Read this article to understand:
- Why dissent against management resolutions is continuing to decline
- Our case-by-case approach to remuneration reports at UK AGMs
- The key environmental and social topics we have been supporting
Voting forms an essential component of our holistic stewardship framework (see “Only Connect: How a holistic approach to investment stewardship can enhance client outcomes”).1
Through exercising our shareholder rights, we are able to vote at annual meetings of investee companies. They provide an opportunity to express our views on companies’ strategy, governance and performance, and to hold companies to account (or signal support) where necessary.
When making decisions, we consider the companies’ context rather than applying a binary policy
Referring to our own voting policy, our dedicated voting and environmental, social and governance (ESG) analysts work alongside fund managers and investment analysts to develop voting recommendations, engaging with companies throughout the year to inform our decisions.2 When making decisions, we consider the companies’ context rather than applying a binary policy, and all the voting decisions we make aim to benefit our clients’ investments – supporting value creation.
Our voting activity primarily centres on governance-related matters. However, we also use voting as a mechanism to support or vote against companies’ governance and delivery of material environmental and social issues.
In the first eight months of 2024, our votes covered a wide range of issues, including executive pay, board independence and diversity, and climate transition plans. In this article, we discuss some key takeaways from the AGMs where we voted and offer insights into our approach. Further rationales supporting our voting decisions can also be found in our voting policy.2
Trends in management and shareholder resolutions
Early results from 2024 AGMs to the end of August suggest dissent against management resolutions and support for shareholder resolutions are both continuing to decline, albeit at a slower rate than in 2023.3 Our voting is in line with these trends as, in 2024, our support for management resolutions increased across all themes except executive pay (where our support was broadly similar to 2023). We also supported fewer environmental and social shareholder resolutions (see Figure 1).
Figure 1: Votes against management and in support of shareholder proposals (per cent)
| Voting issue | 2023 H1 | 2024 H1 |
|---|---|---|
| Total percentage votes against management resolutions | 26.2 | 23.2 |
| Percentage of board election proposals not supported | 29.6 | 27.1 |
| Executive pay proposals not supported | 43.4 | 43.6 |
| Votes in favour of climate and social shareholder proposals | 67 | 62* |
Note: *This excludes anti-ESG resolutions, of which we have seen a significant increase in 2024.
Source: Aviva Investors. Data as of September 6, 2024.
One reason for this is due to improving corporate behaviours and the quality of ESG practices. For example, the diversity and independence of board directors have both improved in recent years, allowing us to support more director re-elections (see “People” section below). We have also seen demonstrable progress on improvements in environmental and social practices and disclosures.
The UK continues to focus on executive remuneration
In the 2024 UK AGM season, most of the high-profile meetings centred on executive pay, following a raft of private consultations between certain companies and their shareholders. Many large firms had explained they were increasingly unable to compete for top talent without offering higher executive salaries, affecting company performance and growth.
We were happy to see major companies were willing to consult with us on the nuances surrounding executive pay
We took a case-by-case approach and were happy to see major companies were willing to consult with us on the nuances surrounding this topic. By working closely with these firms, we were able to support justified increases, such as for businesses that compete heavily with the US, where executive pay is significantly higher.
Nevertheless, we aimed to ensure our voting decisions reflected broader stakeholder issues. For example, the cost-of-living crisis has particularly affected employees and customers in certain sectors. That made us look more closely at executive pay outcomes at retailers where the gap between the CEO’s pay and the average employee wage was increasing significantly, highlighting concerns of fairness.
Utility companies have also been in the spotlight, particularly water businesses, given the public outcry over ongoing water leaks and sewage spills. While we were able to support the pay report of Severn Trent, which reflected pay that aligned with environmental performance, we felt most firms didn’t go far enough on withholding pay given the magnitude of the problems in the sector.
Voting for key environmental and social priorities
While we believe there has been progress on environmental and social corporate performance, we continue to challenge company management where we see opportunities for improvement (see Figures 2 and 3).
For example, we backed an overwhelming majority of nature-related shareholder resolutions, which are increasing amid growing awareness of the critical importance of nature for corporate outcomes. Most of these involved asking companies to assess and report their exposure to biodiversity risks.
Figure 2: Number of companies not supported (management resolutions) having not met our expectations by stewardship priority theme
| Stewardship priority | 2023 H1 | 2024 H1 |
|---|---|---|
| Climate | 131 | 70 |
| People (including board diversity) | 1,150 | 891 |
| People (excluding board diversity) | 88 | 66 |
| Earth | 102 | 52 |
Source: Aviva Investors. Data as of September 6, 2024.
Figure 3: Per cent of shareholder resolutions supported by stewardship priority theme
| Stewardship priority | 2023 H1 | 2024 H1 |
|---|---|---|
| Climate | 58 | 56 |
| People (including board diversity) | 72 | 49 |
| People (excluding board diversity) | n/a | n/a |
| Earth | 82 | 86 |
Source: Aviva Investors. Data as of September 6, 2024.
The high share of our votes against management and in support of shareholder resolutions stems from the dedicated engagement programmes we have set up across our three key environmental and social stewardship priorities – climate, people and earth – for which we summarise our approach in the following sections.
Climate
In 2024, we voted against 70 companies (typically the board chair) for not having met our expectations on material climate-related issues.
Our approach on climate engagement with companies covers five areas. First and second, we expect companies to set and disclose meaningful short, medium- and long-term science-based greenhouse-gas reduction targets, as well as robust and financially viable plans for a just and inclusive climate transition.
We expect companies to provide clear and comprehensive disclosure regarding climate risks
We also expect companies to provide clear and comprehensive disclosure regarding climate risks, including disclosing financially material climate risks within their annual reports, and explaining how these risks are being mitigated and overseen.
