Collaborating with others
Some investment firms will exclude companies who don’t adhere to certain standards, which can be effective, but it then limits the ability to influence and effect real change within that organisation which could benefit everyone in the long run. Which is why we engage for change through collaborative engagement.
This means Royal London Asset Management(RLAM) will engage when there’s an opportunity to improve or change the way a company is run or is behaving. For example, they might encourage them to adopt more environmentally friendly policies.
When would our asset managers collaborate?
RLAM evaluates the benefits of collaborative engagement on a case-by case basis, and will favour working with other shareholders when:
- A company hasn’t responded to one-on-one engagement, or their response has not been satisfactory
- The situation is serious enough that moving to a collective meeting is appropriate
- Partnering with others would lead to greater access to management or the board, or provide them with a greater chance to influence
- Working with local partners could improve engagement efforts through their physical presence and/or understanding of local practices.
Where we are members and signatories
As part of our commitment to collaborative engagement, we’ve become signatories of leading industry bodies and members of investor networks.
Working together with these organisations helps us to not only stay in line with industry best practices, but it also means we can improve our own standards of compliance and reporting when it comes to stewardship, governance and voting.
Governance for peace of mind
Real governance needs to be transparent so you can see what action we've taken and why. That's why all of our investment options have a formal review process, at no extra cost to you.
Our approach to governance means that all our investment options have a formal review process and are monitored by the Investment Advisory Committee (IAC). They meet regularly and review our Governed Range and funds taking a long-term view for our customers. You can also view a copy of the IAC terms of reference.
Using our vote to effect change
When we invest in a company, we become a shareholder of that company, which means we have the right to vote on a range of matters. These can include appointments to the Board of Directors, structural changes to the company, executive pay and compensation, a proposed merger or acquisition, and much more.
Royal London Asset Management (RLAM) look after the majority of the money we invest for our pension customers, managing just over 90% of our pension assets. They actively engage with the companies they invest in, and vote to promote good governance and company behaviour. More detail can be found in their voting policy.
We also work with other asset managers who invest money and vote on our behalf. Listed below are some of the asset managers we work with. You can see how these external asset managers have voted by viewing their voting records:
How we’ve engaged with companies and made a difference
We engage with the companies we invest in to help make a real difference. By challenging them on many different issues such as CO2 emissions and executive pay, we continue to push for positive change to improve outcomes for our customers. Our engagement priorities include:
Climate risk
Innovation, technology and society
Social and financial inclusion
Biodiversity
Health
Governance and corporate culture
“Our ultimate goal is to use our position as shareholders or bondholders to have a positive influence on behaviour because we think that is in the best long-term interests of our clients."
Ashley Hamilton Claxton, RLAM’s Head of Responsible Investment
Voting Case Studies
Tesla’s quirky governance gives some insight into its management and business practices, including its approach to board diversity, employment issues and net zero. Most notably following at last AGM:
- There was a high vote against the chair of the governance committee after the company failed to implement a shareholder proposal to declassify the board.
- The company proposes to eliminate supermajority voting after a management proposal passed at the last AGM.
- Board diversity (shareholder proposal) – abstained: While we agreed in principle with the proposal, we noted that implementing it would potentially skew the current board make up towards a particular ethnic group, so we abstained.
- Mandatory employee arbitration practices (shareholder proposal) – supported: We voted for this shareholder proposal because the company faces a number of employment-related claims and we think its approach to employee relations could be improved.
- Lobbying activity alignment with the Paris Agreement (shareholder proposal) – supported: As an electric car manufacturer, there is no doubt that Tesla is one of the companies help provide solutions to the climate transition challenges we face. We supported this resolution that asked the company to align its policy lobbying activities with objectives of the Paris Agreement.
National Grid put its Climate Transition Plan up for approval by shareholders in July. Ahead of the AGM, RLAM engaged with the company to discuss the US side of the business, which still holds high greenhouse gas generation assets and sells natural gas to clients, directly accounting for high scope 3 emissions. The company confirmed that it is in the process of devising separate targets for generation linked to intensity per MWh, with a view to ensuring Group-wide science-based targets initiative (SBTI) - 1.5 degree aligned targets.
Approval of Climate Transition Plan – abstained: Following careful review, RLAM analysts assessed that the company has a robust climate transition plan and ambition to be Net Zero by 2050 on all scopes of emissions, only using offsets for residual emissions. Remarkably, the company is also already enabling the delivery of low carbon energy at scale. Moreover, National Grid’s climate-related financial disclosures appear to be consistent with the task force on climate-related financial disclosures (TCFD) recommendations and recommended disclosures. While encouraged by RLAM’s engagement to date, it was felt that there was scope to align the company’s US gas-focused business segments across generation and gas distribution with the Paris Agreement.
