Stewardship is a core part of responsible investing and it's critical to how we manage the risks in your investments. It's also how we aim to deliver sustainable value for you, as well as how we try to drive positive change in our society.
What is Stewardship?
We believe that it is our responsibility to engage with the companies we invest in to drive better behaviour and influence positive change, so stewardship is an important part of our responsible investment approach.
Voting is when our managers approve or disapprove management and boards' decisions or other shareholders' proposals through the exercise of our shareholders rights.
Engagement is when we and our managers work with companies we invest in and discuss what could drive positive change and improvement within the company.
Shareholder voting rights and engagement are the two main tools of stewardship.
Our approach to stewardship is based on dialogue, feedback, relationships and clear objectives to foster more sustainable returns.
As a customer and investor in our funds, you can't vote directly with companies that you have exposure to. This responsibility lies with the asset managers who manage the fund. So, where voting rights exist, our asset managers will vote on our members' behalf.
We make sure that all of our asset managers have a voting policy in place and vote in line with this policy. Part of our due diligence exercise is to make sure that this policy reflects our philosophy and our approach to responsible investment. We also have our own set of voting principles which we use as a reference to assess the voting performance of asset management partners.
There are three main routes to carrying out engagement with companies, and often these will overlap. This is how we work:
- Engagement through our asset managers - Our asset management partners conduct stewardship activities on our behalf
- Engagement by our in house team - Our Phoenix Group stewardship team engages directly with companies based on our ESG research
- Engagement in collaboration with other investors -Our Phoenix Group Stewardship team joins forces with other peer shareholders to raise concerns and increase our power of influence with companies
When our asset managers carry out stewardship on our behalf, this is what we ask our asset managers to do:
- Objective - Use stewardship to influence the performance, governance and sustainability of the companies they invest in on our behalf for the long term benefit of our customers.
- Sign up - Be a signatory to the United Nations-supported Principles for Responsible Investment and adopt the 2020 UK Stewardship Code or an equivalent in its jurisdiction
- Focus - Define criteria to identify a list of specific companies to engage with
- Research - Use internal and external ESG research to monitor and assess companies
- Vote - Place votes on our behalf, applying a proxy voting policy that takes our views into consideration
- Engage - Set engagement objectives and escalate if progress isn't made
- Report - Update us regularly on all engagement and voting activities
Performance and accountability
We are working with our asset managers to enhance their reporting on stewardship activity. This will enable us to be open and honest about the impact of our stewardship work. You can expect to see regular stewardship updates on this website, and a focus on stewardship as part of the Phoenix Group annual sustainability report. We review and refresh our stewardship approach annually.
You can find out more about some of our main asset management partners and their approaches to stewardship and voting here:
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Stewardship in Action
What does stewardship mean in practice? How are we driving change by companies we invest in? What are the tangible outcomes of engaging and exercising voting rights? We asked two of our strategic asset manager partners, abrdn and BlackRock to share some concrete examples with us.
Asset manager partner: abrdn
Invested Company: Morrisons
Issue: Governance – Remuneration
abrdn previously engaged with Morrisons ahead of its 2020 AGM to explain the rationale of their vote against the company's remuneration policy as they could not identify a credible plan to bring executive pensions in line with those of the wider workforce by 2022. In spite of this, there were further pay-related issues in 2021 as the remuneration committee decided to adjust targets retrospectively to remove the costs associated with COVID-19. Additionally, during 2021, Morrisons was subject to a drawn-out takeover battle between two US private equity led bidders.
Engagement: Consequently, abrdn voted against the remuneration report, as well as the financial report due to insufficient board gender diversity. Upon engaging in further dialogue with the company, they were encouraged to learn that the gender diversity imbalance is a priority for the board to address. abrdn also met with the chair to get clarity on the bidding process and expressed concerns about stakeholder interests, particularly employees and pension security. The board was comfortable that the intention lists from the potential bidders were sufficiently robust and protected employees and their pensions. As such, abrdn gained comfort that the board was on top of these matters.
Asset manager partner: Blackrock
Invested Company: Rio Tinto
Issue: Governance – Remuneration and impact on local communities
In 2020, the company’s expansion of an iron ore mine resulted in the destruction of a 46,000-year-old sacred site in Western Australia at Juukan Gorge. This site is of significant cultural and historical importance, including to the First Nations of Australia and Traditional Owners the Puutu Kunti Kurrama and Pinikura peoples (PKKP).
Engagement: As a result of the controversy, three senior executives resigned, including CEO Jean-Sebastien Jacques. Mr Jacques received total remuneration under his exit package of £7.2 million in 2020 and may receive sizable payments over the next few years as well. Given the reputational harm done by the destruction of the site and the resulting environmental and social damage, for which Jacques is held partially responsible, BlackRock did not consider it appropriate to support the company’s executive compensation and voted against its remuneration report in 2021.