This document provides broad guidelines across a prioritised subset of themes, within which voting decisions will be assessed and implemented on a case-by-case basis. For clarity, the themes highlighted here are not an exhaustive list of themes that inform our voting decisions. A degree of pragmatism is required when interpreting the guidelines to reflect specific market, company, and meeting circumstances.
These guidelines are to be read in conjunction with our Stewardship policy. Stewardship is a fundamental pillar of our Responsible Investment (RI) strategy, and our stewardship policy sets out the core principles of how we consider ESG risks and engage with companies, in recognition of the best market practices supported by the UK Stewardship Code, as well as others. The guidelines will be updated for respective AGM seasons, to reflect the current priorities within our RI Strategy.
1. Summary of our approach to Stewardship
As a responsible asset owner, the PPF believes that integration of material environmental, social and governance (ESG) factors can enhance the value of our investments. We believe in engagement as a path for verifiable and tangible impact, focused on material issues. We are committed to supporting companies in building and sustaining good governance and progressing their practices on environmental and social matters. In order to incentivise all issuers and companies, we are committed to transparent voting following a robust assessment and review of the practices of a company.
We engage regularly with our asset managers and agents, and expect them to demonstrate clear and transparent engagement and voting practices while also acknowledging our stewardship priorities. We’ll always seek to exercise our rights as shareholders to vote our ballots, unless it is operationally impractical or prohibitively expensive, for example due to share blocking markets or overly complex Power of Attorney requirements.
For our segregated Public Equities, we work with a designated stewardship provider, EOS at Federated Hermes (EOS), who we closely align with and participate actively in client discussions defining their engagement plans. We have direct oversight of the voting execution within our segregated equity mandates. This allows us to exercise our voting power and ensure consistency in our strategy. For our pooled equity funds, we have oversight of our managers’ stewardship activities and outcomes through regular review and quarterly reporting from them. Where possible, we set up split voting arrangements with managers of pooled funds, allowing us to instruct voting in a consistent manner. We monitor the consistency of our voting across mandates, in particular for any companies and issues with significant importance such as companies on our watchlists.
2. Voting principles
We are guided by the best practice as demonstrated by our stewardship provider, EOS, and our voting principles closely align with their global voting guidelines.
No abstentions: We aim to take an active position on matters open to vote and aim to either vote in favour or against a resolution and only abstain in exceptional circumstances, such as where our vote is conflicted or a resolution is to be withdrawn.
Support for management: We seek to be supportive of boards and to recommend votes in favour of proposals unless there is a good reason not to do so in accordance with our voting guidelines, global or regional governance standards or otherwise to protect long-term shareholder interests.
Consistency of voting: We aspire to be consistent in our votes across our entire portfolio. We seek to provide clarity of our positions through our asset managers and designated stewardship provider, in accordance with our RI Strategy and stewardship priorities. However, we recognise the limitations of investing across a range of mandates, especially the challenges of implementation within pooled funds at times, and we do this on a best effort basis.
Engagement: Engagement is a fundamental aspect of our RI strategy, which we apply across all asset classes. Within our Public Equity portfolio, we have identified a list of high priority companies (“watchlist” companies) for which additional analysis is undertaken prior to voting. Should we determine that voting against a resolution is warranted if there is a reasonable prospect that engagement will either generate further information to enable a better quality of voting decision or to change the approach taken by the company we will seek to do so. We’ll also seek to inform such companies of any anticipated votes against management, together with the reasons why, through our designated stewardship provider. For non-watchlist companies, we will inform companies of our vote intentions on a best effort basis.
On matters related to good governance such as Board independence, competent leadership, separation of key governance roles, we leverage the deep expertise and recommendations of our stewardship provider.
Climate Watchlist: This year, in line with the IIGCC’s Net Zero Stewardship Toolkit’s guidelines, we identified our Climate Watchlist: 87 companies in material sectors that collectively are responsible for over 70 per cent of the financed Scope 1 and 2 emissions associated with our public markets investments. In addition to watchlist companies we will review the information provided at shareholder meetings and for Climate Watchlist companies.
