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“We pride ourselves in being good stewards of our clients’ capital. It is core to who we are and a distinctive feature of our investment principles”
As the world becomes more complex and interconnected, our role as active managers in creating long-term value for our clients is becoming more important than ever. Responsible investing is critical for delivering on this commitment.
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Meeting the challenge together
Hans Georgeson Chief Executive Officer, Royal London Asset Management
In our view, there is no ‘one way’ to do responsible investment, but we are adamant that transparency is a non-negotiable: we want to talk to our stakeholders to understand their concerns but also want to be clear about what we can and cannot deliver. We also want to share our successes and our challenges. That is the essence of this report.
With Biodiversity Net Gain legislation set to affect commercial real estate, engagement is essential to understanding its impact on companies’ activities.
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Water utilities have come under intense public scrutiny due to pollution concerns, but long-term investment and engagement with these companies is still more effective than simply divesting
Ashley Hamilton Claxton, Head of Responsible Investment
CEO's view | Latest articles | Previous articles | Download our report
With Biodiversity Net Gain legislation set to affect commercial real estate, engagement is key to understanding the impact of investment decisions
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The past year has seen further growing interest in what we do. We welcome the growing interest in our work from clients, the media and regulators. We welcome the increased emphasis on responsible investment right across the spectrum.
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Cybersecurity is a growing risk to investment portfolios and asset managers and asset owners must collaborate to address risk and advocate for better policies
In this interview, Carlota Garcia-Manas and Nick Robins discuss the importance of building just transition in climate transition plans.
Royal London Asset Management’s multi-year drive for the employee’s voice to be heard in boardrooms started in 2020 to enhance workforce engagement across investee companies.
Each year Royal London Asset Management votes on thousands of resolutions at companies' AGMs. Explore how we exercise our voting rights across our equity and fixed income holdings.
In this interview, Carlota Garcia-Manas and Nick Robins discuss the importance of building just transition in climate transition plans
2024 Stewardship and RI report to be released in April 2025
“We have been concentrating on climate change adaptation, biodiversity, affordability, and antimicrobial resistance. This has seen us engage with 11 water utility companies in the UK across both equity and credit asset classes”
There are few sectors in the UK facing as much scrutiny as water utilities. News reports of polluted waterways have increasingly led both the public and investors to scrutinise the companies responsible for the UK’s water systems, critiquing how they are run and challenging what they charge during a cost-of-living crisis. With this sort of controversy, it would be easy to simply shun companies at the centre of such unwanted attention. However, at Royal London Asset Management we are long-term investors, and this means doing what we can even in times of uncertainty. We invest a great deal of time and effort in our stewardship activity, and this is clear in our work with water utilities. We recognise both the strengths and shortcomings of these companies and appreciate that the latter will take time and resources to resolve. This is why engagement plays such a crucial role.
Daniel McHugh Chief Investment Officer, Aviva Investors
The importance of engagement within water investments
Water utilities have come under intense public scrutiny due to pollution concerns, but long-term investment and engagement with these companies is still more effective than simply divesting.
Making the time to talk
Over the last 7 years, we have been actively engaging with the water sector and bringing environmental concerns to the forefront of our work. More recently we have been concentrating on climate change adaptation, biodiversity, affordability, and antimicrobial resistance. This has seen us engage with 11 water utility companies in the UK across both equity and credit asset classes. Whether we hold shares or debt, this gives us an important platform from which to voice our views and attempt to push through change. Engagement is not simply about writing to the company and gathering information. We work hard to create an ongoing dialogue with these companies and understand their position more effectively. We seek to understand how companies balance the need for infrastructure investment with affordability. The former is a significant cost concern for many water utility companies as they propose a spend of £96bn in the next few years to update ageing infrastructure and improve the network resilience. Juggling this cost pressure with affordability concerns, while accommodating environmental responsibilities, is no easy task. We are clear with water companies that we want to see comprehensive water and biodiversity management plans in place, considering both climate adaptation and social issues. To continue this dialogue, we have created a coalition of our clients and like-minded asset owners to collaborate with us and help improve the sector. Keeping channels of communication open can allow for effective conversations and help these management teams approach problems with innovative ideas and fresh perspectives.
