The Australian Council of Superannuation Investors (ACSI) has launched Australia’s first stewardship code for asset owners. Collectively, ACSI members manage over $2.2 trillion in assets globally, owning an average 10% of every ASX 200 company.
The code sets standards that every ASX 200 company should become aware of, because it will provide them with not only an insight into likely owner voting behaviour, but also provides an avenue for engagement.
The release of the code follows criticism by companies that asset owners are not transparent enough about the basis of their voting decisions. There is also a view that they often do not spend enough resources to adequately consider the specifics of the resolutions they are voting on.
The Australian Financial Services Council proxy voting standard was not enough to solve the issues heard from board directors (See HERE). There was an improvement when the Financial Services Council released an Internal Governance and Asset Stewardship Standard in November 2017 (See HERE). But alas, the FSC represents asset managers not asset owners. Australia’s superannuation funds have not had a standard.
The UK’s Financial Reporting Council first put its stewardship code into place code in 2010, with appropriate sticks to encourage signatories not to stray from the path.
At the time, the ACSI had signalled a code was on its way for some years. Now it is here.
It is not merely intended for subscribers to ACSI’s voting services, but for any asset owners who would like to be signatories. It has been developed with the input of a working group, including the Australian Institute of Superannuation Trustees, AustralianSuper, CareSuper, Cbus, First State Super, Media Super, QSuper, TCorp, UniSuper and VisionSuper.
The Code sets out six principles which signatories must commit to on an ‘if not, why not’ basis:
1. Publicly disclose how they approach their stewardship responsibilities.
Stewardship activities may be undertaken directly, collaboratively, outsourced to asset managers or third-party service providers, or a combination of these. Related information to be referenced could include responsible or sustainable investment policies, ESG policy or voting policies.
2. Publicly disclose their policy for voting at company meetings and voting activity.
This is probably the most useful for issuers to understand their shareholders. It includes detailing approaches to exercising voting rights (i.e. using their own voting policy, third party voting policy, delegating voting, outsourcing voting etc). It also might include information on when and why the owner will abstain from voting, processes for managing conflicts of interest, whether the owner will advise companies of a decision to vote against a resolution, and when the owner will disclose a summary of voting decisions.
Building upon existing regulatory superannuation fund requirements, examples of disclosures about voting policy and voting activities include:
- What principles guide voting decisions (i.e. guidelines or key positions, principles and considerations when exercising voting rights, manager input, proxy advice received, scope of services and how it was used/followed). Policy and practices often differ for domestic versus international equity holdings.
- The circumstances in which the asset owner will not vote (e.g. share blocking markets or where voting is managed by an external manager).
- Whether the asset owner has a policy or process for managing conflicts of interest or other contentious matters.
- Whether and when the asset owner advises companies of a decision to cast a vote against or abstain from a resolution.
3. Engage with companies either directly, indirectly (for example, via collective action or third-party providers) or both.
This is another very useful requirement that will assist issuers engage constructively with their owners. For example, the disclosures might include how the asset owner monitors and identifies companies for engagement, whether the fund has a governance/ESG manager and their contact details, any escalation policy given material concerns following engagement.
4. Monitor asset managers’ stewardship activities.
This involves considering stewardship capabilities in asset manager selection, communicating policies and expectations about stewardship to asset managers, monitoring consistency of asset manager engagement and voting, and outlining what stewardship reporting is expected of asset managers and when.
5. Encourage better alignment of the operation of the financial system and regulatory policy with the financial interests of long-term investors.
Where asset owners have concerns regarding systemic, industry-wide policies, practices or disclosures, they can engage with policymakers.
6. Report to beneficiaries about their stewardship activities.
Disclosures should be accessible on the owner’s website.
Signatories will be required to publish a Stewardship Statement which describes how they apply these principles. ACSI will maintain a list of signatories on its website.
Those asset owners wanting to be part of the code for the 2019 financial year should publish a stewardship statement by or before 30 September 2019. The statement should be reviewed every two years and updated where necessary.
The code can be found HERE.
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