Escalation: Using our proxy votes effectively forms part of our formal escalation strategy, which can be leveraged where engagement has failed or is influencing change too slowly. Ultimately, whilst threshold levels exist in relation to corporate behaviour, the variance of what is considered acceptable progress is significant due to factors such as location, company size and sector. Qualitative analysis of the Climate Watchlist company shareholder meetings can result in one or more resolutions being voted against.
3. Key themes for 2024
With a specific focus on material issues, we identify key ESG matters that are of particular importance in a specific AGM season and highlight them through targeted engagement. Where we feel that companies are consistently unreceptive to engagement on certain issues, we will consider employing escalation techniques such as voting to oppose relevant board members or resolutions.
Climate change
As noted above, with the creation of the Climate Watchlist, climate change is a key area of focus for the PPF, and seeking to contribute to the global transition to Net Zero is a fundamental part of our approach to management of climate-related risks. Read our Climate Change Policy for more details. Through our stewardship provider and participation in investor-led initiatives, we expect tangible progress around net zero and work with both our managers and companies to encourage the transition to a low carbon economy.
In order to track and encourage progress on climate, we utilise the management quality assessment of companies that are analysed by the Transition Pathway Initiative (TPI). We are also informed by the Climate Action 100+ Net Zero Benchmark for those companies included in this assessment. We also will be guided in our voting by the industry initiatives around net zero alignment for both asset owners and our asset managers.
For 2024, we have increased the expectations for climate-related voting guidelines as noted below:
Transition Pathway Initiative (TPI): The management quality score threshold has been raised based on the expanded assessment framework (e.g., Level 4 for automotives and diversified mining). Banks are now also subject to this threshold.
Climate Action 100+ Net Zero Benchmark: Consider voting against companies who lack a comprehensive medium-term emissions reduction target or lack reporting which is aligned with TCFD recommendations.
Coal: The coal phaseout policy introduced in 2023 has been further refined to target companies expanding coal infrastructure and those who are not implementing Paris-aligned phase out plans.
Shareholder proposals: With the rise of ‘anti-ESG’ proposals and increasing volumes, increased scrutiny is given to proposals and proponents to ensure voting aligns with our expectations. We will continue to review any shareholder proposals related to climate change internally.
Biodiversity
For 2024, we expect to see ‘say-on-nature’ proposals on company agendas more frequently. These will be reviewed on a case-by-case basis.
Deforestation: There will be a continued focus on companies scoring poorly on Forest500. This is defined as companies that score below 10 on the Forest 500 ranking (assesses companies’ disclosure and management of deforestation risks), and Financial institutions that score 0 on the Forest 500 ranking.
Antimicrobial resistance (AMR): We will generally seek to support shareholder proposals on the topic where they are relevant and aligned to our interests.
Assessing human rights laggards
Following significant development in 2023 targeting laggards across several focus areas, the approach for 2024 will remain largely unchanged.
We may recommend a vote against responsible directors if:
General failings: a company is in clear breach of its applicable regulatory responsibilities (e.g. UK’s Modern Slavery Act), or has caused or contributed to egregious, adverse human rights impacts or controversies, without providing appropriate remedy. Also, as evaluated by the engagement manager and/or severe controversy scores by third-party ESG data providers. See more on Modern Slavery below.
Benchmark laggards: a company scores significantly lower than industry peers (bottom 15-20%) within credible external benchmarks of companies on human rights, without providing a sufficient explanation or a commitment to improve:
- 2023 Corporate Human Rights Benchmark (ranks some of the world’s largest companies on the policies, processes, and practices they have in place to systematise their human rights approach and respond to serious allegation)
- 2022 Ranking Digital Rights Index (ranks some of the world's largest technology companies on their commitments and policies affecting users' freedom of expression and privacy rights)
- 2022 BankTrack Human Rights Benchmark (ranks some of the world’s largest banks on their progress towards fully implementing the UNGPs)
- 2022/2023 Know the Chain Index (ranks some of the world’s largest companies on their current corporate practices to identify and eradicate forced labour risks in their supply chain).