Assets under management
Total of assets actively managed by Royal London Asset Management
As long-term investors in the sector, we have the benefit of meaningful stakes in several of these companies. Not all water companies in the UK issue public equity, but for those that do, we are prepared to vote at their annual and extraordinary meetings. For listed equity companies this allows us to back, or challenge, resolutions and have a real say in Annual General Meetings. This saw us oppose some resolutions in 2023 whenever these did not align with our best practices and the long-term expectations we have for the sector. And with the entire sector highly reliant on debt markets to fund much of its planned investment, this is an industry where lenders also carry far more influence than typical. In 2023, we voted against Pennon’s climate-related financial disclosures. Although we supported its net zero ambitions, the details of its climate plans were unclear and there was confusion over its planned over-reliance on offsets. This decision will become a topic of ongoing engagement with the management team and something we will continue to address. For Severn Trent and United Utilities in 2023, we supported most of their resolutions however we opposed share issuance without pre-emptive rights, for both companies which is in line with our standard position for all UK companies.
Matching words with action
There are numerous examples throughout the sector, concerning either equity or bond holdings, where we have exercised our rights and leveraged this control. This is only one part of our ongoing engagement with a sector that still has numerous challenges ahead of it. Through active engagement, and regular communication with this broad sector, we are aiming to influence positive change in environmental and social practices. The use of strategic voting and ongoing engagement allows us to uphold best practices, while our differentiated active management strategies enable us to navigate the complexities of the sector and take divergent stances when needed. Such an approach is vital to engineer positive change and make the most out of the opportunities apparent in this vital, yet increasingly scrutinised, sector. Water utilities have a lot of spending to undertake in the coming years, and the impact on customers’ bills will be unpopular. Royal London Asset Management will continue to challenge these companies, in an objective way, so that they can work to improve their financial and environmental performance. As custodians of our clients’ long-term savings we think engagement is better than shunning a vital area of our infrastructure. Reference to any security is for information purposes only and should not be considered a recommendation to buy or sell. Portfolio holdings are subject to change without notice.
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Important information For professional clients/qualified investors only, not suitable for retail investors. The views expressed are those of Royal London Asset Management at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice. Issued in June 2024 within Europe (ex Switzerland) by FundRock Distribution S.A. (“FRD”) the EU distributor for Royal London Asset Management Limited. FRD is a public limited company, incorporated under the laws of the Grand Duchy of Luxembourg, registered office at 9A, rue Gabriel Lippmann, L-5365 Munsbach, Luxembourg, and registered with the Luxembourg trade and companies register under number B253257. Page 23, FRD is authorized as distributor of shares/units of UCIs without making or accepting payments (within the meaning of Article 24-7 of the 1993 Law), as updated from time to time. FRD is authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF). Portfolio management activities and services are undertaken by Royal London Asset Management Limited, 80 Fenchurch Street, London, EC3M 4BY, UK. Authorised and regulated by the Financial Conduct Authority in the UK, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited. Issued in June 2024 by Royal London Asset Management Limited, 80 Fenchurch Street, London EC3M 4BY. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.
Georgina Chiu, ESG Engagement Manager
Matthew Franklin, Fund Manager
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2. Source: Water UK, Water companies propose largest ever investment 2 October 2023
“Through active engagement, and regular communication with this broad sector, we are aiming to influence positive change in environmental and social practices”
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1. Source: Royal London Asset Management, as of 31 December 2024
“The performance gap between landlords who prioritise sustainability and those who don't, has the potential to widen”
Protecting biodiversity is critical on the pathway to a more sustainable future and ultimately, the health of the planet. Forestry, agriculture, energy, and fisheries are just a few of the industries causing sometimes irreparable damage to important ecosystems. In the UK however, one of the most important causes of biodiversity loss is due to habitat destruction resulting from housing growth. Studies show that 1 in 6 species are at risk of extinction in Britain. This pressure is only going to increase as the UK hopes to tackle the undersupply of housing in England with the ambitious goal of building 300,000 houses per year by the mid-2020s.
Commercial real estate: Engagement on biodiversity
Establishing best practice
The commercial real estate sector has been facing a growing landscape of environmental regulation. As investors and consumers become more aware of the environmental impact of buildings and increasingly demand properties with green credentials, the performance gap between landlords who prioritise sustainability and those who don't, has the potential to widen. Royal London Asset Management’s engagement aims to understand company approaches and disclosures for its largest affected holdings. The asset manager identified eight companies for initial engagement, primarily operating in London – with engagement questions covering governance, on-site and off-site BNG strategies, monitoring, risk mitigation, and the interplay between nature, climate, and people.
Important information For professional clients not suitable for retail investors. The views expressed are those of Royal London Asset Management at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice. Issued in July 2024 by Royal London Asset Management Limited, 80 Fenchurch Street, London EC3M 4BY. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.
Mathilde Rouhi, ESG Specialist, Responsible Investment
1. State of Nature, “State of Nature Report 2023.” 2. UK Government. 2018. “Government Announces New Housing Measures.” Accessed November 1, 2023.