Shareholder proposal on living wage – abstain: A coalition of shareholders led by ShareAction filed a shareholder resolution calling for Sainsbury’s to accredit as a Living Wage employer. After careful consideration and several discussions held internally, we decided to abstain on the proposal.
Our review took account of several factors such as how prescriptive the request was, the current economic environment and Sainsbury’s ongoing position on the Living Wage front. We would be fully supportive of the company pursuing living wage accreditation, but believe it is best placed to decide on a timeline that suits the business and stakeholders’ needs.
Tesla’s quirky governance gives some insight into its management and business practices, including its approach to board diversity, employment issues and net zero. Most notably following at last AGM:
- There was a high vote against the chair of the governance committee after the company failed to implement a shareholder proposal to declassify the board.
- The company proposes to eliminate supermajority voting after a management proposal passed at the last AGM.
- Board diversity (shareholder proposal) – abstained: While we agreed in principle with the proposal, we noted that implementing it would potentially skew the current board make up towards a particular ethnic group, so we abstained.
- Mandatory employee arbitration practices (shareholder proposal) – supported: We voted for this shareholder proposal because the company faces a number of employment-related claims and we think its approach to employee relations could be improved.
- Lobbying activity alignment with the Paris Agreement (shareholder proposal) – supported: As an electric car manufacturer, there is no doubt that Tesla is one of the companies help provide solutions to the climate transition challenges we face. We supported this resolution that asked the company to align its policy lobbying activities with objectives of the Paris Agreement.
National Grid put its Climate Transition Plan up for approval by shareholders in July. Ahead of the AGM, RLAM engaged with the company to discuss the US side of the business, which still holds high greenhouse gas generation assets and sells natural gas to clients, directly accounting for high scope 3 emissions. The company confirmed that it is in the process of devising separate targets for generation linked to intensity per MWh, with a view to ensuring Group-wide science-based targets initiative (SBTI) - 1.5 degree aligned targets.
Approval of Climate Transition Plan – abstained: Following careful review, RLAM analysts assessed that the company has a robust climate transition plan and ambition to be Net Zero by 2050 on all scopes of emissions, only using offsets for residual emissions. Remarkably, the company is also already enabling the delivery of low carbon energy at scale. Moreover, National Grid’s climate-related financial disclosures appear to be consistent with the task force on climate-related financial disclosures (TCFD) recommendations and recommended disclosures. While encouraged by RLAM’s engagement to date, it was felt that there was scope to align the company’s US gas-focused business segments across generation and gas distribution with the Paris Agreement.
Shareholder proposal on living wage – abstain: A coalition of shareholders led by ShareAction filed a shareholder resolution calling for Sainsbury’s to accredit as a Living Wage employer. After careful consideration and several discussions held internally, we decided to abstain on the proposal.
Our review took account of several factors such as how prescriptive the request was, the current economic environment and Sainsbury’s ongoing position on the Living Wage front. We would be fully supportive of the company pursuing living wage accreditation, but believe it is best placed to decide on a timeline that suits the business and stakeholders’ needs.
Engagement
Purpose: To meet the new Chairman and discuss strategy, governance and sustainability issues.
Outcome: We were generally impressed by the Chairman’s knowledge and experience in the retail sector, including his full grasp over the main challenges and opportunities facing Greggs. To get to know the business, he spent time serving up sausage rolls at the company’s stores in Manchester. Across the retail sector, there has been a dampening of demand and increased challenges on employee wage bills which are difficult to navigate. However, Greggs has a strong workforce culture and maintains long retention levels amongst its employees. The Chairman aims for Greggs to have market leading sustainability reporting and identified that diversity will remain a key feature during recruitment drives.
Purpose: To discuss RLAM’s votes against the company’s remuneration plan and subsequent press statements.
Outcome: We outlined our issues over Ocado’s value creation plan (VCP) which awards directors based on a single performance metric with limited performance criteria, the ability to ‘bank’ the awards, and a disconnect between pay and performance. We discussed the company’s US-style pay scheme and competitor compensation, as well as its approach to pay with employees. Overall, we were not encouraged by Ocado’s responses and continue to hold concerns over the company’s long-term incentive framework.
Purpose: to encourage companies to integrate social considerations in their climate transition plans
Continuing our collaboration with Friends Provident Foundation (FPF) and building on our successful Just Transition engagement with Utilities, we are expanding our focus to Banks and Social Housing.
- Energy Utilities
Companies in scope: SSE, EDF, Scottish Power, E.ON, Centrica, National Grid, RWE
Update: During 2021, we saw significant success as five utilities out of the seven we have engaged with published Just Transition strategies or commitments within their climate plans. This quarter National Grid published a standalone report. Additionally, we have held a follow up meeting with the sector leader SSE.
