Speaking at an engagement in the City on Wednesday, the asset manager’s stewardship and engagement group stressed that climate change, board diversity and executive remuneration will be the trio of concerns dominating institutional investors’ agendas during the upcoming AGM season.
Climate change
In light of the Paris climate agreement of 2015 and continued devastation of hurricanes and other extreme weather phenomenon since then, climate change will remain a key talking point, the team said.
Already a global coalition of investors is pushing for more standardised disclosures through the Climate +100 initiative, based on the Task Force on Climate-related Financial Disclosures (TCFD). In support of this movement, Hermes EOS will be reaching out to some of the largest carbon emitters, including American oil titans, Exxon Mobil and Chevron.
The Hermes EOS team’s decade long relationship with German car manufacturer, Volkswagen, has been tested over the years through chairman Ferdinand Piech putting his wife on the board and, more recently, the firm’s infamous emissions scandal.
Ahead of the firm’s AGM in Berlin this May, Hermes EOS associate director, Michael Viehs, said the stewardship team will be demanding the group acts more decisively on climate change issues, including having a more “enhanced dialogue with investors”.
Since the scandal rocked the auto firm in 2015, Viehs said it has tried to change its corporate culture, which he believes played a big role in the scandal. But he acknowledged “there is more to be done in terms of overhauling the corporate culture and changing the tone from the top”.
Board diversity
Closer to home, Glencore and Rio Tinto are still struggling to diversify their board composition. In fact, Roland Bosch, Hermes EOS associate director, said the latter is “actually going backwards in terms of gender diversity”.
Last year, the fund group implored investors to vote against the election of nomination committee chairs at Rio Tinto and Glencore because their boards were not composed of enough female representatives.
VW’s supervisory board composition also remains a key concern for Hermes EOS. It’s an issue they have criticised the company for repeatedly over the last several years. The company remains largely under the control of the firm’s founding Piech and Porsche families and the state of lower Saxony, who all have key members on the firm’s board.
And with the departure of what Hermes EOS considers to be one of the last truly independent board members, this will be an area it addresses this AGM season.
Despite this, Viehs admitted the group has made some progress and that the board has been more communicative with investors and receptive to issues around governance.
Remuneration
However, “it’s not all bad in 2018”, stressed Roland Bosch, another associate director in the team.
In particular, Bosch noted that he has seen progress from the likes of Anglo Dutch consumer goods giant Unilever, British bank RBS and advertising firm WPP in terms of creating more progressive remuneration policies.
Unilever, for instance, has looked to incorporate some of the sustainability metrics, suggested by Hermes EOS, and de-emphasising total shareholder return as a performance metric.
Still, “more progress needs to be made”, as evidenced by the team’s tough stance in 2017, which saw them oppose one third of the remuneration proposals brought forward by FTSE 350 firms and US-listed companies, as well as 42% of resolutions in Germany.
“To keep up the momentum, we will continue to push for changes in pay policies and practice at companies around the world. Importantly, we have market level discussions based on our 2016 Remuneration Principles complementing our work with individual companies. For example, we have set up an initiative in Germany with the objective of developing guiding principles for local companies.”