With the aim of curbing this biodiversity loss and addressing the direct effects of infrastructure on biodiversity, England has introduced the Biodiversity Net Gain (BNG) legislation. The initiative aims to leave the environment in a better state than before through mandating a minimum of 10% BNG for most future developments and for a minimum of 30 years. Biodiversity is one of Royal London Asset Management’s key engagement themes for the 2024-2026. BNG is a significant regulation with a potential to affect our funds, so engagement is essential to understanding the impact of companies’ activities on biodiversity, and to encourage best practice, strong management practices and increased biodiversity disclosures.
Reconciling the need for housing with increasingly fragile local ecosystems is paramount and as ‘net gain’ becomes more mainstream, a framework for best practice can help developers and investors navigate this new and uncharted terrain. The engagement not only highlights the complexity of biodiversity and urban ecology but emphasises the need for long-term BNG strategies that are transparent, consistent and science-based. Reference to any security is for information purposes only and should not be considered a recommendation to buy or sell. Portfolio holdings are subject to change without notice.
19%
16%
151
cross the UK species studied have declined on average by 19% since 1970
Nearly one in six species are threatened with extinction from Great Britain
of 10,008 species assessed have already become extinct since 1500
Source: State of Nature, “State of Nature Report 2023.
Set targets above the required 10%, including both existing developments and new ones.
Typically develops on brownfield sites, where it is easier to achieve BNG than on greenfield sites.
Ring-fenced funding for BNG management, in projects for which it has full control, including gardeners and landscape managers.
Its published guide ‘Biodiversity Buffet’ showcases its biodiversity design interventions which is best practice in disclosure and transparency.
Prioritises social equity and accessibility of green spaces and is working on its supply chain transparency.
3. British Land Sustainability Progress Report 2023
3
Engagement revealed a good awareness of social and climate issues and their intersection with biodiversity, but also showed the need for robust, long-term BNG strategies that are transparent, effective and measurable. All eight companies employed external biodiversity consultants for BNG strategy and had similar governance structures, with heads of sustainability reporting to their board on a range of ESG issues, including biodiversity. Royal London Asset Management believes that best practice for integrating biodiversity considerations into company operations is to embed responsibility and accountability for biodiversity across all levels of the organisation. This includes defining clear roles for delivering and overseeing BNG, aligning company culture with these strategic objectives, and ensuring strong internal expertise in biodiversity.
Eight companies for engagement operating primarily on urban brownfield sites and two greenfield.
For companies committed to achieving BNG, a well-defined adaptive management plan is crucial. This plan should be adaptable, allowing for adjustments based on monitoring and changing environmental conditions. Additionally, securing dedicated funding for habitat management is key to ensuring long-term viability regardless of budget pressures. Equally important is the expertise of the team responsible for the project. Landscape management personnel equipped with ecological training can make informed decisions to create and maintain diverse habitats. This is critical to avoid habitat homogenisation, where different areas become too similar, and fragmentation, which isolates populations. The ideal on-site BNG strategy prioritises thoughtful restoration, aiming for a network of connected and diverse habitats. Efforts to exceed the 10% net gain should be achievable for urban developers operating on brownfields sites. Resulting from the scope of our engagement, different measures and targets were taken depending on the company. Land Securities, for example, adopted an internal target of 15% BNG across all new developments and 25% across five selected sites. A much higher net gain is possible at individual sites. In the case of British Land, one project expects to achieve 866% BNG .
• British Land • Derwent • Grosvenor UK • Taylor Wimpey • Barratt • Peel L&P • Great Portland Estates • Land Securities
• Barratt • Peel L&P • Great Portland Estates • Land Securities
• British Land • Derwent • Grosvenor UK • Taylor Wimpey
“I believe it's on us as investors to try to unpack and identify where the opportunities and risk can be mitigated based on tackling issues that are interdependent”
Just transition: Balancing climate goals with social impact
Q. Why are banks better placed than most companies to play a key role in the just transition and what has the impact been so far?
Nick: Banks have really grown in importance not only because they are lenders and capital markets providers to large corporates, but because they have a much broader purchase on the real economy through their lending to SMEs, as well as to consumers and households (for example through mortgages). We are seeing more examples of banks that are starting to incorporate just transition commitments into their climate plans. But according to the LSE’s Transition Pathway Initiative Centre, none of the world’s major banks have yet fully committed to decarbonize in line with just transition principles. The next step is for banks to show how they are managing the human dimension of climate in each customer group, sector and region. The banking agenda is also moving into the financial policy arena with a recognition of the importance of financial inclusion for the just transition as well as the potential for partnerships with development banks, especially in developing countries. What is interesting is the convergence of three drivers: banks recognising the materiality of just transition for achieving their climate targets, policy signals from governments to get the incentives and market frameworks in place and signals from their investors. It’s not just investors acting in a vacuum: when these three factors come together, that's where we start seeing change.
