How the Proxy Voting Season is Undermined by Advocacy

The purpose of the proxy season is that abrdn vote in a way that advances the best interests of our clients. It is not for various ‘actors’ to use annual meetings to promote agendas which are not necessarily in the best interests of the company or its shareholders.

The proxy season has changed

Once the springtime conversation was dominated by corporate governance, now environmental and social (E&S) issues have begun to take precedence, often driven by resolutions tabled by NGOs and activist groups.

In the 2023 proxy season abrdn voted on more E&S-themed resolutions than in 2019 and 2020 combined. Resolutions concerning climate change are the single biggest theme and a significant area of focus for shareholders and other stakeholders.

This is not to say I don’t welcome the increased level of shareholder scrutiny on E&S topics. Well drafted resolutions can hold management to account on important issues and protect value for investors. These resolutions are clear, unambiguous, focussed on financially material issues, and tailored to a company’s circumstances. They encourage improvement without unduly constraining the agency of the board. Unfortunately, too many resolutions do not withstand such closer analysis.

The fallacy of a ‘support all’ approach

There is an emerging narrative that asset managers should support all shareholder proposals on E&S issues. This is far too simplistic, one size does not fit all. This narrative has been accompanied by an increasingly adversarial tone in the approach of some shareholders and stakeholders to engagement with companies.

Such a blanket approach to voting ignores the fact that not all resolutions are born equal and the circumstances of companies vary significantly. Consequently, some asset managers (including abrdn) have been publicly criticised for voting against resolutions that:

failed to account for governance implications,
requested action that was already addressed by existing commitments, disclosure and practices, or
made proposals less practical than alternative options on the same ballot.

I’ve had feedback from multiple companies that highlight some of the frustrations they face when activists try to influence company strategy. One company advised that a number of votes are simply advocacy for various issues not linked with long term success.

The devil is in the detail

Where abrdn differs to some activist shareholders and stakeholders is our interest is the long-term and sustainable growth of our clients’ capital, theirs might solely be the advancement of a policy agenda.

Our approach to voting on E&S proposals involves research, analysis, and engagement with companies, proponents, and other stakeholders. The financial materiality of a proposal is a key part of our assessment. Our objective is to determine the best outcome for the company, in the context of what’s best for our clients. However, determining the best outcome is not always straightforward, which is why it’s a full-time job.

Corporate resources are finite and it is important that they are directed appropriately. In the midst of its collapse, shareholders of Credit Suisse were encouraged by activists to vote against the approval of the company’s climate strategy. There were valid questions to be asked about the climate strategy. The time to ask them was not in the days preceding the emergency government-backed takeover by UBS.

Advocacy with proxy access can be detrimental to investors and companies, it’s not the panacea people sometimes mistake it for

Andrew Mason, Head of Active Ownership, abrdn

Some proposals make requests that encroach on the responsibilities of the board and executive. Others fail to take account of the context in which a company operates. Several Japanese utilities companies faced resolutions calling for withdrawal from nuclear and coal power generation. These companies face a unique challenge: they must support national energy policy and security requirements and treat employees justly while growing their renewable energy business and phasing out high carbon assets. So, while we encourage these companies to decarbonise, there are significant obstacles to supporting the proposals. First, the prioritisation and management of projects is the remit and responsibility of the board and executive. Second, a company’s approach must be viewed in the context of national energy policy.

Maximising our impact

In 2007, US companies began presenting so-called “say on pay” votes. In recent years this model has been repurposed for climate strategies. The first Say on Climate vote was adopted by Aena, the Spanish airport group, in 2021 following a campaign by a hedge fund investor. The idea gained momentum and by 2022 many more companies were presenting shareholders with an advisory vote on their climate strategy at the annual meeting.

While at abrdn we welcome the intention to increase climate-related transparency and accountability, we have reservations about the implications of this approach as there’s a danger it becomes too simplistic or emotive.

My view is that presenting climate strategy as a standalone voting item risks diminishing the integration of climate in strategy and the direct responsibility and accountability of the board and individual directors. Should resolutions be approved, it may limit the scope for subsequent challenge. Ultimately, company strategy is the responsibility of the directors, not shareholders.

It is important that as investors, we maximise the impact of our engagement and voting for our clients. abrdn can do this by encouraging improvement from our highest-financed emitters and taking voting action at companies that we identify as climate laggards - companies that do not have board-level oversight of climate-related issues.

The most effective way for us to encourage high-quality climate disclosure, is by creating realistic, actionable outcomes for companies.

abrdn abstain on Say on Climate resolutions put forward by management and oppose shareholder resolutions that seek to introduce them, this helps us focus our resources on more actionable and pragmatic initiatives.

In the first half of 2023, abrdn abstained on 17 Say on Climate votes. All these resolutions were passed, with average support of 89%, rendering their impact questionable. abrdn have voted against management at a further 20 companies which did not meet our expectations for climate oversight.

The purpose of our proxy season: the best interest of our clients

Nuanced analysis, with a focus on collaboration with companies and the long-term, sustainable protection of investor value will continue to define abrdn’s approach to engagement and voting. Advocacy with proxy access can be detrimental to investors and companies, it’s not the panacea people sometimes mistake it for.