Influence in action: APG's stewardship approach in developed market equities

APG on behalf of its clients uses its influence to improve companies’ sustainability and long-term performance. In this series, we explore how stewardship is applied in the different asset classes and strategies making up APG’s diversified portfolio. In this fourth installment, Olivier van Hirtum (Head of Developed Markets Equities Fundamental) and Asimwe Ruganyoisa (Responsible Investment & Governance Specialist) discuss how APG leverages its influence in the Developed Markets Equities Fundamental (DMEF) strategy. Van Hirtum: “Without a solid stewardship approach, we as a pension investor would not have a social license to operate.”  

The DMEF strategy focuses on large-cap companies listed in developed markets. The international team of 25 investment specialists looks at the long-term prospects of a company; investment choices are based on fundamental analysis of all relevant factors that may impact a company’s valuation. Van Hirtum: “Given our focus on equity investments, exercising shareholder rights is a crucial instrument in our stewardship approach. This includes voting at shareholders’ meetings, and also (co-)filing or supporting shareholder resolutions. In addition, we use our leverage as investors to actively engage with our investee companies on behalf of our clients.”

Making informed voting decisions

Voting is a powerful tool that enables the DMEF team to influence the behavior of its portfolio companies. The investment team’s specialists work with APG’s Global Responsible Investments & Governance (GRIG) team, which coordinates the exercise of all equity voting rights.

Ruganyoisa: “We use the services of proxy voting service advisors that carry out analysis and make recommendations based on our general voting criteria. In the case of more complex issues or where our clients want us to review on a case-by-case basis, a deeper dive is required. Additionally, information from research studies can supplement our knowledge of a company. This makes it easier for us to take a stance and helps us to make more informed voting decisions. For example, where we see that a company is making progress on reporting on its Scope 3 carbon emissions* but is not yet where it should be, we may want to encourage it to try harder and vote in a way that reflects this.”

Achieving meaningful dialogue

Shareholder resolutions too can be a means to convey APG and its clients’ views, and reinforce their message. For example, earlier this year APG co-filed a climate resolution on behalf of its clients at Toyota Motor. The proposal urged the car maker to improve disclosure of its climate lobbying activities and demonstrate industry leadership in support of the Paris Agreement’s goals. Van Hirtum: “APG and also co-filers have been intensively engaging with Toyota over the past three years, but were unable to find common ground with the company on the topic of lobbying activities. We filed the proposal to protect long-term shareholder value and mitigate reputational risk, by supporting the long-term sustainability of Toyota’s business.”

Van Hirtum continues: “Given the two-thirds majority voting requirement, it was no surprise that the proposal was not passed. What’s key is that the proposal was widely supported by investors around the globe. The automotive industry, in which Toyota plays a pivotal role, is the leading sector in Japan’s economy. This strong support sent a clear signal to not only the company but also the automotive sector that more action needs to be taken to transition towards a net-zero society.”

“Before, shareholder resolutions were typically seen as a hostile escalation strategy. There is a shift towards a greater acknowledgement of shareholder resolutions as a means for investors to elevate an engagement to achieve effective and meaningful dialogue,” says Ruganyoisa. Van Hirtum adds: “Our team positions itself as a long-term partner of the companies we invest in. This approach and APG’s reputation as a leader in responsible investing help foster an atmosphere of constructive interaction. We will continue to engage actively and support Toyota in its climate transition journey.”

Showing support

Van Hirtum: “Engagement is not only relevant when we have identified a specific issue that a company needs to address to meet our clients’ ESG standards. It is a two-way dialogue; our team has regular interactions with our investee companies, at the board level. This helps to bring clarity and a greater understanding of each other’s position on ESG topics and interests in related long-term objectives. This way, we can effectively use our influence to encourage companies to improve processes and, if needed, change their behavior.”

Ruganyoisa adds: “We also show our support when a company is on the right track. For example, recently a CEO of one of our investee companies faced potentially being removed by the company’s single largest shareholder. Under this CEO’s leadership, the company made substantial progress towards its energy transition goals. In our opinion, the intended change in leadership can have a destabilizing effect on the company’s energy transition plans and further progress. Together with like-minded institutional investors, we wrote a letter to the shareholder to express these concerns.”

APG regularly works with other major investors to advance common objectives. Not only by co-filing shareholder resolutions and writing joint letters or statements, but also through collaboration in initiatives like Climate Action 100+. “By joining forces and leveraging our scale, major investors can exert pressure more effectively,” explains Ruganyoisa.  

A social license to operate

Van Hirtum: “Stewardship is a fundamental part of APG’s responsible investment strategy. We use our influence to create long-term value for both our clients and their beneficiaries, and society at large. Not only because of international standards and our clients’ increasing responsible investment ambitions; I strongly believe that without a solid stewardship approach, we as a pension investor would not have a social license to operate.”

* Scope 1 covers all direct emissions from the activities of a company. Scope 2 are indirect emissions from energy used by a company to sell its main products or provide its main services. Scope 3 are all other indirect emissions arising from a company’s value chain, both upstream and downstream.