Important information For professional investors only. This material is not suitable for a retail audience. This is a financial promotion and is not investment advice. Capital at Risk. The views expressed are those of the authors at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.
Carlota Garcia-Manas, Head of Climate Transition & ESG Engagement, Royal London Asset Management
Nick Robins, Executive Director - Just Transition Finance Lab and Professor in Practice Sustainable Finance, London School of Economics (LSE)
Nick: The just transition is central to the delivery of the Paris Agreement, net zero, and making societies resilient to the growing impact of climate change. If we are going to be successful with climate action, we need to put people at the heart of national climate plans alongside the climate plans of businesses, investors and banks. This means delivering positive social outcomes (such as high-quality jobs), preventing social risks (such as left behind communities) and involving affected stakeholders in decision-making. It’s something for every sector, every geography and asset class. Carlota: While it’s not the panacea to fully progress climate action, something has clicked with investors. Originally, the just transition seemed very frictional and complicated to progress, a barrier to climate action. Today, it is something that can be naturally integrated into the ways that companies, investors and other actors think about climate action, how they engage with regulators, governments, and how they access to social license to operate. An enabler to climate action!
Q. What is the just transition as it relates to the climate and why is it important?
Cumulative progress of companies on a just transition milestones*
Source: Royal London Asset Management, 10 February 2025. *This only includes companies which have researched as part of Royal London Asset Management’s engagement efforts. The just transition milestones are for companies “mentioning just transition in a net zero plan” and having “a sufficient just transition plan”; companies meeting both milestones over time are counted twice.
Carlota: As the largest mutual insurer and pension provider in the United Kingdom, our connection to the community is part of our purpose. We have made sure that in progressing net zero and climate engagement, we were considering and addressing social externalities. Our climate transition engagement is sectorial and focused on the highest impacted companies in our portfolio. We order them by their contribution to emissions in our firm-wide portfolio and then select the top 50% financed emissions for companies to engage. They tend to cluster around certain sectors; because our credit teams have been invested in electric utilities for many years, we started our investor expectation for just transition on that sector.
Q. How does Royal London Asset Management currently work with companies to promote economic inclusion?
2021
2022
2023
2024
8
18
27
42
0
5
10
15
20
25
30
35
40
45
Number of mentions
engagements on social and financial inclusion
113
companies contacted
86
58
The pioneer role of one champion is fundamental. Throughout our engagement we try to find champions within sectors who can show others that it is feasible and that it generates opportunities. We expect a positive domino effect with other companies to take the just transition forward and in some sectors, we are seeing progress. Currently, we have published two investor expectations, one for utilities (2022) and one for banks (2023). Alongside other investors we pioneered just transition engagements, which we started with companies in the electric utilities sector. As we progressed our discussion on net zero, we made sure they involved communities, customers, supply chains and workers. Nick: In our work at the LSE, we aim to show what the just transition looks like in practice and we have examined the engagement by Royal London Asset Management and other investors with the UK utility, SSE, in a case study. It shows how business, policy, societal and investor expectations came together to create change at the company and beyond.
Source: Royal London Asset Management, 10 February 2025. Social and financial inclusion includes just transition as well as microfinance and human rights.
Nick: Metrics are one of the key issues for 2025. We need to see results as well as commitments. For example, what are the outcomes in terms of numbers of people employed, re-skilling, jobs lost, gender impacts and what happens to communities? Here, we already have considerable amounts of metrics that are available in existing reporting and disclosure frameworks. We don’t need to reinvent the wheel, and for the UK’s Transition Plan Taskforce, we produced a compendium of metrics drawing on frameworks such as the Global Reporting Initiative, the EU’s Corporate Sustainability Reporting Directive (CSRD), as well as examples from India, Spain and South Africa. The compendium is an open access resource for companies and investors to use to identify ways of measuring progress appropriate to their circumstances. One thing to add: metrics are also important to incorporating just transition factors in instruments such as sustainability-linked bonds and loans. Carlota: I'm with Nick. The fact that we don’t have a perfect set of data shouldn’t stop us from progressing the good work that otherwise can’t be measured and that is impacting communities, workers, and customers. However, we hope to see ways to measure positive impact and outcomes over time.
