“Significantly increasing the number of votes cast for our clients on material issues”

As the busiest period of the voting season draws to a close, we look back at some of the notable votes and highlight the trends of the 2024 voting season, with Senior Portfolio Manager Responsible Investment, Tara-Jane Fraser. From APG clients’ perspective the key point was a further expansion of the scope of what APG can take voting action on.

Voting against financial statements a new tool to push for change
APG’s pension fund clients are constantly evaluating and tightening the way they use voting as a mechanism to encourage change. Every year, during the voting season, APG implements the voting policy for each of these clients. In previous years, APG has used its vote to oppose the re-election of the chair of a company as a tool to push for change on its clients’ key themes (climate, human rights, biodiversity and good governance). Also because responsibility for the choices a company makes ultimately lies with the chair. “This year we extended this to voting against the approval of a company’s financial statements,” explains Fraser. “As these are a standard AGM item, this gives us the opportunity to consistently voice our dissatisfaction or leverage our influence on issues in years when the chair is not up for re-election. This move has been very successful, giving double digit increases in the number of votes that we've been able to cast for our clients on material issues, rather than having, for example, to wait for a year when the chair is up for a vote.”

Eumedion – valuable work under the radar

According to London Business School Professor of Finance and sustainability expert, Alex Edmans, the best engagements are the ones that you don't report on. “There is a lot of truth in that statement,” acknowledges Fraser. “It also reflects the work carried out by Eumedion as a collaborative engagement entity in the Netherlands. Eumedion puts a lot of energy into pre-AGM calls – the secretariat contacts companies to discuss the AGM agenda prior to the meeting.” This preparatory work helps to get alignment on material topics and to flag important issues to its members and other shareholders. The contribution of these activities is hard to quantify, also because once there is no longer a problem there is less urgency to talk about it. As a result, a lot of successful engagement work done by Eumedion goes unreported. Fraser: “One good example is Philips, where remuneration would probably have been a far more contentious issue without the pre-AGM collaborative work. We took part in an intense engagement process through Eumedion with the Philips board prior to the meeting. Without this process, there would have likely been an APG vote opposing the remuneration proposal.”

Notable Votes: Tesla and Prosus – controversial remuneration packages

At the 2024 AGM, Tesla shareholders were asked to re-ratify the compensation package that was approved by 73% of independent shareholders in 2018 after a court in Delaware published a ruling saying that at that time insufficient disclosure was provided. “The Tesla remuneration plan was highly controversial and rightfully so,” says Fraser. “The company delivered an unprecedented level of performance, achieving a combination of extremely ambitious market capitalization and operational targets consistently over a five-year period. In the run up to the AGM, the whole industry was really grappling with this, given the size of the remuneration package (around USD 56 billion in the form of options). It is clear that for asset owners particularly, it becomes very difficult given the sum of money involved to support this. That notwithstanding it remains a hard decision, given the superior level of performance achieved by Tesla. For example, according to the International Energy Agency, electric cars accounted for around 18% of all cars sold in 2023, up from just 2% in 2018, something that Tesla is largely responsible for. A truly remarkable achievement. In the end, we opposed but the proposal was supported by over 60% of the total votes.”

Knock-on effects

There has been a lot of helpful discussion regarding the Tesla vote within the industry and on the best way to structure pay-for-performance awards. Although, according to Fraser, we will need to wait to see the real knock-on effects on future pay plans, Prosus is an early example. “The company proposed to grant the new CEO USD 100 million based on market cap and total shareholder return. This moonshot award as it was described – a one-off incentive to reward exceptional performance in terms of growth in market cap and total shareholder return – would be on top of regular incentive structures. We expected this to be similarly controversial, particularly amongst European shareholders and it was. Eumedion issued an alert in advance of the AGM and, as we struggled to see sufficient alignment between pay and performance or the necessity for this level of award, we voted against the proposal. It was encouraging to see that a very large majority of independent shareholders also opposed which will likely further the debate on the use of such types of awards going forward.”

Keeping governance robust

APG was also vocal on the topic of governance on a more general level in 2024. In March, the International Corporate Governance Network (ICGN) coordinated a letter to the UK government on behalf of institutional investors including APG to caution them against relaxing certain requirements in a bid to attract companies to list in the UK. Fraser: “We do not want to support a narrative that potentially jeopardizes shareholder rights. Similarly, together with around 40 other large European and US investors we endorsed the Council of Institutional Investors' position that the Securities and Exchange Commission (SEC) should continue to be the preferred arbiter of shareholder proposals. Again, to ensure that companies do not look for differences between jurisdictions to try to water down shareholder rights. For example, in the context of Tesla, APG also opposed the motion to redomicile the company from Delaware to Texas as we felt that we could not adequately assess the impact a new jurisdiction would have on these rights.”

Notable vote: Unilever– watered down sustainability goals

In the run up to the AGM there was some press coverage about Unilever scaling back a number of environmental and social pledges. Unilever has, in the past, been regarded as having a strong ESG focus, so this move sent a worrying signal to the market. Fraser: “The company has watered down goals in several areas including its plastics reduction targets and living wage commitments. We were particularly pleased that the media picked up on this as we were disappointed by this change of direction and had decided to take voting action against the remuneration report (and its link with targets) and the climate transition strategy to reflect our concerns. Although we were in a minority and our vote did not affect the overall results, we were pleased that these issues received widespread attention.”

Shareholder Proposals – quantity but not necessarily quality

The increasing number of shareholder proposals lodged at AGMs was not a new phenomenon in 2024, but a continuation of last year’s record-breaking trend. But in 2024, it is not just the number of proposals – the degree of complexity has increased too, as has the range of issues covered. “As a result, in some cases, companies have become frustrated with poorer quality proposals that place a huge administrative burden on them as they are obliged to respond. The same goes for us – we have to examine each individual proposal and determine our viewpoint,” acknowledges Fraser. “We would like to see a better review system for proposals; something that ensures a certain level of quality and prevents the system from being misused. That said, caution is required as the ability to file is a fundamental and democratic right, enabling even the smallest shareholder to have their say. This has to be protected at all costs, hence the reason for incorporating some kind of regulation to control the floodgates.”