Modern slavery
Modern Slavery will continue to be a topic of key focus in the UK. Given the systemic nature of modern slavery and the serious risk it poses to businesses and investors, we expect all UK businesses covered by the Modern Slavery Act (the Act) to meet the reporting requirements of the Act. We further expect the members of the FTSE 350 to be leading in this area, and to take substantial action to address the prevalence of slavery within their supply chains.
The quality of reporting delivered under Section 54 of the Act can act as an important marker for how seriously senior management are taking this risk. It improves accountability and enables companies to identify the areas of their business most at risk. Companies that meet the reporting requirements and clearly disclose the areas of their businesses most susceptible to modern slavery benefit from increased investor confidence. Conversely, non-compliance with the Modern Slavery Act poses as a serious risk to long-term investors.
In 2024, we will continue as members of the PRI collaboration initiative Votes Against Slavery. The purpose of this initiative historically has been to engage with FTSE 350 companies around their public disclosure in compliance with the Act, by writing to the board of each non-compliant company with a targeted letter explaining the nature of non-compliance, and the steps needed to achieve compliance. For 2024, this is being expanded to cover AIM companies that fall under the remit of the Act.
We will again consider withholding our support for the approval of the annual report and accounts at the company’s next AGM, should the required changes to achieve compliance not occur prior to the annual general meeting. All non-compliant companies have been contacted and details of perceived non-compliance communicated.
Diversity & inclusion
Board diversity
We believe that board members should broadly reflect the diversity of society and that there is value in diversity of thought, skills and attributes.
We will consider voting against relevant directors and/or the chair where we determine that board diversity (by gender, ethnicity, age, relevant skills and experience, or tenure) is below minimum thresholds and we determine the company is making insufficient progress to improve. Thresholds may be set at a market level (for example around gender and ethnicity) or may be applied globally (for example around skills and experience).
Building on existing voting criteria around gender diversity, in the UK we support the changes to the FCA’s listing rules for board diversity and expect companies to disclose whether they comply – or, if not, why not – with the following targets: at least 40% of board seats and at least one senior board position (Chair, CEO, CFO or SID) held by a woman, and at least one board seat held by someone from an ethnic minority background.
In 2024, we consider the following to be minimum expectations and will likely oppose the chair or other responsible directors if not met:
UK: FTSE 350 (previously only FTSE100) companies will receive stricter voting outcomes for being non-compliant with FCA Listing Rules approach to gender/ethnic diversity (40% female, 1 ethnic, 1 female at exec level).
Europe and Australia: Matching diversity/independence thresholds with local best practice (e.g., min 30% female in all markets) and continued focus on below board-level diversity.
Asia/GEMs markets: Minimum gender expectation of 15% female directors on boards rolled out across all markets.
Other Board Governance/Remuneration and Audit Voting Policy Changes
For 2024 we are implementing several changes in relation to wider corporate governance issues as noted below:
Remuneration
We will harmonise standards across regions to improve consistency (e.g., increased focus on disclosure at all Asia/GEMs and European markets); ‘common rules approach’.
Asia/GEMs- Boards Governance
We will harmonise minimum expectations of committee independence across all markets:
Audit committee –100% independent; and
Nomination/remuneration –majority independent, independent chair, no executives.
Japan
Given the continued issues relating to capital inefficiency in the Japanese market, the policy will be further developed to focus on promoting wind down of cross-shareholding >10% of net assets via vote recommendations against directors.
Audit
North America: 2024 will see the full implementation of policy focused on auditor tenure and fees (voluntary auditor rotation at 20 years; non-audit fees no more than 15%).
In addition, we will look at potential votes against audit committee chairs who have been in place for excessive periods of time.