With the 2020 AGM season on the horizon, portfolio institutional looks at some of the largest companies in the FTSE that could face a shareholder revolt and the pension funds that are likely to make their voice heard.
At Apple’s AGM on the 26th of February, its executives faced a nasty surprise. Against their recommendation, 40% of shareholders voted in favour of stricter reporting requirements on the company’s complicity with human rights abuses in China. While the motion, put forward by campaign group SumOfUS, did not win a majority, it nevertheless gathered significant traction. FTSE executives on the other side of the Atlantic might want to take note: growing levels of investor engagement suggest that this could be a taste of things to come.
Over the past 10 years, levels of shareholder engagement at FTSE All Share firms have increased steadily. UK pension funds, who hold £3trn in assets and represent 64% of the institutional market in the FTSE350, according to the PLSA, have emerged as a key actor in fighting for better standards. Last year, a total of 148 resolutions across 81 companies attracted dissent, compared to 121 resolutions across 74 firms 10 years ago, the PLSA says. But tighter reporting rules on shareholder engagement for pension funds mean that the level of engagement could increase significantly.
The bulk of shareholder attention has so far focussed on executive pay and director appointments, according to the Investment Association. Executive pay featured as a main concern in 2019, with companies facing shareholder challenges over executive pay. But environmental factors are also attracting attention. As of October 2020, DB and DC schemes must report on their shareholder engagement activities under the updated Statement of Investment Principles. This could lead to an increase in engagement activity.
In the spotlight
Oil giant Shell, the largest company in the FTSE100, is facing pressure from climate activists. Last year Dutch climate activists filed a resolution urging Shell to commit to climate goals. They dropped the resolution at the last minute amid a pledge from Shell that it would tie executive pay to the reduction of carbon emissions. Shell’s next AGM will be held on May 19 in the Hague. It is not yet clear whether their main investors will file another climate resolution. Among the shareholders who revolted last time were NNIP, Aegon and LGIM on behalf of several Dutch and British pension funds.
Last year, BP felt the pressure of climate activism. Two resolutions on committing to the Paris Agreement were backed by an majority, thanks to a board recommendation to vote in favour. The resolutions had been put forward by Climate Action 100, a campaign group which is backed in the UK by Border to Coast, BBC Pension Fund, Brunel Pensions Partnership and Local Pensions Partnership among others.
Barclays is due to hold its an AGM in May. As one of the biggest lenders to fossil fuel polluters, it could find itself in the middle of a shareholder revolt. For its 2020 AGM on May 7, the bank is facing a climate resolution from a consortium of 11 institutional investors, including Brunel Pension Partnership, LGPS Central and the public sector pension funds of Falkirk and Merseyside. Investors are asking Barclays to phase out lending to specific fossil fuel projects and align their lending practices with the Paris Agreement. In addition, close to a third of shareholders rejected a proposal on directors pay last year.
Another firm in the public eye is Vodafone, which faced a shareholder rebellion over executive pay last year and was forced to cut its dividend. The communications giant is due to hold its an AGM on May 12, the share price has recovered somewhat since last year.
Mining giant Rio Tinto is set to hold its London AGM in April. The Anglo-Australian multi-national is facing trouble from shareholders in Brisbane, who have already requested a disclosure of emissions targets. It is not yet clear whether its UK shareholders could launch a similar initiative. Last year Rio Tinto also faced a shareholder rebellion from its biggest investor, the Chinese state-owned aluminium producer Chinalco, who objected to a resolution to repurchase shares. The Church of England, another investor, has also attacked the mining firm over its lobbying against climate progress.
British emerging market-focused bank Standard Chartered faced a shareholder rebellion last year over how much it pays its leaders, which was backed by almost a third of investors. Its share price has since fallen even further, suggesting that trouble might be brewing ahead of its AGM in May.