Q. How are you approaching progress metrics and how are results measured?
Carlota: The difference is two-pronged. One is awareness of vulnerable communities and customers, and the other is the ability and willingness to address that awareness through supply chains and workers to retrain and redeploy, among other actions. I believe it's on us as investors to try to unpack and identify where the opportunities and risk can be mitigated based on tackling issues that are interdependent and that should not be left to the side. Nick: Societies have memories. I serve on Scotland's Just Transition Commission and the sense of history is very profound in terms of the negative legacy of the previous restructuring of heavy industry, coal and steel. There is a strong sense of avoiding the mistakes of the past in how the climate-driven phase out of fossil fuels and scale up of clean energy has to be done now: we can and must do much better. Here the just transition is a way of enabling climate action that is more robust because it is built on public trust and a clear anticipation of potential impacts ahead of time. At the UK level, the new clean power plan is very focused on how shifting to a renewable energy system can bring good jobs in industrial heartlands and generate community benefits. Reference to any security is for information purposes only and should not be considered a recommendation to buy or sell. Portfolio holdings are subject to change without notice.
Q. Economic transitions have historically not been ‘just’ to affected communities, what needs to be different this time?
“Investor expectations can provide a tool to elevate stewardship from reactive engagement after a cybersecurity incident to proactive dialogue on resilience”
Collaboration is key to combatting cybersecurity risks in portfolios
Cybersecurity is a growing risk to investment portfolios. In this interview, Georgina Chiu and Sophie Harris discuss the importance of collaboration between asset managers and asset owners to address cybersecurity risks and to advocate for better policies. They focus on the practical guidance they’ve recently created for investors on how to engage with portfolio companies on cybersecurity – this includes recognising the financial materiality of cybersecurity and assessing companies' baseline approach to it.
Q. How do you engage with companies that face high-risk exposure or those facing sector-specific vulnerabilities?
Georgina: The high-risk sectors are healthcare, manufacturing, finance and insurance and energy and utilities and, when initiating dialogue, we take a stewardship-led approach. Within our Cybersecurity Coalition for example, we initiate dialogue with companies by sending a letter to their investor relations teams requesting to speak to their specialist staff. We want to ensure that the dialogue is targeted and beneficial for both the investee companies and ourselves. We list the investor expectations, and we give them an RAG rating on each. We strive to engage with companies constructively and confidentially, without seeking publicity, as we believe good management should reassure investors when addressing shareholder concerns. But if a company doesn’t respond to our requests or if they fall significantly below expectations, escalation can be a useful tool, such as raising questions at an AGM.
Select a title to view losses
Q. What are the material risks of cybersecurity to portfolios and what are some of the factors behind their growth?
Prime cybersecurity threats
Financially material impacts can be classified as primary or secondary losses. The former are a direct result of incidents such as ransomware payments and costs to notify affected individuals. The latter arise from stakeholder actions after an incident such as regulators imposing fines, external auditors increasing their fees, or agencies changing a company's credit rating.
Georgina: What we aim to do with our investor expectations is to encourage better disclosures but more importantly, engage around cyber governance and management and culture. We specifically ask for greater clarity on governance structure; such as if they have a Chief Information Security Officer (CISO) and, if so, how big the team is, how they are supported, and if they adhere to relevant certifications such as NIST and ISO 27001 standards. We also look at timely disclosures of cyber breaches, which are now very much aligned to Securities and Exchange Commission (SEC) regulations. Sophie: We ask about third-party suppliers because we've learned in conversation with portfolio companies that third parties can present a particular challenge for IT security teams. This is often due to the resourcing that’s needed to conduct due diligence and ongoing monitoring, particularly when it’s on a large scale. The risk presented by third parties is concentrated when a lot of firms are using the same suppliers to provide software.
Q. What are some of the challenges around disclosure transparency?
Georgina: A systemic risk like cybersecurity needs a system-wide response and collaboration with other asset managers is crucial. By using our stewardship dialogue and our investor expectations portfolio companies get a clear message and a unified approach to cybersecurity. It’s very important that investee companies don’t have conflicting requests from lots of different investors. In public policy advocacy (our Coalition responded to the SEC consultation in 2022) we encourage other investors to shape the regulatory landscape so we can all support cybersecurity outcomes and ensure that the regulatory bodies are making practical and effective regulation and are aligned to reality. For companies that have been unresponsive, it’s an opportunity for other asset managers to work together and signal that multiple investors consider cybersecurity a material risk. By working together, we can encourage the company to respond.
