- Stewardship Practice Leader
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Luxembourg, Institutional
ChangeThe views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Wellington’s long-standing commitment to deep fundamental research and meaningful engagement with investee companies continues to drive positive engagement outcomes that we believe support and enhance long-term investment value for our clients. We are proud of progress we made in 2021 advancing our stewardship priorities, and we have seen many positive outcomes spanning a range of environmental, social, and governance (ESG) issues. We look forward to continued momentum on ESG and to expanding our influence via active ownership in 2022.
2021 engagement highlights
Climate action at an energy company
As part of our commitment to the Net Zero Asset Managers initiative and our belief that carbon considerations represent a meaningful transition risk, we continue to engage with companies, particularly in carbon-intensive sectors, to understand how they plan to set science-based targets and reduce greenhouse gas (GHG) emissions. We engaged with an energy company to assess its long-term carbon-emissions reduction goals and progress on setting a meaningful target. In October, the company announced it would target net-zero emission by 2050 and cut operational GHG emissions intensity by 30% by 2030.
Executive compensation at a digital payments company
Aligning executive remuneration with company performance to ensure long-term alignment with shareholder interests has long been an ESG area of focus. Over the past two years, the COVID-19 pandemic has raised awareness and heightened reputational risk for companies that flout or disregard these concerns. We engaged with a digital payments company to better understand the rationale behind a proposal to issue executive cash bonuses based on cost-cutting initiatives and growth metrics in just one business segment. We encouraged the company to implement a more holistic compensation plan that emphasizes overall growth. The company decided to revert to its pre-pandemic compensation structure, including the metrics as we had suggested.
DEI transparency at an energy company
We targeted diversity, equity, and inclusion (DEI) in 2021 as a key stewardship priority for companies to disclose the racial and ethnic composition of their board. We wrote to all S&P 500 companies, communicating our expectations and explaining how this issue would align with our voting guidelines. During 2021, a US-based oil and gas exploration and production company responded positively through further engagement, detailing its plan to expand these disclosures. The company has promised to include the racial and ethnic composition of its board starting with its proxy statement at the 2022 annual general meeting.
2021 team highlights
- In 2021, we expanded and restructured our dedicated stewardship and proxy voting team to include professionals with a wide range of industry expertise.
- We were awarded signatory status for the UK Stewardship Code assessment, with our outputs highlighted twice in the Financial Reporting Council’s Effective Stewardship Reporting document showcasing best-in-class examples.
2022 stewardship and engagement goals
- While our priorities for stewardship and active ownership continue to expand, we remain focused on some key issues that we believe can meaningfully affect long-term value creation. We aim to expand engagements by including our voting intentions, and we will communicate this approach to investee companies.
- Climate change: Action and transparency on climate commitments will continue to be a priority. We aim to assess, monitor, and mitigate the potential effects of climate change on portfolio companies and continue to help them establish targets for emissions reductions.
- Diversity, equity, and inclusion: Building on our established priority to enhance racial, ethnic, and gender diversity at the board level, we will expand and escalate our voting and engagement guidelines in 2022. Moving beyond disclosure, we will expect our portfolio companies to be thoughtful and intentional in considering the widest possible pool of skilled candidates who bring diverse perspectives.
- Overboarding: We have enhanced our expectations for avoiding overextended board service commitments. We expect directors to fully commit to their board-related responsibilities, and we believe holding multiple external directorships hampers their efficacy.
- Board refreshment: We expect companies to regularly refresh their boards by electing a new board member at least once every five years. We believe frequent succession helps companies strengthen board diversity, benefit from new skill sets and experiences, enhance oversight, and adapt to evolving strategies.
- Governance: We expect increased focus from our clients on shareholder resolutions and our own voting record. We will continue to engage with nonexecutive directors as a means of understanding a company’s views on governance.
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