The Australian Council of Superannuation Investors (ACSI) released its 2023-24 stewardship report detailing its work across research, public policy advocacy and company engagement over the past twelve months. It focussed on ‘encouraging better management of ESG issues and long-term risk adjusted financial returns in the ASX 300 investments’.

Why is this relevant?

While ACSI does not cast the votes on behalf of its members, it acknowledges the alignment of engagement work with voting research and advice provided are a ‘useful input’ for members when determining their voting positions.

The report could be viewed simply as an exercise of ACSI justifying its value to its members by assisting them to exercise active ownership and enhance the long-term value of the retirement savings entrusted to them to manage. However, for a director of an ASX300 company this is a valuable resource for the engagement process.

ACSI targets ‘engagement at companies’ that members are most exposed to and which have financially material ESG risks. Engagements typically include multiple ESG topics across 11 categories, see HERE for its 2024 Governance Guidelines)

Figure 1: ACSI Engagement Topics ASX 300

Not surprisingly, the most popular ESG topic for engagement over the last 12 months with over 60% of the ASX 300 companies was our personal favourite –  ‘Remuneration’. Key ACSI observations included:

• Half of the 26 companies on their FY24 priority list ‘demonstrated improvement or set change in motion’
• ‘Many of the companies identified as having poor remuneration practices have their primary share market listings outside Australia, where different remuneration disclosures and reporting rules prevail’
• ‘Consistent remuneration issues’ ‘reluctance by boards to disclose sufficient detail of equity grant hurdles… sometimes even retrospectively. ACSI finds this position, which ultimately leaves shareholders in the dark, increasingly unsupportable’
• ‘Voting results indicate a marked increase in shareholder concern’ with 42 strikes against ASX300 remuneration reports in the year to 30 June 2004’, ‘a record number which is already forming the base for our FY25 engagement activity’.

Other key observations and findings from the report include:

• Board and governance:
  • ACSI is seeking for boards to demonstrate sufficient diversity of thought and background, mix of expertise particularly when poor outcomes have occurred.
• Modern slavery: 15 of their 19 priority companies making progress.
  • They observed in their view still significant gaps in ways companies assess and address the risk, calling unclear
    • Due diligent practices,
    • Risk mitigation and
    • Issues being addressed (remediated)
  • Flagged for FY25, ACSI will:
    • Work with companies to provide more meaningful disclosures moving beyond mere compliance,
    • Undertake continued public policy advocacy for more robust enforcement of non-compliance through penalties and other incentive measures, noting the Senate has now passed a bill to appoint Australian anti-slavery commissioner.

• Climate change:
  • Encourages companies to conduct and disclose scenario analysis in moving to Paris- aligned economy (transitions and physical risks)
  • Focus on credibility of climate related-targets and how companies are planning to meet them.
  • Including disclosures of ‘just and equitable’ transition plan from Companies in managing impact of asset closures on workers and communities.
  • Ten out of 30 priority companies adopted a ‘say on climate votes’
  • Research released earlier this year on ASX200 showed:
    • Sixty percent of companies net zero commitments
    • Eighty-two percent already adopted Taskforce for Climate-related Financial Disclosures (TCFD) reporting framework, disclosure principles aligning with ASRS 2
  • With mandatory climate reporting legislation passing parliament, will establish a working group to contribute to share understanding of what ‘good reporting’ may look like for companies and superannuation funds.
• Safety: ACSI’s standard practice is to engage as soon as work-place related tragedies have been identified to:
  • Support a comprehensive understanding of the incident,
  •  Assess board’s oversight; and
  • Ultimately obtain greater insight into the changes made to workplace culture and ‘how the board drive accountability through remuneration outcomes.
• Diversity:
  • Improving gender diversity at executive levels
  • ASX200 boards are approaching the gender milestone of 40% women on boards (30 appointments away). ACSI expects companies to set a timeframe in which to achieve gender balance (40:40:20) on their boards. In the meantime, they expect no one gender to exceed 70% of board positions.
  • Improving gender diversity at executive levels
  • Will recommend members vote against boards with poor gender diversity
  • Draft ASX principles 5^th edition ‘listed entities considering any other diversity characteristics for their board to disclose those diversity characteristics’
  • Next steps diversity beyond gender working group – establish a position on diversity factors beyond gender.
  • State Street 2023 priorities – An increasing importance is placed on board diversity and disclosure “including how the board reflects diversity of the company’s workforce, community, customers, and other key stakeholders”.
• The remaining topics discussed with approximately 5% or less of companies reflects ACSI’s ‘targeted’ approach:
  • Workforce issues
  • Biodiversity and nature
  • Circular economy
  • First Nations relationships & cultural heritage
  • Responsible gambling

See HERE for a copy of the full report.

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