Officer, JB Straubel, to the board as it didn’t believe he was independent, and that the board was already insufficiently independent. It did however vote in favour of the proposal for additional disclosure on succession planning processes, as that would mitigate risks related to potential board changes.

Supermajority voting

At the 2022 AGM, Tesla put forward a proposal to remove supermajority voting, which Royal London Asset Management supported. This is where a larger than normal shareholder majority is needed for an action to be approved. It’s now seen as outdated as it can allow a minority to block the preferences of the majority, making it more difficult for decisions to be passed.

Employee relations

With Tesla currently facing a number of employment-related claims, Royal London Asset Management believes the company’s approach to employee relations could be improved. At the 2022 AGM, it voted in favour of a shareholder proposal requesting information on the impact of using mandatory employee arbitration practices. These require employees to try to resolve legal claims against their employer through arbitration instead of going to the court, which they believe can be contrary to employees’ best interests.

Alignment with Paris Agreement objectives on climate change

As an electric car manufacturer, there’s no doubt that Tesla is one of the companies helping to provide solutions to the climate transition challenges we face. However, at the 2022 AGM, Royal London Asset Management supported a shareholder resolution asking for Tesla to publicly provide information around its lobbying activities and their alignment with the 2015 Paris Agreement’s objectives to limit global warming.

¹ TSLA Stock Shareholder Proposals Elicit Controversy Ahead of Annual Meeting (opens in a new window)

² Tesla shareholders broadly follow board recommendations at annual meeting (opens in a new window)