Walking the talk during AGM season

The conclusions of the UN Intergovernmental Panel on Climate Change’s (IPCC) Climate Change 2022 Report underlined that swift and decisive action is needed, from both private and public sectors, if we are to limit global warming to 1.5 degrees.

In other words, business as usual cannot continue: ‘if global warming transiently exceeds 1.5°C in the coming decades or later, then many human and natural systems will face additional severe risks, compared to remaining below 1.5°C’ (UN IPCC, 2022, p.29).

We at Van Lanschot Kempen are strongly committed to our Real Active approach, emphasizing  stewardship through ongoing engagements with companies and through voting.  We were keen to reflect this urgency this AGM season, using our voting rights to hold companies accountable – especially on climate - in order to accelerate the transition to net zero.

We were pleased to observe that an ever-growing number of our peers recognise that we are two years into the critical decade, and therefore can no longer accept  climate proposals without clear short- and long-term targets.

Our portfolio managers engaged with 12 companies on clear climate-related asks in Q1 2022, five of which are among the top 50% carbon intensive companies in our portfolios. This proactive  engagement has seen several positive developments including a commitment by US utilities company Xcel Energy to bring forward its transition out of coal (to 2034), and seen Canadian Forestry firm West Fraser commit to science-based emissions reductions targets.

Putting pen to paper
The gulf between the swift and decisive actions that are needed versus the ambition of the climate action plans proposed by management remains particularly large for oil & gas majors, despite the fact that this ambition has substantially increased this year.

We voted on climate-related resolutions in the six oil majors we hold shares in, namely Repsol SA, Equinor ASA, Phillips66, BP Plc, Shell Plc, and TotalEnergies SE. The shareholder resolutions put pressure on the companies to improve or define net-zero targets. We supported the ‘Follow This’ proposals to get Shell, BP, Equinor and Phillips66 to set short and medium-term targets, fully in accordance with Paris-aligned pathways and committed to absolute emissions reductions. 

In May we voted against the climate transition plan and remuneration of TotalEnergies’ CEO -and against the re-election of five board members because the company has been reluctant to put the shareholder proposal calling for a Paris-aligned transition plan on the agenda. 

We recognise that we cannot solve the climate crisis alone, so we also work collaboratively with like-minded peers on the issue and earlier this year co-drafted and signed a joint statement with six other Dutch asset managers urging oil & gas companies to develop a decarbonisation strategy that supports short and medium-term targets aligned with 1.5C and demonstrates how planned capital allocation will support that strategy.

Progress is picking up and we need to accelerate
The low carbon transition is also creating enormous investment opportunities. The drive to help us travel more sustainability, for example, has put the global e-bike sector on track for a $120 billion valuation by 2030 and that influenced our investment in Netherlands-based e-bike manufacturer Accell Group. We have however been broadly critical in recent months about the poor governance processes being followed at Accell around a relatively low €58 take-over offer per share by private equity investors KKR and Teslin. 
We also used the voting season as an opportunity to draw attention to our concerns at ForFarmers, a Dutch feed solutions company. The last few years were difficult for ForFarmers and the external environment does not look set to improve in the near future. As long-term shareholders, we have engaged with the company - including with the current chairman of the board and their predecessor - as well as previous executives on multiple topics, such as we had a disagreement with the company concerning their overall strategy.

Eventually we voted with our feet as our holding dropped below the 3% and 5% notification threshold this year. With the remaining shares we held at the time of the AGM, we voted against the discharge of the executive and supervisory board and a remuneration report due to the insufficient rationale for the variable compensation that has been awarded to executives for 2021. In addition, we also voted against a new remuneration policy for executives as it allows for increased payouts while not meeting KPI thresholds.

On social topics, Van Lanschot Kempen, alongside other shareholders, co-filed a resolution for Alphabet to undertake a Human Rights Impact Assessment to understand the effects of misinformation sharing on its platform. The motion was a success as the majority of external shareholders voted in favour of the proposal, which became one of the most widely supported shareholder resolutions on the agenda. Unfortunately, due to the shareholder structure at the company, as the co-founders own over 50% of the voting rights, the proposal was voted down. This illustrates the constraints of shareholder action and the fact that, in situations like these, change needs to come from the core.  

Ultimately, we believe in long-term change on issues from climate to conservation and we need to see companies take action now. We use our stewardship tools to deliver on our sustainability commitments. As Lars Dijkstra, Van Lanschot Kempen’s Chief Sustainability Officer recently commented: “We are engaging with companies throughout the year and around the voting season. At AGMs the pen meets the paper, it’s the moment to cast our votes in alignment with our commitments and beliefs – and this is what we did. There is a tremendous opportunity in climate and sustainability action in the next few years, and we apply the capital our clients entrust to us to call for action, to accelerate the transition.”

Disclaimer

Kempen Capital Management N.V. (KCM) is licensed as a manager of various UCITS and AIFs and authorised to provide investment services and as such is subject to supervision by the Netherlands Authority for the Financial Markets. This document is for information purposes only and provides insufficient information for an investment decision. This document does not contain investment advice, no investment recommendation, no research, or an invitation to buy or sell any financial instruments, and should not be interpreted as such. The opinions expressed in this document are our opinions and views as of such date only. These may be subject to change at any given time, without prior notice.

The value of your investment may fluctuate. Past performance provides no guarantee for the future. The figures presented are gross performance, the effect of potential fees and charges is not included. The level of the fees and charges will depend on the applied product structure, this will have effect on the net performance.