We are pleased to introduce The Investment Intelligence Podcast, where experts discuss all things investing, from recent market developments, to strategy, sustainable investing, asset allocation, risk management and more.
Engagement with portfolio companies is a central tenet of our active investment approach. A new series – Stewardship Principles – will outline the way we work with the companies we invest in to promote best corporate governance practice and collectively work towards environmental and social transformation.
Strong governance is vital to investment performance, and enables boards and management to address environmental and social issues
Best practice in governance can differ between sectors and geographies, reflecting distinct regulatory frameworks or market and sectoral specifics
When evaluating environmental resolutions, investors should consider how ambitious a company’s climate pledges are, how they compare with their peers’, and the accountability of the board in fulfilling them
Climate change has been a long-standing theme in our engagement work, in particular the promotion of transparency around companies’ climate transition strategies
At Allianz Global Investors, we invest for the long term across a range of different investment strategies and are committed to an active stewardship approach. In 2020 we engaged 224 companies on more than 490 topics and voted at more than 10,000 shareholder meetings.
Our new publication series – “Stewardship Principles” – aims at providing insights into our approach to engagement and voting using several select principles and positions that guide us. These will help highlight what we consider best practice in corporate governance or executive board remuneration, for example. The series will also suggest the introduction of new governance concepts for certain markets or industries, and analyse changing market trends, such as linking climate strategy to voting. We think that such a series of publications is a timely response to increasing demands from our clients and regulators alike, relating to all aspects of governance as well as environmental and social issues.
We routinely engage in dialogue with investee companies and seek to proactively present a viewpoint, in particular where we have larger holdings and see issues. We seek change where necessary and monitor the results of our engagement. With this new series, we will also highlight positions we have taken in engagements with our portfolio companies and share selected results of those engagement activities. Our investment views are influenced by the outcomes of these engagements and inform our voting decisions at the companies’ general meetings, as we apply a consistent stewardship approach.
Highlighting best practice in corporate governance
We think that strong governance practices are critical enablers of investment performance. With these practices in place, boards and management can better address other highly relevant issues, including environmental and social transformation and risks. We engage with companies on a variety of corporate governance topics. Examples include:
Succession planning for directors and senior management
Structures and levels of executive remuneration
Issues relating to shareholder rights (for example, in the context of takeover-related matters)
We apply our proxy-voting policy globally based on a consistent set of rules. However, we sometimes observe that governance practice differs from market to market, reflecting distinct regulatory frameworks or diverging governance standards. In our new publication series, we highlight best practice in certain markets to inform our engagement dialogue in others. For example, in several countries the concept of a lead independent director (LID) is widespread to counterbalance the combined role of chair and CEO. We believe that greater use of LIDs could help to support the corporate governance framework in Germany, where it is not prevalent today. The “Stewardship Principles” will explain more on this topic.
Encouraging improved governance practice for founder-led or small companies
In this series, we will also examine governance issues that apply to certain sectors, and smaller or founder-led companies. For example, listed US technology companies often continue to be run by their founders, who also retain large or majority shareholdings. This situation can lead to questions over their compensation policies that require active investors to engage directly with the board – a topic we will elaborate on in a future edition.
Extending stewardship practices into fixed income
While equity investors can use voting to exert influence on managements, there is no equivalent in fixed income. And in fact, central bank purchases of bonds have weakened the ability of investors to push back against weak stakeholder provisions. Historically, fixed-income investors have been able to achieve leverage on topics like covenants and reporting only in volatile markets where issuers face a greater challenge to access capital markets. However, we believe traction can be achieved through bilateral discussions with companies and industry bodies to strengthen terms. To some extent, rising regulatory demands on sustainability disclosures may facilitate this. We will discuss this further in a future publication.
Focusing on the inherent link between E, S and G issues
Governance practices are evolving continuously. Investors have been focusing more and more on linking sustainability-related issues with voting decisions and are thus recognising an inherent link between the individual strands of an ESG (environmental, social and governance) approach. The 2021 voting season saw an unprecedented rise in attention around climate-related resolutions. The so-called “Say on Climate” – which asks management to seek an investor vote on a company’s climate strategy, targets and achievements – brought a new angle to the discussion.
A number of companies tabled such a resolution, mostly in Europe. After initial considerations this year, investors may need to focus on the ambition level of the pledges undertaken, comparability of the pathways companies embark on, and – crucially – responsibility and commitment of the board going forward. Incentivising the board for the long-term plays an important role in this context. Thus, principles for the incorporation of sustainability-related KPIs into management board compensation are an important feature of this debate – another topic to discuss in our new series.
Sharing results from our themed engagements
In addition to direct engagement with boards and management of key holdings, we lead targeted, themed engagement projects. These are guided by our three major themes: Climate, Planetary Boundaries and Inclusive Capitalism.
Climate change has been a long-time focus topic of our engagement work. Our engagement professionals discuss our expectations related to the disclosure of a climate-transition strategy with our portfolio companies and question their role in transition. We also want to understand whether companies follow internationally accepted climate reporting formats in their disclosure. Frequently, we observe that our portfolio companies would appreciate more guidance on the topics we engage on, and clients ask us to provide more detail on our engagement activities. In this series, we would therefore like to clarify our engagement stance and report back on important stewardship outcomes in this context.
We will kick off the “Stewardship Principles” with a piece on our engagement approach with oil majors. We believe that these companies can play a constructive role in the energy transition, but they must first provide evidence of their commitment to a low-carbon transition. We will explain our view that divestment from oil majors will have unintended consequences and is unlikely to help decarbonise the economy; it will instead simply displace the problem.
Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP (Australian Registered Body Number 160 464 200) is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser registered with the U.S. Securities and Exchange Commission; Allianz Global Investors Distributors LLC, distributor registered with FINRA, is affiliated with Allianz Global Investors U.S. LLC; Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424, Member of Japan Investment Advisers Association and Investment Trust Association, Japan]; and Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan.
The best way for investors to ensure that oil majors become enablers of the global transition to net zero by 2050 could be through concerted engagement. The world must urgently expand its clean energy sources, and we believe divestment would do little to achieve this goal.
Access to energy is a fundamental human right: the world needs an orderly and just energy transition supported by all available and emerging technologies
In May 2021, the International Energy Agency (IEA) released an ambitious pathway to reach net-zero emissions by 2050, which will be an important reference for our stewardship activities
The IEA recognises that oil majors have an important role to play in making its pathway to net zero a reality
Divestment from oil majors could have unintended consequences and would be unlikely to help decarbonise the economy, instead simply displacing the problem