Engagement and voting
We take our role as the custodian of our clients’ wealth seriously. Before investing in a company or fund, our research teams examine them from every possible angle to ensure they meet our criteria.
Where possible, we prefer to meet face to face, as this helps us gain a better understanding of a company’s culture and unique business challenges.
It almost goes without saying that COVID-19 created logistical challenges in this respect throughout 2020. But in a world where video conferencing became the new normal, we were able to maintain direct contact with the management teams of our portfolio holdings.
Our long-term approach enables us to build strong relationships with senior management teams of the companies and third-party managers we invest in. As a result, our access to key decisionmakers with whom we can discuss sustainability goals and broader strategic issues improves every year.
This access is particularly important for addressing any new material ESG risks or concerns that may arise. In these circumstances, we typically engage directly with the business and its senior management prior to making any investment decisions
Our long-term approach enables us to build strong relationships with senior management teams of the companies and third-party managers we invest in.
Wells Fargo: fossil fuels lending
In March 2020, the environmental organisation Rainforest Action Network (RAN) published a report about the lending practices of the financial services industry to the fossil fuels sector.
According to the research, the world’s biggest banks, including Wells Fargo (which we own in client portfolios), had financed more than $2.6 trillion worth of oil, gas and coal projects since 2016. However, the figures contained in the report did not match the data that we had gathered during the course of our own analysis.
Keen to clarify apparent discrepancies, we contacted both the report’s authors to better understand their methodology, as well as Wells Fargo’s management to clarify reported numbers.
After reviewing the RAN report’s approach and data, we concluded that the figures were inflated by double counting. For example, if two banks were managing the issue of a new loan, the notional value of the loan had been fully allocated to both banks. In addition, every time a loan agreement was amended, this was counted as a new loan.
We subsequently engaged with Wells Fargo regarding their fossil fuel lending book and to understand the direction of travel. It was clear to us that not only was the actual size of their lending book to the fossil fuel industry much smaller than stated in the RAN report, but the company was also committed to improving its internal oversight of ESG issues with respect to lending.
In addition, Wells Fargo demonstrated considerable progress regarding sustainability commitments during 2020. As this report went to press, Wells Fargo announced its commitment to achieving net-zero greenhouse gas emissions by 2050. It now aims to provide $500 billion of sustainable financing by 2030, $157 billion of which has already been provided. This is a notable increase on its previous $200 billion commitment.
Helping steer Admiral’s ship
The strength of our relationships with management teams also allowed us to engage more proactively with companies on how they intended to support customers through the pandemic.
During the first wave of the crisis, we saw that US auto insurer GEICO had decided to refund customers 15% of their premiums. The reasoning was simple: fewer people were driving their cars, meaning fewer accidents and fewer claims.
GEICO’s costs dropped considerably, and the company decided it was only fair to reimburse loyal customers during a difficult time.
Our clients already own GEICO indirectly through their holding in Berkshire Hathaway, and we were impressed with the company’s principled and forward-thinking approach. We own UK motor insurer Admiral in client portfolios and felt they should consider taking a similar stance.
We liaised closely with Admiral’s CFO and encouraged the company to implement the idea, prioritising their customers and brand affinity over short-term profits. We were asked to provide further input and feedback once they actioned the reimbursements. Our close involvement throughout the process is a reflection of the value and trust between us and the companies we are long-term active shareholders in.
While refunding premiums was likely to impact short-term profits, we were confident it was still the right choice for the business. In April 2020, Admiral became the first UK car insurer to refund customers, which encouraged other firms to quickly follow suit.
We see this as a positive outcome that was only possible because of the strength of the personal relationships we have built with the people at Admiral.
Voting activity in review
The dialogue we have with companies throughout the year is not our sole means of engagement. We also continued to exercise our voting rights at shareholder meetings in 2020, which is a responsibility that we see as a crucial part of our stewardship duties to clients.
We review all shareholder resolutions carefully and decide how to vote independently based on the long-term interests of our clients.
We voted on behalf of our clients more than ever before during 2020. Of the 290 total votes we cast, the majority of which were administrative, we voted against the board’s recommendations in just one instance.
On this occasion, shareholders of a US media company sought to require future board Chairs to be independent. After some consideration we voted in favour of the shareholder resolution as we have a general preference for Chairs to be independent.
There were several resolutions last year when we eventually voted in line with the board’s ecommendations, after careful deliberation. This was the case with resolutions put forward by fellow shareholders covering important topics such as diversity reporting. In these cases we assessed the specifics of each resolution in depth as well as the company’s position and only voted with the board if we felt their response was sufficient.
We have already already seen a noticeable increase in investorled resolutions in 2021, some of which are well-structured and aligned with the objectives of our responsible investment policy. These resolutions provide us with additional ways to engage with companies.
2020 Proxy Voting Summary
