Maximising the impact of our climate engagement and voting

Investor engagement and voting on climate-related issues has grown significantly. Amid the numerous initiatives, stakeholder voices, and competing priorities, our aim is to maximise the impact of our engagement and voting for our clients by focusing our efforts. We do this by encouraging improvement from our highest-financed emitters and taking voting action at companies that we identify as climate laggards.

Case Study: RWE – climate engagement

Over several years, abrdn has engaged collaboratively with RWE, a German electric utilities company, as co-lead investors through Climate Action 100+. Electric utilities face a unique challenge: they must support energy security requirements and treat employees justly while growing their renewable energy business and phasing out high carbon assets. During our engagements we discussed the options available for RWE’s legacy coal assets and strongly supported the evolution of its decarbonisation strategy. Last year, RWE announced it had come to an agreement with the German government to phase out its coal power generation by 2030. Earlier this year, RWE submitted more ambitious carbon reduction targets to the Science Based Targets Initiative for verification. The company believes its targets are now aligned to a 1.5 degrees Celsius scenario.

So far in 2023, we have taken voting action at the meetings of 20 companies which did not meet our expectations for climate oversight. We consider climate laggards to be companies that do not have board-level oversight of climate-related issues, based on data collected by CDP. CDP operates an environmental disclosure system which supports companies to measure and manage the risks and opportunities they face in relation to climate change and other environmental factors.

Say on Climate resolutions, which are proposed by the board and ask shareholders to vote on a company’s climate strategy on an advisory basis, have emerged in recent years. Although these votes are well intentioned, when shareholders support a Say on Climate vote this may limit scope for subsequent challenge. Presenting the climate strategy as a standalone item also risks diminishing the integration of climate in strategy and the direct responsibility and accountability of the board and individual directors.

Because of this, we decided to abstain on Say on Climate resolutions. In 2023 so far, we have abstained on 17 Say on Climate votes. All these resolutions were passed, with average support of 89%. We continue to believe that targeted engagement and other voting mechanisms offer a more effective way to work with companies on their climate oversight.

Executive pay and cost-of-living in the UK

During a cost-of-living crisis, we expect companies to focus on helping the employees who need it most. Remuneration Committees should consider factors arising from the cost-of-living crisis when deliberating over executive pay outcomes. This year has been particularly significant as long-term incentives, granted in 2020, began to be paid to executives who had achieved the performance criteria. However, some of these awards were granted in the early stages of the Covid-19 pandemic, during a period of significant market volatility and depressed share prices. It is the responsibility of Remuneration Committees to use their discretion to avoid windfall bonuses for executives which are disconnected from underlying corporate performance. Executive pay that does not take the cost-of-living crisis into consideration may indicate a failure to fully account for the financial impact on employees and customers. We therefore made this a factor in our voting decisions.

Case Study: Centrica – vote against Remuneration Report

abrdn voted against the approval of Centrica’s Remuneration Report. We took this decision for two reasons:

We are concerned that the Remuneration Committee’s decisions harm the reputation of the company, fail to reflect the experience of vulnerable customers, and are misaligned with shareholder interests.

Diversity on US boards

Making progress in diversity and inclusion is critical for the long–term sustainability of companies and economic growth. So, as part of a multi-year programme to improve DEI standards, this year we increased our expectation for gender diversity on the boards of large US companies. We expect companies with a market capitalisation of USD10bn or more to have 30% female representation. For smaller companies, we continued to take voting action if the board did not include at least one female director.

To encourage change, we wrote to 16 focus companies to outline our expectation and open a dialogue to help us understand their approach. This gave us comfort that some companies had an appropriate plan in place. Overall, we took voting action at 74 US companies due to board gender diversity concerns.

Case Study: Comcast – vote against re-election of the Chair of the Nomination Committee

We engaged with Comcast after writing to explain our position on board gender diversity. Comcast currently does not meet our expectation of 30% female representation, so we were keen to hear about its recruitment process and approach to succession planning. The company hopes to enhance board gender diversity ahead of the 2024 annual meeting, but with no progress last year and without firm plans in place, we voted against the re-election of the Chair of the Nomination Committee.

We also supported shareholder resolutions requesting that US companies disclose a board skills and diversity matrix. This disclosure demonstrates the diversity of board composition across a range of key factors, from skills and expertise to gender and racial diversity. It can provide valuable assurance that board composition is balanced and highlight any areas requiring attention in board succession plans.

As investors, we are aware of growing evidence which shows that, under the right conditions, diversity and inclusion can lead to positive business outcomes. These include attraction and retention of talent, higher productivity, and better financial performance.