Q. Why is collaboration among asset managers important? How does this work in a practical sense?
Primary and secondary losses from cyber security incidents
Sophie: Royal London Asset Management, together with Railpen and other asset owners, have developed a set of expectations of companies that help us assess companies’ readiness to face these threats. These expectations can provide a tool to elevate stewardship from reactive engagement after a cybersecurity incident to proactive dialogue on resilience. They are designed to ensure that all stakeholders are aligned in their efforts on cyber risk management. Investors can put our expectations into action by using them as a framework to assess companies' approach to cybersecurity, by developing detailed agendas for engagement and to encourage policymakers and companies to ensure that disclosure provided on cybersecurity is decision-useful for investors.
Q. What are the pillars of investor expectations and how can they be put into action?
Four pillars
Financial materiality
Primary losses
Secondary losses
Investigation costs
Extortion payments
Notification costs
Operational downtime
Costs related to investigating the cause of the incident
Payments made in response to extortion demands
Costs associated with notifying affected individuals
Revenue lost due to operational downtime or reduced productivity
Fines imposed by regulators and parallel shareholder litigation
Regulatory fines
More difficulty in securing affordable cyber insurance
Higher insurance premiums
External auditors increasing fees post-incident
Increased audit fees
Reputational damage and concerns around valuation
Drops in share price
Lenders raising the company’s cost of debt
Higher cost of debt
Malware
Supply-chain attacks
Threats against availability: Denial of Service
Threats against availability: Internet threats
Ransomware
Information manipulation
Social Engineering threats
Threats against data
Sophie: Cybersecurity presents a growing risk to investment portfolios from both a company-specific and also a system-wide level. The World Economic Forum (WEF) 2024 Outlook reported that 29% of organisations stated that they had been materially affected by a cyber incident in the past 12 months . The average loss associated with a data breach and recovery process was estimated to be US$4.88 million in 2023 . The WEF highlights four factors that drive and amplify threats to companies: supply chains and third parties, artificial intelligence, skills shortages, and geopolitics.
Source: European Union Agency for Cybersecurity (2023), ENISA Threat Landscape 2023
1. WEF (2024), Global Cybersecurity Outlook 2024 2. IBM (2024), Cost of a Data Breach Report 2024
Georgina Chiu, Senior Engagement Manager, Responsible Investment, Royal London Asset Management
Sophie Harris, Senior Investment Analyst, Railpen
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“ The executive order recently issued by the new US administration has led many companies to publicly roll back on their policies and initiatives”
Proxy voting over the years and trends to look for in 2025
Each year Royal London Asset Management votes on thousands of resolutions at companies' Annual General Management meetings. Explore how we proactively exercise our voting rights across our equity and fixed income holdings to maximise our influence and safeguard client interests.
Trend 2: Biodiversity
We recognise the risks that the deterioration of nature poses to businesses and financial systems. In 2025 we will focus on those companies operating in material and sensitive sectors as defined by the Task Force on Nature-Related Financial Disclosures (TNFD). Where those companies are additionally operating in biologically sensitive areas, lack a biodiversity policy and have been involved in recent biodiversity-related controversies, we will look to escalate our vote against the relevant board member.
For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.
With a heritage in mutuality, Royal London Asset Management is a purpose-driven active investor. Our investment principles put our clients and stakeholders at the heart of what we do, guided by our mission to be responsible stewards of our clients’ capital. These commitments continue through our approach to voting. While our Voting Guidelines are our foundation, the final execution of votes is the result of a holistic assessment of research, data, companies’ individual circumstances and our engagement activities. The combination of rapidly developing global trends and an ever-changing political landscape is resulting in Environmental, Social and Governance (ESG) topics being scrutinised at an increasingly acute rate. As we approach proxy voting season, here is a preview of some of the updates to our voting approach for this year alongside the topics we believe will be in the spotlight this year. The topics below are not new, but are rapidly shifting in scope, momentum and complexity and we believe will be a key focus. As such, we have redefined how we plan to approach these through voting.
Sika Neckles, Corporate Governance Analyst, Responsible Investment
Sophie Johnson, Head of Governance and Voting, Responsible Investment
Trend 1: Climate
While the world is navigating growing uncertainty in relation to climate policy, Royal London Asset Management’s commitment to addressing climate risk and driving best practice remains steadfast. Our proprietary Climate Transition Assessment (CTA) framework guides us in assessing whether the companies we invest in with the highest emissions are taking meaningful steps to align to net zero, find out more here. Over the years, the CTA’s implementation has produced a valuable supply of information, including direction of travel. This year where our assessment shows negative movement, or a company is classed as ‘not aligned’ towards a net zero pathway, we will escalate our concerns against the most relevant member of the Board. We are also supporters of the investor-led Transition Pathway Initiative (TPI), which constitutes a valuable tool in evaluating a company’s readiness for the climate transition. Beyond our highest emitters, we will also look to vote against the most relevant director at the bottom scoring companies according to TPI’s assessment.
