Shareholder influence is changing active ownership

Promoting global best practice in governance

At the New Zealand Super Fund, one of our foundational investment beliefs is that environmental, social and governance considerations are fundamental to long-term risk and return. We also acknowledge the wider beneficial impact on corporate practice, regulatory standards and the healthy functioning of capital markets from active, constructive asset ownership.

Our approach to active ownership varies by asset class. Given engagement can be resource-intensive, and our portfolio of listed stocks is so large (more than 6,500 holdings), we employ an engagement service provider, the Bank of Montreal, to engage on our behalf. We participate in numerous collaborative engagement initiatives, recognising that coordination with other asset owners is more likely to create the conditions for change.

Closer to home, our in-house team takes a substantial interest in the management of governance and ESG issues with companies in which we have a significant stake. We also engage with and exercise our voting rights across the New Zealand market, where our influence as an investor is greatest. As we cannot turn our minds to every individual voting opportunity, we rely on guidance provided by international standards and our proxy voting agency, Institutional Shareholder Services, to implement an automated but customised approach to global voting.

Our NZD2bn ($1.4bn) of domestic-listed equity investments are managed via both local external investment managers and an in-house team of investment professionals. As shareholders, we aim for our votes to reflect good governance: long-term strategy, board respect for shareholder rights, business ethics and appropriate remuneration. Views from all our New Zealand active listed equity managers are sought on votes, with our team making the final decision.

While important, it can be difficult to achieve measurable impact through voting alone. In 2015, we co-founded the New Zealand Corporate Governance Forum. Made up of institutional investors with long-term exposures to the New Zealand market, the forum has been instrumental in helping to promote global best practice in governance to drive the longer-term health of New Zealand’s capital markets.

Our in-house team seeks to supplement our influence as a shareholder through proactive engagement efforts. We monitor, identify and engage with companies where we have reason to believe they have breached international standards of good practice, in particular the United Nations Global Compact. We have four priority areas to help us narrow our focus and decide which companies to engage with. These are: human rights and safety (child labour, work safety, operations in weak states); business ethics (bribery and corruption); severe environmental damage; and climate change.

Over the past few years, our engagement efforts have focused on leading a collaborative engagement initiative with the world’s three largest social media companies. The initiative was started in the aftermath of the 2019 terrorist attack on two mosques in Christchurch, New Zealand, where 51 people died. It calls for Facebook, Alphabet (YouTube) and Twitter to strengthen controls to prevent the live-streaming and distribution of objectionable content. The initiative, which has 102 global participants, has sought to achieve its objectives through both voting and engagement.

Another focus has been our involvement in the One Planet Sovereign Wealth Funds initiative, where we have been able to make a wider contribution to systemic industry change at a global level. We led the early establishment of the initiative, which encourages large asset owners to integrate climate change risks in their investment management, and have provided technical leadership throughout. This is generating a ripple effect across the financial community, mobilising other large pools of capital towards assets and industries that will promote long-term value creation and sustainable market outcomes.

Driven in part by increasing public awareness, the expectations of asset owners globally continues to grow. Standards of best practice in active ownership are changing, and we are committed to evolving alongside our peers in response.

Stephen Gilmore is Chief Investment Officer, New Zealand Super Fund.

This article was originally published in OMFIF’s Global Public Investor 2021.

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