Director Briefing, UniSuper’s Lou Capparelli

August 11, 2025

Guerdon Associates hosted a Directors’ Briefing webinar on 1 July featuring Lou Capparelli, Head of ESG at UniSuper.

This summary highlights the key points made by UniSuper during the discussion.

Exercising UniSuper’s stewardship obligations

  • UniSuper, unlike other super funds, has most (70%-80%) of its $150 billion funds managed by the internal investment team.
  • Lou’s ESG team rarely meets companies separately from the investment team and if they do, they keep everyone within UniSuper fully informed. The ESG team would not be pushing in one direction while the equities team is pushing in another direction.
  • UniSuper engages with its top 50 companies and sometimes those below. Happy to meet with management teams of any companies UniSuper holds directly. (Although if a company is not a top 50 holding and it has not heard from UniSuper, it is generally a good sign).
  • Proxy adviser is ACSI, who uses Ownership Matters in turn. The proxy advice is used as an input only. The analysis is good, but UniSuper does not always agree with the recommendation. Every year there are instances of not voting in line with ACSI.
  • For external holdings, UniSuper instructs external managers to flag any contentious voting decisions and UniSuper reserves the right to override voting instructions. Where UniSuper does not hold an active position internally, it will likely defer to the external manager as they will be most familiar with the company and the issue.
  • The typical engagement cycle is September / October meetings for November AGMs.
  • Where there are changes to the remuneration framework, companies can request earlier engagement meetings to get feedback on potential changes to their remuneration framework or discuss alternatives for dealing with poor behaviour, safety incidents etc.

UniSuper’s voting principles

  • When UniSuper has concerns, it is rarely to do with the remuneration framework.
  • Concerns are typically with how awards have been made and how the board has or has not exercised discretion.
  • UniSuper tries to be more principles based and allow the boards to make decisions, but this trust has been undermined by some bad outcomes
  • The main principle is there should be consistency between the experience as an investor and the remuneration awarded to an executive.

Thoughts on record high “against” votes in FY24 and focus for the upcoming season

UniSuper believes the higher level of strikes were overall a factor of market dissatisfaction on financial performance.

UniSuper’s more specific reasons for adverse votes were normally:

  • Large quantums (especially the case for US-based ASX listed companies)
  • Large pay increases
  • Soft hurdles for threshold, target and stretch – UniSuper watches companies carefully that have high outcomes year after year
  • Exclusions of one-off imposts from incentive calculations
  • Lack of discretion to account for poor acquisitions – UniSuper understands some return cases take time, but it can be clear early on whether an acquisition is going well or poorly. In these situations, formulaic approaches do not lead to good outcomes. UniSuper expects there to be some kind of marker of progress in the early years, with downwards adjustments if expectations are not met.
  • These areas of focus are unlikely to change for the FY25 season.
  • Otherwise, UniSuper would like to see improving safety trends. The expectation is that industries with high fatalities have a safety component to the scorecard and zero this component where there is a fatality. Those in other industries would use board discretion in the case of a fatality.
  • UniSuper recognises that sometimes an investigation has been conducted, and management could not have done anything to avoid the fatality. In this situation, boards need to make their case and UniSuper will assess it.

Unhurdled equity grants – aka Restricted Stock Units (RSUs)

  • UniSuper is open to RSUs but would want to see a trade-off for the increased certainty of lower overall outcomes.
  • It has no rules about the level of discount as long as there is some decrease. The board needs to be comfortable that the discount is reasonable.
  • Where LTIs have not been paying out, UniSuper would be sceptical.

Setting STI performance targets

  • UniSuper expects STI payments at target are not made unless the company at least achieves guidance or, in the absence of guidance, consensus. If consensus is unlikely, then companies should be updating the market of this.
  • Where overall quantum is lower, the setting of targets is less of an issue
  • Under normal circumstances, a 0% outcome would be expected less than 10% of the time. Similarly for a 100% outcome.

Climate goals in incentive structures

  • Where climate is likely to be material to the business, then climate goals are a sensible addition to the incentive structure. Otherwise, UniSuper does not see climate metrics as relevant.
  • UniSuper puts out a Climate Report each year including its expectations of its investee companies. It has developed a traffic light rating system it uses to rates companies. But red lights do not mean UniSuper does not value the company, just that the company is lagging on its action towards net zero in 2050.

STI measure choice

  • In the current environment, UniSuper’s preference has shifted from at least 50% financial metrics to at least 60% financial metrics as it is hard to get objective non-financial metrics.
  • The fuzzier the metric, the less support it will receive.
  • UniSuper considers it legitimate for executives to have modest individual performance elements in the remuneration framework (even the CEO). It is not typically an area of focus.
  • For companies with high likelihood of fatalities, safety would be expected to be 10-20% of the STI scorecard, leaving 20% to 30% for non-financial KPIs unrelated to safety.
  • UniSuper is willing to bow to the company’s board on what kind of NPS measure is implemented.

LTI evaluation principles

UniSuper considers:

  • Hurdles
  • Performance period
  • Stretch of hurdles
  • Relative TSR metrics are positive as companies have to beat the market.
  • UniSuper rarely objects to Return on Capital measures unless targets are below what is currently being achieved.

Issues that UniSuper considers case by case

  • Threshold performance requirements lower than prior year performance – should be flagged in advance.
  • Paying high quantum for key talent
  • US remuneration quantums and structures – caveat is high quantums require tough hurdles
  • Upwards adjustments for situations that are outside the executive’s control. (Adjustments above maximum unlikely to receive support).