ESG and stewardship: Key updates to focus topics and voting guidelines

Carolina San Martin, CFA, Director of ESG Research
Daniel Veazey, Stewardship Practice Leader
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Our efforts on environmental, social, and governance (ESG) integration and stewardship continue in earnest. In the first half of 2022, we updated our proxy voting guidelines to enhance our commitments in three key areas: Board diversity, climate-related accountability, and cross-shareholding. We’re also watching an evolving pattern with E & S shareholder proposals and expanding engagement opportunities.

Board diversity

Wellington has a history of engaging and using our escalation process to vote against companies that lack diverse boardrooms. We believe boards are better positioned to create shareholder value when they reflect a wide range of perspectives. In our view, qualified leaders with diverse experiences, backgrounds, and worldviews are key factor in stronger corporate strategies, better financial performance, employee engagement and retention, customer loyalty, and brand strength. We continue to use our vote in cases where companies do not meet local standards for gender diversity or fail to proactively appoint directors from minority racial or ethnic groups.

As an example, we recently met with members of the board of a large homebuilder, after the company had failed to disclose the racial/ethnic diversity of its directors. We prefer specific, company-disclosed diversity metrics rather than alternative methods of determining representation, which could be inherently less accurate. Because the company was not able to commit to providing the requested disclosure, we voted against the election of a board chair.

Climate accountability

Our Sustainable Investment Team, along with many other teams at Wellington, aim to assess and monitor the potential effects of climate change as part of our investment processes. The ESG Research Team, in conjunction with these investment teams, uses proxy voting and engagement to drive board accountability for managing company-level climate-risk exposure.

We encourage companies to develop credible climate transition plans and enhance disclosure on carbon emissions. Lagging in this area could eventually translate to higher capital costs related to regulatory risks and carbon-pricing schemes. We expect climate transition plans to be transparent and clearly communicated to stakeholders. At a minimum, we seek robust, straightforward Scope 1 and Scope 2 emissions disclosures, as this data is easy to attain and measurement practices are well defined. If a company’s progress on these issues lags our expectations, we may use our vote to spur action from the board. 

We utilized this voting approach when performing our due diligence at a large financial services company in the lead-up to its 2022 annual general meeting (AGM). At the time, the company did not disclose its Scope 1 or Scope 2 emissions, nor did it file with the CDP, a best-practices framework for disclosing environmental data (including from Scopes 1 and 2 emissions). To underscore our aim to hold board members accountable for a lack of progress on their climate transition planning, we voted against the re-election of one of the company’s directors.


We have had concerns about excessive cross-shareholding at several publicly traded companies in Japan, where companies hold ownership stakes in other publicly traded companies. We believe cross-shareholding could hinder efforts to maintain high-quality corporate governance and hold management teams accountable for responding to shareholder concerns. Under our new voting guidance, we typically vote against the highest-ranking director at any company where management allocates more than 20% of net assets to cross-shareholdings with no reduction target or reasons for the investment. Our new policy has created opportunities for us to step up engagement with companies that exceed our 20% threshold. It also resulted in votes against directors at 15 companies.

E&S shareholder proposals

The first half of the year saw a marked increase in the number of E- and S-focused shareholder proposals. Interestingly, nearly 50% of the 500 E&S proposals filed were withdrawn before they reached a vote at an AGM. This pattern suggests a productive environment for engagement: Companies are facing increased pressure to engage with proponents and reach agreements in private, rather than allow a matter to reach a ballot and be put to a public vote. 

We continue to evaluate shareholder proposals which come to a vote on a case-by-case basis, and believe they are a valuable tool to hold companies accountable. We expect portfolio companies to comply with applicable laws and regulations with regard to environmental and social standards and may vote against directors where we see a lack of accountability. We consider the spirit of the proposal, not just the letter, and generally support proposals addressing material issues even when management has been responsive to our engagement on the issue. In this way, we seek to align our voting with our engagement activities. If our views differ from any specific suggestions in the proposals, we will provide clarification via direct engagement.

Our approach to sustainable investing


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