Active Ownership Update August 2020

At Quintet, we believe that through our investments we have a responsibility to society. As an active owner, we use the influence we have to enhance the conduct of companies, encouraging more sustainable business models.

At Quintet, we believe that through our investments we have a responsibility to society. As an active owner, we use the influence we have to enhance the conduct of companies, encouraging more sustainable business models.

We exercise our active ownership by voting at general meetings and through dialogue with management. We monitor the management of companies in which we invest, taking into account environmental, social and governance (ESG) considerations. We believe that this enhances the economic value of companies and is beneficial for shareholders, people and the planet.

Actively exercising the influence we have as an investor and investment manager is consistent with both our fiduciary duty towards our clients and our objective to be a sustainable company.

From January to August 1 2020, we voted on 8,988 proposals at 592 meetings. In the second quarter, our partner, EOS at Federated Hermes (EOS), engaged with 440 companies on our behalf about 1,186 ESG issues and objectives.

The coronavirus pandemic has changed life in many ways and had a tremendous impact on companies. It has also forced us to adapt how we vote and engage.

Impact of COVID-19 on voting

Covid-19 has had a dramatic impact on our lives, and it’s also changed companies and the 2020 voting season. Faced with these exceptional circumstances, we have adapted some of our voting decisions.

The peak of the voting season occurs annually from March to June, during which most of the annual general meetings (AGMs) take place. This year it coincided with the global spread of the coronavirus pandemic. As a result, some companies took the decision to cancel their AGMs, while others postponed or switched from in-person gatherings to virtual meetings.

Among all companies for which we had voting rights and had an AGM planned between March and end of July, around 35% opted for virtual meeting and 5-10% postponed/canceled the meeting for after. Note that many companies had to change the date of their AGM but still managed to hold it during the first semester. The data also shows great disparities between US and non-US companies.

Before Covid-19, in line with the recommendations of our partner and proxy voting service provider, Glass Lewis, we tended to oppose virtual-only meetings as we feared this could significantly limit interactions between shareholders and management. We believed shareholders might not be able to ask questions and engage with independent directors as they would during in-person meetings.

For companies choosing to hold a virtual-only shareholder meeting as of March 1 2020, we have refrained to oppose provided that the company has disclosed its rationale for doing so, including citing the pandemic.


Source: Quintet, period: 01/03/2020 - 01/08/2020

Quintet's votes on management proposals

by category

Board-related proposals:

We have voted against 347 proposals because of failure to address gender diversity at the board.

This represents approximately 60% of our votes against management on board-related proposals. Our policy is to oppose the election of male members of the nominating committee when women are poorly represented (for example, no woman on the board of small- and mid-cap companies).

At Quintet, we believe that board diversity is essential for a stable and efficient board, and this is particularly important in the current time of crisis.

Compensation-related proposals:

We opposed compensation plans when we believed that they did not properly reward pay for performance.

We have notably voted against 45 advisory votes on executive compensation, which represents roughly a quarter of our votes against management in this category.

Audit/financial-related proposals:

88% of our votes against management for audit/financial proposals were for the appointment/ratification of the auditor where we found that the auditor tenure was too long.

We believe that true independence of the auditor is essential to give an objective opinion and fair view of financial statements.

 

The management generally reject shareholder proposals and recommend to oppose them. The high percentage of votes against management is explained by our strong support for resolutions brought by shareholders.

Compensation:

Half of our votes against management were due to our support of proposals asking companies to report regarding race and/or gender pay equity.

At Quintet, we believe that increased disclosure will help to assess how companies ensure equitable compensation and evaluate related risks.

Environment:

We have supported almost all shareholder proposals related to the environment. These were mainly proposals regarding requests for reporting and reduction of greenhouse gas (GHG) emissions, report/action on climate change and environmental reports.
 
We believe that transparent environmental/climate reporting is necessary to assess risks presented by climate change and sustainability-related risks that companies face. GHG reduction targets can also help mitigate environmental risks.
 

Governance:

A quarter of our votes against management were due to our support of proposals to separate the roles of chair of the board and chief executive officer. In line with international corporate governance standards, we believe that the separation of these roles is best practice. This separation increases the board’s independence from management and leads to better monitoring and oversight.

 

Social:

We supported almost all shareholder social-related proposals. Many resolutions were requests for reporting on company compliance with international human rights standards, including human capital management and reviewing political spending or lobbying.
We believe that enhanced social disclosure will help investors understand how companies manage social matters and to assess the risks companies face.
 

