By Chirag Acharya
Analyst, Sustainable Investment Stewardship
May 4, 2021
Wespath’s process of shareholder engagement involves working with corporations, asset managers and policymakers to implement sustainable practices and policies, which we believe will lead to a more sustainable economy and improved investment returns.
Shareholder engagement has been a cornerstone of Wespath’s approach to sustainable investment for many years. We seek to identify how the companies in which we invest are positioned to address environmental, social and governance (ESG)-related risks and opportunities on issues material to shareholder value. Our engagements are grounded in our Sustainable Economy Framework, which states our belief that investors must promote an economy that supports long-term prosperity for all, social cohesion and environmental health.
But what does an engagement look like in practice? Well, when engaging a company, we start by contacting management and requesting meetings to develop a dialogue about our specific concerns. Following conversations with the company, we gauge the progress made to determine the next appropriate steps.
Depending on how this progress looks, our corporate engagement process may involve filing a shareholder resolution or a motion during a company’s annual general meeting (AGM). Shareholder resolutions are proposals – put forth by a shareholder or group of shareholders – that are then voted on by all shareholders at a company’s AGM or by proxy vote. For example, an investor in an oil and gas company might file a shareholder resolution asking that management report on its plan to adapt to the low-carbon transition.
Similarly, in some situations outside of the United States, an investor can file a countermotion opposing certain AGM agenda items that includes a statement of justification to be discussed during the AGM. Filing resolutions and countermotions can be a highly effective method to bring broader shareholder attention to an issue or engagement and is intended to prompt positive change from within the company.
Interestingly, there is an example of this taking place right now in our engagement with HeidelbergCement, a materials company based in Germany.
Our engagement with HeidelbergCement is focused on human rights. Specifically, we are concerned about the company’s activities in Conflict Affected and High-Risk Areas (CAHRA). We know that businesses operating in these areas face unique risks, including material changes in laws and regulations.
Changing regulations are a major factor in this situation, as a new proposed law, the German Supply Chain Act, mandates that companies in Germany adopt a human rights due diligence policy. Infringement of the German Supply Chain Act will trigger fines, potential lawsuits and exclusion from bidding for federal services in Germany. We believe that HeidelbergCement has not provided sufficient information to its investors regarding its business practices and human rights due diligence policy. We therefore view this as a material risk to its business.
Wespath sought to engage HeidelbergCement on improvements to its human rights due diligence policy but unfortunately saw limited progress on our key concerns. As a result, we filed a countermotion against HeidelbergCement’s managing board for consideration at the company’s 2021 AGM. This countermotion effectively states our dissatisfaction with the company’s response to our engagement and current approach to human rights due diligence. We think this countermotion will generate greater awareness of this issue among HeidelbergCement’s other shareholders and further influence the company to adopt human rights best practices.
As you can see, shareholder engagement is a multi-faceted process that is often aimed at mitigating specific ESG risks. It is also used to support the development of a sustainable global economy– the security of human rights is important to attain social cohesion. We look forward to continuing our shareholder engagement work on behalf of our stakeholders and investment funds!
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