At Royal London Asset Management, diversity is deeply entrenched in our values and constitutes an important theme in our engagement plans. The executive order recently issued by the new US administration has led many companies to publicly roll back on their policies and initiatives. Our position is clear, we continue to view a diverse board and workforce as a positive and we expect companies to be aligned with that school of thought. We will pay close attention to shifts in companies’ efforts in relation to diversity and if required use our voices through our votes. Where companies have shifted away from their policies, we will consider voting against the applicable board member(s).
Trend 3: Diversity
We believe that companies have an important role to play in mitigating human rights risks and effectively navigating the interplay between business and human rights. The United Nation’s Universal Declaration of Human Rights (UDHR) represents an important framework aimed at promoting a better world. Focusing on what we consider to be high-risk sectors in our investments, we will look to vote against the relevant board members at companies where human rights policies are not aligned with the UDHR.
We remain committed to responsible investment. Over the course of the upcoming proxy voting season, we will closely monitor companies' adherence to our principles and actively use our influence to promote positive changes through our voting practices. Our dedication to these core values underscores our belief that ethical business practices are fundamental to long-term success.
Looking ahead
Summary of Royal London Asset Management’s proxy voting figures and topics from 2019 to 2024:
2019
Proxy Voting Figures:
resolutions voted on at
39,000
meetings
3,000
Topics
Climate change, executive remuneration, board diversity, and governance
2020
Climate-related resolutions, executive pay, governance, and social issues
41,000
3,200
42,000
3,300
Climate change, diversity, executive remuneration, and governance
43,000
3,400
Climate transition risk, mental health, corporate governance, and shareholder proposals
44,477
3,572
44,699
3,583
2024 – stewardship and RI report to be released in April 2025
Source Royal London Asset Management December 2019 to December 2024.
Learn more about our approach in our Voting Guidelines and actions in our latest Stewardship and Responsible Investment report.
Trend 4: Human rights
Proxy Voting Figures
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ESG integration, climate change, social issues, and executive pay
Source: Royal London Asset Management December 2019 to December 2024. Our voting always aims to be pragmatic, reflective of local best practice and evolving market insights, and in the long-term interests of our clients. Alongside voting, our engagement, research, and advocacy also help to add value and meaning to our investment decisions. Engagements may not apply to any specific Royal London Asset Management fund or strategy, as each will have different investment objectives. Please check your prospectus for details on specific product objectives.
“We want to see workforce engagement that translates into meaningful boardroom actions”
Amplifying employee voices in the boardroom
Our objective is to integrate employee perspectives of our investee companies into boardroom discussions and decision-making processes more fully, fostering a more inclusive and responsive corporate culture. While we have seen good progress in many companies, we believe more can be done by boards to amplify the voices of their most valuable asset – employees.
Piotr Kwiatkowski, Corporate Governance Analyst
By integrating diverse employee perspectives on issues such as working conditions and pay into corporate governance discussions, companies can make more informed and effective decisions. This leads to better business outcomes and a more resilient organisation, where employees feel valued, with opportunities for greater job satisfaction - leading to greater productivity.
In 2021, we leveraged the knowledge gained from our early interactions with companies to assist those who were not meeting best practice. Our discussions highlighted several common issues:
Addressing lagging practices
1) Understand the company’s current approach. 2) Encourage (where appropriate) the appointment of workforce directors. 3) Clarify how workforce satisfaction is measured and disclosed.
Our engagement goals are to:
Despite the mandates set out in Section 172 of the UK Companies Act 2006 and the updated UK Corporate Governance Code (the Code), our engagement with various companies revealed that workforce engagement activities often failed to penetrate the boardroom. The UK Companies Act sets out a duty to promote the success of the company while having regard to the interests of the company’s employees. The updated Code includes a provision stating that the board should understand the views of the company’s stakeholders and how these have been considered in board discussions and decision-making. The Financial Reporting Council's 2020 annual review of the Code concurred with our experience, that while there was progress, the outcomes of workforce engagement remained conspicuously absent from annual reporting. Key engagement insights early in the initiative highlighted:
Laying the foundations
Benefits of appointing multiple directors to be responsible for workforce engagement and of inviting different directors to advisory forums to ensure comprehensive employee representation. Companies need to tailor employee engagement activity to the size, location, and composition of each company’s workforce to ensure it remains adequate. Off-the-shelf approaches don’t work and it must involve more than a tick-box style staff survey.
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The use of boilerplate language Vague follow-up on employee surveys Lack of specific examples and outcomes of engagement activities; and Limited overall workforce disclosure.