Example of our votes 

 

Walmart

Impact of single-use plastic

At the AGM of Walmart in June, we supported a shareholder proposal requesting that the company issue a report assessing the environmental impact of single-use plastic bags.

The proponents of the proposal indicated that Walmart distributes around 19 billion single-use plastic bags a year. Meanwhile, scientists warn that about 1 trillion single-use plastic bags are used annually across the globe – or 2 million every minute. An estimated 100,000 marine animals are killed annually by plastic bags, and by 2050 there could be more plastic than fish, according to the Ellen MacArthur Foundation.

At Quintet, we recognize that single-use plastics are a significant problem and that our convictions must be reflected in our actions.

This is also consistent with our commitment to eliminate all single-use plastic consumable products from all the offices in our 50-city network by the end of 2020.

Just Eat Takeaway.com

Authority to issue shares and to suppress preemptive rights

During its AGM in May, Just Eat Takeaway.com asked in a first proposal for general authority to issue new shares with preemptive rights and without preemptive rights.

We supported this proposal as we see the issuance of new shares up to a certain maximum limit and with certain conditions as beneficial to the company and shareholders. On one hand, it gives the company flexibility to finance operations and future business opportunities. On the other hand, preemptive rights protect shareholders as they allow existing investors to buy newly issued shares before the public. They protect their holdings from being diluted, allowing them to maintain a certain percentage of ownership.

However, in a subsequent proposal, the board asked for authorization to suppress the preemptive rights. We did not believe that the ability to issue shares without preemptive rights was aligned with market practice, nor that it was reasonably justified by the company. We were also concerned about a risk of excessive potential dilution. Therefore, we opposed the second resolution.

Chevron

Paris-aligned climate lobbying

The proposal, brought by Climate Action 100+ investor signatories, requested that Chevron issue a report describing if, and how, its lobbying activities align with the goal of limiting average global warming to well below 2 degrees Celsius (the Paris Climate Agreement’s goal). Shareholders also asked that the report addresses the risks presented by any misaligned lobbying and the company’s plans, if any, to mitigate these risks.

Similar lobbying proposals won significant support, but short of a majority, at ExxonMobil (37.5% in favor), Caterpillar (34%) and General Motors (33%) meetings. This is the first time that a proposal of this nature passed. At Quintet, we are proud to have used our voting rights to make this happen.

Chevron is still a member of the American Fuel and Petrochemical Manufacturers and the Western States Petroleum Association, while other energy companies such as BP announced that they would leave both organizations due to misalignments on climate policy.

The majority of shareholder votes (53%) were in favor of the proposal. This result shows that shareholders recognize that corporate lobbying activities that are inconsistent with the goals of the Paris Agreement present regulatory, reputational and legal risks.

As a member of Climate Action 100+, we are deeply committed to pressing the world’s largest corporate GHG emitters to take meaningful action on climate change.


 

Impact of COVID-19 on engagement

The engagement approach of our partner EOS has also evolved during the crisis. In the early days of the pandemic, the immediate focus was on the operational and financial resilience of companies and, critically, their treatment of employees, suppliers and customers. These short-term concerns influenced whether a company was able to survive the pandemic:


Source: EOS

As the crisis evolves, engagement is looking at the lessons learned and the post-crisis response. EOS has therefore shifted its attention towards sustainability-focused risk management to address how a company can become more resilient to future crises. This means adjusting the focus for the second half of the year, recognizing that the world now looks very different from 2019.

Update on engagement

The full range of issues that our partner, EOS, engages with on our behalf reflects the increasing breadth of sustainability issues that are important to companies.

Governance was the focus in almost 50% of engagements over the last quarter (April to the end of June), while the three other themes accounted for around 15% to 20% each.

Engagement examples

Source: EOS Quintet has adopted an active ownership policy as part of its commitment to sustainable investing. We engage with companies in which we hold shares or bonds on behalf of our in-house managed funds and advisory and discretionary mandates In addition, we vote on behalf of in-house managed funds.

 

Additional Information

 


 

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This document has been prepared by Quintet Private Bank (Europe) S.A. The statements and views expressed in this document – based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of August 24, 2020, and are subject to change. This document is of a general nature and does not constitute legal, accounting, tax or investment advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down. Copyright © Quintet Private Bank (Europe) S.A. 2020. All rights reserved.