Voting Matters - taking responsibility as a critical shareholder

On May 5th 2022, shareholders of Spanish oil & gas company Repsol S.A., convened with the company at the Palacio Municipal de Congresos in Madrid to hold Repsol’s annual general shareholder meeting.
The agenda comprised a number of regular items but also one very important strategic one; an advisory vote on Repsol’s energy transition strategy.
Through this vote Repsol shareholders were asked to pass judgment over its transition plans and whether these plans were ambitious enough to ensure that Repsol’s is taking its responsibility in fighting climate change.

Repsol was convinced it was.
Many investors were convinced it was.
But we, and other investors owning 14.5% of shares represented at the meeting, disagreed.

And whilst 14.5% opposition may seem like a low number, it is quite substantial in terms of shareholder dissent, especially since from the looks of it, the company is at least willing to act on climate change, an issue which is very material to its business model.

The main question here however is whether the company is taking its full responsibility.

I want to emphasize that the example above is not used because this company is considered by us to be the worst out there; I would even argue that they are far from it. Whilst we considered Repsol’s emissions reduction targets to be not ambitious enough at least they had one and were willing to ask shareholder approval for it.
It is merely used to show that even being relatively good will increasingly be considered as still not being good enough.

Voting is Active Ownership
As opposed to other shareholder tools, such as the active dialogue with investee companies (hereinafter referred to as ‘engagement’), voting is generally the only legal right which provides all shareholders with the opportunity to have their say and influence a company; regardless of a company’s willingness to engage or not.

Obviously voting has its limitations. The agendas at most shareholder meetings are determined only by the company’s board, with the exception of some jurisdictions where shareholders are allowed to put forward their own proposals (for which thresholds and requirements differ tremendously across markets).

It’s good to keep in mind that such shareholder proposals can vary from being very relevant, such as asking oil companies to develop credible climate change strategies, to being close to downright silly, such as asking financial institutions to install Japanese toilets in all of their offices worldwide.

How PGGM votes on shareholder proposals
During 2022, PGGM voted on 715 shareholder proposals out of a total of 61,849 agenda items voted. So only 1,16% of all proposals we voted on originated from shareholders.
At almost 62% of those 715 proposals we voted FOR the shareholder proposal, which means we agreed with the proponent that the company should listen to and/or act on the request that was made. Given this large percentage of agreement the added value of shareholder proposals is clearly evident to us.

Voting leads to engagement and vice versa
For PGGM voting can be a trigger for engagement (e.g. when we believe a company should follow-up on the outcome of the vote) but engagement can also be a trigger for voting.
The latter should be considered a form of escalation within an engagement project. When progress in our engagement is lacking, there are only a limited number of options at our disposal (ranging from voting to divestment).

Whilst PGGM has historically always used voting to show its dissent, incorporating voting in our engagement has become even more prevalent over the past few years.|

Since 2021 for example, PGGM started to vote against the reelection of board members at companies from carbon intensive sectors that were considered laggards in its management of greenhouse gas emissions, and of risks and opportunities related to the low-carbon transition. This approach was integrated in our voting guidelines which provide background in the reasoning behind our voting behaviour.

Upping the ante
We however realized that there was more that should be done; by our investee companies but also by ourselves.
To this avail we have revamped our engagement programs, collaborating more closely with our peers, other (external) stakeholders and within PGGM itself (and creating the infrastructure to do so).

As part of this increased ambition we have for our 2023 voting guidelines therefore decided to explicitly integrate our views and expectations on our focus areas, being:

• Climate change mitigation;
• Biodiversity and nature loss;
• Human rights; and
• Health

The 2023 PGGM Global Voting Guidelines now provide public guidance on our voting decision making process and escalation measures on these, and other, topics.
We do this to be transparent about our decisions to all external stakeholders, whether they are beneficiaries of our client, the general public, media or NGOs, and to provide clarity to our investee companies what they can expect from us even before the voting even begins.