Investing to create a more sustainable, stable and prosperous world should be a core part of the purpose of any responsible asset manager. Louise Piffaut reviews our recent engagement activity designed to hold investee companies to account.

Read this article to understand:

  • The importance of addressing runaway executive pay and fairness during the cost-of-living crisis
  • How some anti-ESG proposals are being camouflaged in a pro-ESG guise
  • How Japan has formalised commitments to increase female representation on listed company boards

Our engagement with the companies we invest in is far-reaching, entailing many hours of research, thousands of face-to-face meetings and voting. By partnering with companies, encouraging them to be more progressive, we believe we can contribute towards a world that is more sustainable, stable and prosperous. Where they fall short, we will not hesitate to use our votes and broader influence to hold them to account.

As our CEO Mark Versey set out in February in our annual letter to company chairpersons, our three stewardship priorities for 2023 are:

  1. Tackling the cost-of-living crisis
  2. Transitioning to a low-carbon economy
  3. Reversing nature loss

In the first half of the year, our team voted at 4,495 meetings, most of which were annual general meetings (Figure 1). Around one quarter of the votes cast were against management, broadly consistent with previous years. 

The votes covered a wide range of issues, including executive pay or where pay and performance seemed misaligned, the lack of independence or diversity on boards, and overlong tenures for auditors, which can result in lower quality audits. 

Figure 1: Active engagement in liquid markets – H1 2023 

Company engagements


Engagement wins1


Material wins2


Substantive engagements3


Number of resolutions


Number of meetings


Per cent votes not supporting management


Per cent votes not supporting pay proposals


Per cent votes in favour of climate and social shareholder proposals


Note: 1) Changes in entity behaviour aligned with previous engagement asks; 2) Meaningful changes in terms of materiality of governance, social and environmental impact and outcomes; 3) Targeted and tailored engagement.
Source: Aviva Investors. Data as of June 30, 2023.

Fairness and inequality

As the cost-of-living crisis has continued, there have been an increasing number of questions around executive pay, fairness and inequality. Fairness is a complex and multi-faceted issue, including how pay decisions are made, whether employers are paying real living wages (where wages are properly aligned with the cost of living), and how large the differential is between CEO and employee pay.

A considerable number of the pay reports we voted against in the first half (312 vs 396 in H1 2022) related to concerns over excessive CEO pay, including cases where the gap between employees and the executive has widened. Runaway pay carries reputational risk and can damage morale. The issue is particularly prevalent in the US. Overall, our concerns on pay ratios were slightly down on last year, suggesting executives are seeing their remuneration adjusted.

In the UK we continue to challenge organisations where we see them failing to treat lower paid employees fairly

Meanwhile, in the UK we continue to challenge organisations where we see them failing to treat lower paid employees fairly. Some organisations still do not pay a real living wage or are not accredited by The Real Living Wage Foundation, which led us to reject 53 UK remuneration reports.

On the other hand, we welcome the fact more companies disclose how they are supporting employees through pay, benefits and wellbeing packages. Many have chosen to award higher salary increases in percentage terms to the lower paid and some have made one-off support payments. We now want to see greater transparency around how broader stakeholder considerations are viewed in deciding executive pay, particularly in the treatment of customers and within consumer-facing energy and utility companies, supermarkets and banks.

However, we also need to be mindful of the wider picture around executive pay, specifically in respect of the growing debate around UK competitiveness. Investors need to balance the aforementioned issues with ensuring pay is sufficiently competitive to recruit and retain executive directors, especially for companies competing for global talent. Navigating this path is likely to present challenges for investors and companies and this is something we are considering and discussing with other stakeholders. Nevertheless, in the main, our observation is that discussions have shifted from simply focusing on the people at the very top. Perhaps we are moving away from the “star CEO” culture.

Climate action

Given the urgent need for companies and economies to decarbonise, we scrutinise commitments on climate action closely, and in 2023 expect a record-breaking number of shareholder proposals in this area.

We hold directors to account if we see a lack of transparency and disappointing progress on climate action. We are also sensitive to cases where companies say one thing and do another, for example, supporting Paris climate targets while lobbying against them at the same time. 

Although we see increases in the number of signatories to the Science Based Targets Initiative (SBTi), there is often a lack of financial planning that would give creditability to the energy transition.

In the first half of 2023, we voted against over 100 directors at different companies with these objectives in mind.

Given the systemic nature of the issue, we have also encouraged companies to do more in supporting policy reform. Comprehensive climate action demands policy shifts, incentives and regulatory frameworks that encourage a rapid but orderly and just transition to renewable energy. Market forces alone cannot tackle the climate crisis – we need political will and public policy muscle.

Nature protection

We were one of the first asset managers to formally embed our assessment of corporate commitments to, and disclosures on, managing biodiversity and deforestation-related impacts and dependencies in our voting policy in 2022. This year, we expanded our focus to include financial institutions.