And because achieving the Paris Agreement will require policy action in a wide range of areas, we encourage companies to explain how they engage with governments, industry counterparts (including trade associations) and other stakeholders on climate, and how this aligns with their transition plans.
We believe Boards and senior management teams should be fully accountable for these efforts and associated issues of biodiversity and deforestation. This responsibility should be clearly defined, evidenced, and linked to management incentives.
In 2024, we voted against companies that showed a lack of progress on these climate asks, including failing to set science-based targets and/or publishing poor-quality information in their Taskforce on Climate-related Financial Disclosures (TCFD) report.
People
In 2024, we voted against 66 companies – typically the board chair – for not having met our asks on people-related issues (excluding votes against due to concerns over the lack of board diversity).
Our approach to people-related issues covers two areas: human rights and diversity.
We expect companies to have a robust process in place to identify and manage human rights risks and impacts
On human rights, we expect companies to have a robust process in place to identify and manage human rights risks and impacts in their value chain, and to provide work that is safe, secure, well paid and inclusive. We assess corporate adherence to global standards and norms like the United Nations’ Guiding Principles on Business and Human Rights and International Labour Organisation (ILO) core conventions. The findings of key global initiatives that track company performance against specific sustainability indicators, such as the Corporate Human Rights Benchmark (CHRB) and the World Benchmarking Alliance (WBA) also inform our voting activities.
As mentioned earlier, we also target resolutions like those on executive remuneration if we have material concerns over employee pay (for example, if the company is not paying the Real Living Wage equivalent) or if the gap between CEO and employee pay is increasing without good reason.
On diversity, we consider the differing expectations across markets, as well as the extent of progress being made by companies, but we look for diversity of thought on boards and view diversity through a broad lens, including gender, ethnicity, nationality, skills and experience. We encourage companies to take proactive steps to improve the gender and ethnic diversity of their board, senior management and broader employee base, to develop an inclusive culture and a robust pipeline of future talent.
We typically support shareholder proposals calling for improvements in human rights
We typically support shareholder proposals calling for improvements in human rights, human rights due diligence and disclosures. The same will apply to resolutions asking for better disclosures around diversity and inclusion, so that shareholders and other stakeholders can better assess company performance in these areas.
The large number of companies we voted against so far in 2024 indicates many businesses – and certain markets such as India and Taiwan – need to do more to address the lack of diversity on boards. Yet it is a big reduction on the 1,150 we voted against in 2023, because we have observed broad progress on this issue. Japan is a good example. Just a few years ago, boards remained male-dominated, but diversity has been improving, and we are voting against fewer companies each year.
Case Study: COSTCO
At the 2024 COSTCO Wholesale Corporation AGM, we voted against the board chair due to ongoing concerns over the company’s policies and practices relating to human rights.
The company has performed poorly on public rankings of its human rights performance (scoring zero on the CHRB’s human rights due diligence indicators for the last five years). It is also considered high-risk given its complex and opaque agricultural supply chain.
In 2024, we attempted to engage the company after it had made some improvements in its public disclosures. Although the company was initially receptive, it stated it could not provide detail on how it was addressing severe human rights risks in its supply chains, such as child labour on farms and forced labour on seafood vessels in the Pacific.4,5 Yet these issues continue to receive significant press coverage and could expose the company to legal risks given the imminence of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) in Europe, for which the company is likely to be in scope given its plans to expand its European business.6
We continue to engage with the company, laying out our expectations and areas where we think it can improve.
Earth
In 2024, we voted against 52 companies (typically the board chair) on material nature-related issues.
On nature-related issues, we expect companies to prepare for and begin reporting against the Taskforce on Nature-related Financial Disclosures (TNFD) framework. We are likely to hold management to account where we have concerns with a company’s approach to biodiversity, including deforestation and hazardous chemicals, or where we believe the company’s disclosures are not in line with the materiality of nature-related issues to their business.
We expect companies to prepare for and begin reporting against the TNFD framework
Specifically, in 2022, we strengthened our approach to deforestation and now vote against management resolutions at companies with significant exposure to commodity-driven deforestation risk over their lack of robust policies and targets on reducing deforestation. This is informed by third-party data, which include the poorest performers identified in Global Canopy’s Forest 500 ranking of companies exposed to forest-risk commodities in their supply chain. In 2024 we expanded the scope of our voting policy to financial institutions.
We will also support shareholder proposals relating to addressing biodiversity concerns when they align with our views. For example, in 2024, we supported a shareholder proposal calling on Amazon to issue a report on how it could reduce its plastics footprint and set targets for overall plastic packaging reduction.
The number of companies we sanctioned on nature issues has dropped since 2023, thanks to some companies making progress on deforestation policies. We were also able to support management at some key companies as a result of our engagement with them.
We are mindful that we are in the minority of investors who have adopted an approach to hold directors to account for poor progress on biodiversity issues but expect this to gradually increase over time.
Case study: BASF
At BASF’s 2024 AGM, we voted against the board chair to reflect two nature-related concerns.
Firstly, as part of the Investor Initiative on Hazardous Chemicals (IIHC), we have been engaging with BASF since 2021 to ask for more transparency on the hazardous chemicals it manufactures and the phase-out of persistent chemicals. We are disappointed with the company's progress against these asks.
Secondly, the company is exposed to deforestation risk via its procurement of forest risk commodities such as palm oil but has a weak deforestation policy.
A large proportion of shareholders voted against the chair (31.9 per cent). We understand this to be more about corporate governance than nature, as he was previously an executive of the firm, and many shareholders consider he should not go on to be chair. However, this result should help focus the company’s attention on addressing broader concerns such as biodiversity.
