Voting Season 2023: Our Policy in Action

Going into the 2023 proxy voting season, we had three clear priorities:

• Use targeted climate engagement and voting for maximum impact
• Ensure executive pay was appropriate during the UK’s cost-of-living crisis
• Encourage greater diversity on US boards

Commenting on the 2023 voting season, Andrew Mason, Head of Active Ownership, abrdn, said:

“We are met by varying stakeholder priorities as we exercise our voting rights. Our priority is to deliver what’s best for our clients. We publicly disclose our voting intentions ahead of the voting season through our voting policy, we publicly disclose both how and why we have voted at each AGM during the voting season, and we continue to innovate with groups such as the CDP (formerly the Carbon Disclosure Project) to improve what we deliver on our clients’ behalf.”

1) 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.

Claire Elsdon, Global Director, Requesting Authorities - Capital Markets, CDP, said

“CDP is thrilled to see abrdn leveraging our CDP’s data to enhance shareholder voting policy. Disclosure of environmental-related data is vital for investors, and abrdn's commitment to incorporating corporate climate oversight as a voting priority sets an example of leadership on responsible investment practices for other financial institutions. Their new oversight measure emphasises the crucial role of disclosure in driving positive change in new ways, and we look forward to seeing more financial institutions follow abrdn’s steps toward a more sustainable and informed approach to investment decision-making.”

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.

2) 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:

• In 2020 the CEO received a long-term incentive plan grant which was not meaningfully reduced to reflect the depressed share price during the early months of the Covid-19 pandemic in Europe. This resulted in a windfall award to the CEO valued at GBP2.26m.
• The company awarded the CEO a generous annual bonus of GBP1.42m. We do not regard this as reflective of the impact of forced prepayment installations on vulnerable customers during the cost-of-living crisis and the associated probe by Ofgem.

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.

3) 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.

-Ends-

About abrdn

• abrdn is a global investment company that helps clients and customers plan, save and invest for the future. Our purpose is to enable our clients to be better investors.
• abrdn manages and administers £495.7bn of assets for clients (as at 30 June 2023).
• Our strategy is to deliver client-led growth. We are structured around three businesses – Investments, Adviser and Personal – focused on the changing needs of our clients.
• The capabilities in our Investments business are built on the strength of our insight – generated from wide-ranging research, worldwide investment expertise and local market knowledge.
• Our Adviser business provides financial planning solutions and technology for UK financial advisers, enabling them to create value for their businesses and their clients.
• Powered by the UK’s second largest direct-to-consumer investment platform, interactive investor, our Personal business enables individuals in the UK to plan, save and invest in the way that works for them.

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