Humans are rapidly destroying the natural world and the ecosystems on which we depend. It is clear the Earth’s biodiversity and ecosystems are not being valued today, resulting in their exploitation and depletion. However, given that 55 per cent of global GDP is reliant on our biodiversity and ecosystems, we believe it is just a matter of time until it is and will increasingly become an important driver of company valuations.  

Humans are rapidly destroying the natural world and the ecosystems on which we depend

Deforestation is one of our focus issues as tackling this issue is inextricably linked with addressing climate change.

To date, we have voted against resolutions at 104 companies with significant exposure to tropical deforestation risk (through forest-risk commodities including beef and leather, soy, palm oil, timber, pulp and paper) as a result of a lack of robust policies and targets to reduce deforestation. Many companies acknowledge the problem but do not have adequate policies to identify where the risks are or are unable to demonstrate any firm action on reducing deforestation.

Biodiversity-related shareholder resolutions are a more recent phenomenon. There have been fewer than a dozen focused on maintaining biodiversity, the sustainable use of plastics and water use; we supported most of them.

Regional insights on voting action

There are three important regional trends to highlight.

Firstly, we have seen a number of anti-ESG shareholder resolutions in the US that could have a contagion effect elsewhere. ESG has become politicised on both sides; in our view, one troubling development is that what in reality are anti-ESG proposals are often disguised as being pro-ESG.  

We have seen a number of anti-ESG shareholder resolutions in the US that could have a contagion effect elsewhere

These proposals are effectively urging companies to go against or withdraw from agreed and well-established ESG priorities, such as promoting diversity, equity and inclusion.

Our default position is to vote against anti-ESG proposals, but there may be certain occasions where we may support such proposals. For example, if the resolution is seeking for a company to establish a sustainability committee, the proponent’s reason for this might be so that the company has to explain its policy positions and advocacy decisions to shareholders (even when it doesn’t agree with them), and how these have contributed to performance. But we may vote in favour if we believe such a committee would help the company to improve its sustainability performance and be a competitive advantage.

Nevertheless, the emergence of these resolutions has muddied the waters – not only is there a lot of nuance to the issues being raised, there is now complexity in trying to disentangle political agendas from the investor or corporate focus.

Staying in the US, the first half saw an increase in voting against non-executive directors in the US (2,601 in H1 2023 vs 2,546 in H1 2022), although some of these votes were cast against directors at one AGM for the same reason, such as a lack of independence.

We believe long tenures can impact independence (and will vote against long-serving directors if there are an insufficient number of truly independent directors on the Board), whereas US companies typically do not see this as a problem.

The average tenure for non-executive directors on US boards was approximately seven-to-eight years between 2021 and 2023 (for context, the average non-executive tenure in the UK is around four-to-five years). Whilst this may not seem like a particularly long time, there are many companies where non-executive directors have served between 15-20 years (in some cases, much longer). The average would be higher if it wasn’t for a number of new directors joining boards in recent years, which, to some extent, have been appointed in order to meet shareholder expectations on diversity.

Our view is that boards need to be properly refreshed to ensure new perspectives are brought in

Our view is that boards need to be properly refreshed to ensure new perspectives are brought in (as well as having experience) to adapt to today’s fast-changing strategic context. Long tenures are often an obstacle to forward-looking transformation, on climate or other material sustainability issues.

Finally, this year has seen a decline in our votes against Japanese companies (223 in H1 2023 vs 251 in H1 2022) as a result of improved female representation on Japanese boards. In 2021, the average percentage of female directors on Japanese boards was 8.7 per cent. The average is now over 12 per cent, which has largely been driven by investor sentiment and is an issue we have been encouraging all companies to address for years.

It is a good example of how persistent and collaborative engagement can be a powerful agent for change. Having a seat at the table can bring positive, real-world impacts and that is exactly what we are striving to achieve. We simply can’t move markets on our own.

Persistent and collaborative engagement can be a powerful agent for change

Japan was an undisputed laggard in terms of board composition (particularly regarding independence and diversity) and broader governance standards. A specific focus on corporate reform was considered key to unlocking shareholder value in this market. A more dynamic and diverse board is vital in driving that transformation.

As part of our longstanding collaboration with the Asian Corporate Governance Association (ACGA), we co-signed a letter to the Tokyo Stock Exchange (TSE) on enhancing gender diversity in the boards and management of TSE prime companies last September. We supported phased amendments to both the TSE listing rules and Japan Corporate Governance Code and made several recommendations for strengthening the role of women in senior management positions in Japan and on improving governance systems of companies to facilitate the nomination of more female directors.

The issue is getting greater attention, and we welcome the fact the Japanese government has finalised the requirement for all companies listed on the prime market to achieve at least 30 per cent female representation by 2030.

Related views

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