Investment managers will continue to focus on FTSE-listed companies’ record on climate change and diversity in this year’s AGM season, according to the expectations on companies published by the Investment Association (IA).
The shareholder priorities, issued annually ahead of the AGM season, outline the key areas investment managers want companies to consider as drivers of long-term value, in order to see them succeed in the future. These issues, alongside others, have topped investors’ areas for engagement for a number of years, with the expectations on companies continuing to evolve as progress is made.
Linked to these priorities is the IA’s Institutional Voting Information Service (IVIS) approach to analysing these issues. IVIS provides information to help shareholders reach a decision on how to vote at company AGMs, including issuing red tops – its highest warning level – and amber tops to companies where greater consideration is needed.
The current challenging economic environment means that now more than ever there is a need for high-quality and diverse Boards. Investors recognise that good progress has been made by companies, although there is still room for improvement.
This year, IVIS is increasing its existing diversity targets to give a red top to FTSE 350 companies where women represent 35% or less of the Board, and 30% or less of the Executive Committee and their direct reports. These targets will help to ensure that companies are making progress to achieve the FTSE Women Leaders targets of 40% by 2025. IVIS will also continue to issue a red top to FTSE 100 companies that have not met the Parker Review target of one director from a minority ethnic group.
With climate change presenting one of the biggest risks to the long-term sustainability of a company, investors are engaging with companies to support them through the transition to net zero. During the AGM season, investment managers will be looking for companies to explain how climate change will impact them and how they are mitigating the risks.
This year, IVIS will continue to issue an amber top to all companies that do not make disclosures against all four pillars of Task Force on Climate-related Financial Disclosures (TCFD). IVIS will also continue to monitor whether companies have made a statement that the directors had considered the relevance of climate and transition risks associated with the transition to net-zero, when preparing and signing off on the company accounts.
Andrew Ninian, Director for Stewardship, Risk and Tax at the Investment Association, said:
“Investment managers want to work together with companies to see them succeed and deliver long-term value to their shareholders, which ultimately benefits pensioners and households across the UK. This is particularly important in the current economic environment given the challenges that UK companies are facing.
“Strong engagement and an open dialogue between investors and firms is crucial. The AGM season brings to the forefront the issues which investment managers have been engaging on with FTSE-listed companies during the year, with companies’ response to climate change and the diversity of their Board and top leadership teams remaining a key focus due to their long-term nature and potential impact on company value.
“Executive pay will also stay firmly in the spotlight in this year’s AGM season, as the cost-of-living crisis continues to bite. Investors will look to companies to show restraint on pay for their top leadership team and ask that it reflects the wider stakeholder experience, including the lowest paid employees and vulnerable customers.”
The Shareholder Priorities build on the Principles of Remuneration, published in November 2022, which outline investment managers expectations on company executive pay and pensions. This year, investors have called for restraint to be shown on executive pay in light of the cost-of-living crisis.