- National Grid plc - Acknowledging the need for a Just Transition, National Grid have published an initial report on the topic outlining feedback from a diverse range of stakeholders and committing to develop a strategy in 2023. We will continue to monitor how the company acts on the report’s findings and provide feedback for subsequent just transition strategy publication.
- SSE plc - Having been the first company to publish a Just Transition report, SSE continue to lead the way. Following RLAM and FPF’s suggestions they are seeking to report against the principles set in their strategy and use social metrics that show progress.
- Banks
Companies in scope: Barclays, HSBC, Lloyds Banking Group, NatWest
Update: Capital providers play an important enabling role in transitioning customers to sustainable low-carbon economies. By developing and having in place a Just Transition policy, banks can better assist the wide range of sectors, regions and communities that they finance. In Q2 RLAM and FPF asked the at the AGMs of Barclays, Lloyds Banking Group, and HSBC if the banks would consider integrating just transition throughout their climate transition plans. We have met all four banks since.
- Lloyds Banking Group plc - Lloyds appeared eager to integrate Just Transition into their work and reporting, yet uncertainty remains about how this will look in practice. They were particularly keen to receive guidance from GFANZ and TPT, two organisations developing guidance on climate transition plans. We will continue to monitor their disclosures going forward and seek more opportunities to provide them with feedback.
- NatWest Group plc - NatWest acknowledged the need for Just Transition to be considered when implementing their climate goals but are not prepared currently to signal commitment. They consider their purpose closely aligned with social impact and guiding how they implement their climate commitments.
Purpose: To meet the new Chairman and discuss strategy, governance and sustainability issues.
Outcome: We were generally impressed by the Chairman’s knowledge and experience in the retail sector, including his full grasp over the main challenges and opportunities facing Greggs. To get to know the business, he spent time serving up sausage rolls at the company’s stores in Manchester. Across the retail sector, there has been a dampening of demand and increased challenges on employee wage bills which are difficult to navigate. However, Greggs has a strong workforce culture and maintains long retention levels amongst its employees. The Chairman aims for Greggs to have market leading sustainability reporting and identified that diversity will remain a key feature during recruitment drives.
Purpose: To discuss RLAM’s votes against the company’s remuneration plan and subsequent press statements.
Outcome: We outlined our issues over Ocado’s value creation plan (VCP) which awards directors based on a single performance metric with limited performance criteria, the ability to ‘bank’ the awards, and a disconnect between pay and performance. We discussed the company’s US-style pay scheme and competitor compensation, as well as its approach to pay with employees. Overall, we were not encouraged by Ocado’s responses and continue to hold concerns over the company’s long-term incentive framework.
Purpose: to encourage companies to integrate social considerations in their climate transition plans
Continuing our collaboration with Friends Provident Foundation (FPF) and building on our successful Just Transition engagement with Utilities, we are expanding our focus to Banks and Social Housing.
- Energy Utilities
Companies in scope: SSE, EDF, Scottish Power, E.ON, Centrica, National Grid, RWE
Update: During 2021, we saw significant success as five utilities out of the seven we have engaged with published Just Transition strategies or commitments within their climate plans. This quarter National Grid published a standalone report. Additionally, we have held a follow up meeting with the sector leader SSE.
- National Grid plc - Acknowledging the need for a Just Transition, National Grid have published an initial report on the topic outlining feedback from a diverse range of stakeholders and committing to develop a strategy in 2023. We will continue to monitor how the company acts on the report’s findings and provide feedback for subsequent just transition strategy publication.
- SSE plc - Having been the first company to publish a Just Transition report, SSE continue to lead the way. Following RLAM and FPF’s suggestions they are seeking to report against the principles set in their strategy and use social metrics that show progress.
- Banks
Companies in scope: Barclays, HSBC, Lloyds Banking Group, NatWest
Update: Capital providers play an important enabling role in transitioning customers to sustainable low-carbon economies. By developing and having in place a Just Transition policy, banks can better assist the wide range of sectors, regions and communities that they finance. In Q2 RLAM and FPF asked the at the AGMs of Barclays, Lloyds Banking Group, and HSBC if the banks would consider integrating just transition throughout their climate transition plans. We have met all four banks since.
- Lloyds Banking Group plc - Lloyds appeared eager to integrate Just Transition into their work and reporting, yet uncertainty remains about how this will look in practice. They were particularly keen to receive guidance from GFANZ and TPT, two organisations developing guidance on climate transition plans. We will continue to monitor their disclosures going forward and seek more opportunities to provide them with feedback.
- NatWest Group plc - NatWest acknowledged the need for Just Transition to be considered when implementing their climate goals but are not prepared currently to signal commitment. They consider their purpose closely aligned with social impact and guiding how they implement their climate commitments.