Shareholder engagement or stewardship: challenge and definition
How can we help the companies in which the BNP Paribas Group invests to continuously improve their ESG (Environmental, Social and Governance) performance? This is the challenge of the shareholder engagement (or stewardship) policy implemented by BNP Paribas Asset Management, the Group’s asset management subsidiary.
But how does it work?
SHAREHOLDER ENGAGEMENT: WHAT IS IT ABOUT?
Shareholder engagement refers to the fact that an investor takes a position on Environmental, Social and Governance (ESG) issues and requires the companies in its portfolios to improve their practices over time. These requirements are formulated through a structured process, including direct dialogue with the company and long-term monitoring. There are several means of escalation that can be used by the investor if the dialogue process proves unsuccessful:
- exercising its shareholder rights (voting and asking questions at the general meeting, rejecting proposed resolutions, supporting or tabling external resolutions).
- communicating publicly on the progress of the engagement process and on the company’s shortcomings in the extra-financial field,
- an impact on management, ranging from freezing its holding to divestment.
Through its global sustainability strategy, BNP Paribas Asset Management is committed to using its ability to influence the companies in which it invests, to promote a low-carbon economy that is environmentally friendly and inclusive. It does this through voting at General Meetings, ongoing dialogue with companies, and dialogue with public authorities to promote more sustainable markets.
The Group asset manager’s shareholder engagement thus encourages the companies in the Group’s investment fund portfolios to improve their performance and transparency on governance and sustainable development issues. The benefits are multiple: BNP Paribas Asset Management better manages the ESG risks of its portfolios in the short and long term, strengthens its knowledge as a sustainable investor, and generates positive impacts for its clients.
Ongoing substantive dialogue with companies’ management
Direct dialogue activities consist in organising meetings throughout the year with the companies’ management teams (general management, board of directors, sustainable development department, specialised committees) to discuss their strategy, practices and ESG performance, in particular:
- Environment: carbon footprint, greenhouse gas emission reduction strategy and targets, energy transition strategy, environmental and biodiversity protection, etc.
- Social: for stakeholders in the value chain (employees, suppliers, customers), policies on parity, diversity and inclusion, compliance with labour law, occupational health and safety policy, quality of social dialogue, employee training, etc.
- Governance: independence and diversity of boards of directors, balance of power, executive remuneration practices, defence of minority shareholders’ rights, etc.
The aim of these exchanges is to establish a relationship with companies based on mutual listening and trust, allowing for constructive discussions and positive long-term developments.
In order to “step up a gear”, BNP Paribas Asset Management may decide to take so-called “escalation” measures, such as voting against resolutions, for example the appointment of directors, proposing resolutions to be put to the next shareholder vote or divesting from the company and excluding it from its funds.
Another lever used to encourage companies to change their practices is collaborative dialogue. This consists of joining forces with other stakeholders, in particular investors, through working groups or coalitions to intervene jointly with companies. BNP Paribas Asset Management is an active member of nearly 50 international initiatives. For example, Climate Action 100+, which brings together 700 investors managing a total of USD 68,000 billion in assets, uses the collective influence of investors to encourage the companies that emit the most greenhouse gases to take the necessary measures to combat climate change.
For very concrete examples of direct and collaborative dialogue, see the BNP Paribas Asset Management 2021 Sustainability Report, pages 45 to 52
Our demanding voting policy at AGMs and our ongoing exchanges with the boards and management of large and small companies, around the world, are leading them to change their strategy and concretely improve their ESG practices.
Actively exercising our voting responsibilities as a shareholder
Every year, BNP Paribas Asset Management actively exercises its voting rights and responsibilities as a shareholder, representing its clients: by investing their savings in BNP Paribas Asset Management funds, clients delegate voting rights to BNP Paribas Asset Management at the General Meetings of companies selected by the fund managers. The subsidiary focuses its voting efforts on companies in which it holds a significant share of the capital. Its voting perimeter is presented in its Governance & Voting Policy, available on its website, which is updated every year to adapt it to new ESG practices and to review its criteria and level of requirements upwards.
This is the number of General Meetings at which BNP Paribas Asset Management voted in 2021 worldwide.
i.e. +19% in 2 years, mainly in Europe (47%) but also in North America (26%) and Asia and other regions (27%).
Voting against resolutions tabled by companies
BNP Paribas Asset Management teams also vote against resolutions tabled by companies when they feel they do not meet its high standards for conducting business responsibly and in terms of ESG practices. In 2021, BNP Paribas Asset Management on average voted against one out of three resolutions tabled by companies (i.e. +5 points for votes against resolutions in 2 years), a large proportion of which were for reasons related to climate change and business conducted in an insufficiently responsible manner.
This is the average percentage of resolutions tabled by companies that BNP Paribas Asset Management voted against in 2021.
Supporting new resolutions tabled by shareholders themselves
Shareholders themselves can table new resolutions for voting. They constitute counterproposals and gradually contribute to positively influencing practices.
In 2021, BNP Paribas Asset Management voted “for” 70% of resolutions tabled by shareholders, compared to 63% in 2020. Strong support was expressed in particular for shareholder resolutions covering social issues (100%) and environmental and climate change related resolutions (89%).
BNP Paribas Asset Management praised for its voting policy
BNP Paribas Asset Management’s teams are recognised for their high standards. In its December 2021 “Voting Matters 2021“ study, the NGO ShareAction analysed how 65 of the world’s largest asset managers voted on 146 ESG resolutions. BNP Paribas Asset Management ranked second in terms of support for environmental and social proposals and was recognised as one of the few asset managers to have tabled shareholder resolutions.
BNP Paribas Cardif’s shareholder engagement policy is equally demanding
BNP Paribas Cardif, the insurance subsidiary of the BNP Paribas Group, invests the savings of its clients via life insurance policies. As an investor, the insurer therefore also has a responsibility for shareholder engagement.Several years ago, BNP Paribas Cardif adopted a voting and shareholder engagement policy, which it has gradually adapted to bring it into line with that of BNP Paribas Asset Management. In October 2021, BNP Paribas Cardif also joined the Climate Action100+ initiative, a coalition of investors committed to fighting global warming.
Read all about BNP Paribas Cardif’s shareholder engagement policy here
Watch the two videos on the BNP Paribas Asset Management website dedicated to Stewardship
Read the BNP Paribas Asset Management 2021 Sustainability Report - Vote and Commitment chapter.
Photo credits: insta_photos ; Sebra ; insta_photos ; Jacob Lund ; Tof Photographie.