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Acknowledging the upheaval caused by the COVID-19 pandemic emphasised the importance of customised engagement practices. We found that many companies were making significant efforts to focus on employee welfare. However, these efforts often did not translate into robust reporting. We found some companies did leverage technology for real-time employee engagement and set specific targets for director interactions with employees. One company transparently shared how employee feedback revealed areas for improvement in communication and information flow.These examples underscored the importance of detailed and transparent reporting. “Early in the initiative we found that most companies were open, listened to our feedback, and made commitments to improve workforce engagement reporting in the future. But we continue to look for specific examples of employee feedback that have been considered by the board and the resulting outcome.,” says Piotr Kwiatkowski, corporate governance analyst. “We were surprised to hear from some of these companies that we were the first shareholders to directly engage with them on the issue of workforce engagement, with one acknowledging the value of active shareholder dialogue in bringing reporting to life and to understand where improvements can be made,” he says.
Case study: Engagement with the workforce
There are two phases to our engagement with companies on this topic.
Understand best practice Seek to identify and engage with laggards to improve practices and disclosure.
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In Q4 2020, we rolled out phase one alongside, which saw us engage with Essentra, Marshalls, Paragon Banking Group, St. Modwen Properties, and Ocado Group. Results:
Due to the size of its international network, the company appointed two directors responsible for engagement with the workforce. Having both directors present in different geographical locations helps the company to increase the number of workforce engagement meetings, site visits, and gives the employees a more equal opportunity to feed back their views to the board.
The preference was for an advisory forum of employee representatives. The idea is to invite different directors to each forum meeting, in order for the employee representatives to be able to engage with all nonexecutive directors over time.
Prominent workforce-related incidents characterised activities in 2022.
Rio Tinto is a multinational mining group whose external review of its workplace culture uncovered systemic issues such as bullying, sexism, and racism. Our engagement with Rio Tinto’s chief people officer and chair called for not only the need for significant improvements in its corporate culture, but for executive bonuses to be linked to delivering the actions the review called for. We abstained from voting on the company's remuneration report in 2024 (it was passed by 94.3%). This reflected our recognition of progress while emphasising that we still need to see a rigorous assessment of safe and inclusive facilities. In our view, the proposed pay outcomes did not sufficiently reflect some of the remaining challenges that the company continues to face in this area. We welcomed the company’s transparency on this issue and continued to engage once the progress report was published in November 2024. Looking at the results of the progress review released in 2024, the company is making some improvements. However, some concerns remain, especially around sexual harassment, bullying and racism. Women’s representation across Rio Tinto globally seems to be increasing. There is some level of optimism among the employees regarding cultural changes. But the data indicates that it’s mostly from staff who joined the company after the release of the first report, rather than the more tenured employees. This is a point of ongoing dialogue with the company.
British shipping company P&O Ferries’ programme of redundancies with little to no consultation with its employees ahead of redundancy notifications via a pre-recorded video. In contrast, our engagement with DP World, owner of P&O Ferries, following the sudden layoff of nearly 800 seafarers, was less fruitful. Employees and unions were not given prior notice or consulted about the layoffs. The incident was covered widely in the press. We have challenged the company on whether any alternatives were considered, as well as the risk of fines or litigation and wider reputational damage. We also raised potential safety concerns related to the replacement of employees with agency staff, as well as the company’s decision to pay the new staff below minimum wage. Given that during the Covid pandemic the company had benefitted from numerous forms of government support and had paid a dividend to DP World’s shareholders, we questioned how they could justify their actions. The lack of prior notice and consultation with employees, coupled with unsatisfactory responses during our engagement, led us to divest from DP World in our global credit funds.
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In 2020 we commenced a comprehensive initiative to enhance workforce engagement practices across our investee companies.
In 2024 we became signatories to the Workforce Directors Guidance. A coalition led by Railpen and other investors who collectively manage more than £400 billion. The coalition aims to define excellence in workforce engagement and representation. We have subsequently participated in several collective engagement meetings and will continue to collaborate to bring about broader change across sectors – not just isolated improvements within individual companies. “We want to see workforce engagement that translates into meaningful boardroom actions. As we look ahead to the 2025 proxy season, we will be looking for more companies to foster a corporate culture that values employee perspectives and is transparent and accountable in their approach,” says Piotr. Our voting, engagement, research, and advocacy always aims to be pragmatic, reflective of local best practice and evolving market insights, and focus on the long-term interests of our clients. The actions we take may not always apply to any specific Royal London Asset Management fund or strategy, as each will have different investment objectives. Please check your prospectus for details on specific product objectives.
Collective industry engagement to drive greater change
Essentra
Paragon Banking Group
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Rio Tinto
P&O Ferries
