Views expressed are those of the author and are subject to change. Other teams may hold different views and make different investment decisions. For professional or institutional investors only.

The US Securities and Exchange Commission (SEC) is proposing new rules that may seem sensible at face value but, as written, may have unintended consequences. For proxy advisory firms, the rules would introduce new conflict-of-interest disclosure, company pre-review of recommendations before publication to clients, and anti-fraud liability for failing to disclose certain information. For shareholder proposals, the rules would raise filers’ ownership requirements and increase the thresholds of shareholder support required to resubmit proposals in successive years.

Our Investment Stewardship Committee establishes a custom voting policy to help us achieve our clients’ investment objectives, defining locally contextualized practices that we believe promote long-term shareholder value. We engage a proxy advisor to map company practices to this policy, an important function during the busy proxy voting season when clients give us discretion to vote on their behalf. This service enables us to identify cases where we need to conduct more in-depth analysis, engage further with companies for clarification, and share our feedback directly rather than rely on the vote decision alone. The pre-review proposals will likely condense the voting timeframe, unintentionally impeding our ability to achieve our stewardship outcomes, which aim to unlock value and fulfill our fiduciary duty to clients.

The shareholder proposal rules may hamper investors’ ability to align vote decisions with engagement dialogue. Many proposals encourage companies to enhance transparency and oversight or meet long-term targets to ensure business-model sustainability and protect value for shareholders. We use votes on shareholder proposals as an escalation tool when a company is unresponsive to engagement over a multiyear period, acknowledging that changes take time to implement. If applied as proposed, the rule is likely to weaken this tool, as a repeat shareholder proposal could be excluded from the ballot before we have the opportunity to assess responsiveness and cast our vote accordingly. We believe this may lessen management accountability to shareholders on material issues.

Wellington is sharing our views on the proposed rules with the SEC with the aim of preventing these adverse impacts. On behalf of our clients, we remain committed to supporting shareholder rights and building constructive relationships between companies and shareholders.

4Q19 Firmwide proxy-voting results

Proxy voting can be a powerful tool that we leverage when engaging with company management teams. Our team examines each proxy proposal and votes against issues that we believe would have a negative effect on shareholder rights or on the current or future market value of the company’s securities. Figure 1 shows the breakdown of the past quarter’s global proxy voting.

Figure 1

Wellington Management’s 4Q19 proxy-voting results

4Q19 ESG engagement activity

In the fourth quarter of 2019, our team engaged with 121 portfolio companies in 16 countries (Figure 2) on ESG topics ranging from board composition and succession planning to carbon emissions and climate resiliency. See the list of our engagement discussions for the quarter below.

Figure 2

Company engagements by Wellington Management’s ESG Team in 4Q19

4Q19 ESG engagement activity by company

Communication services

Millicom Intl Cell

New York Times Co

Cinemark Holdings In

Comcast Corp

Consumer discretionary

Home Depot Inc/The

Honda Motor Co Ltd

Monro Inc

Mgm Resorts Intl

Yamaha Motor Co Ltd

Consumer staples

Walmart Inc

Pernod Ricard SA

Carlsberg AS

Sysco Corp

Seven & I Holdings C

Mondelez Intl Inc

Nestle SA

Hershey Co / The

Unilever PLC


Noble Energy Inc

EnCana Corp

Targa Resources Corp


Repsol SA

Halliburton Co

Chevron Corp

Canadian Natural Res

Inpex Corp

Suncor Energy Inc


Citigroup Inc

Wells Fargo & Co

Chubb Ltd

Standard Chartered

Unum Group

American Intl Group

Avolon Hldgs Funding

Societe Generale SA

ING Groep NV

Reinsurance Grp Amer

Firstrand Ltd

BlackRock Inc

Hartford Finl Svcs

Prudential PLC

Metro Bank PLC

Swiss Re AG

American Express Co

Health care

Zimmer Biomet Hldgs

AstraZeneca PLC

Hologic Inc

Humana Inc

Alkermes PLC

Smith & Nephew PLC

Novartis AG

Pfizer Inc

Incyte Corp

Koninklijke Philips

Edwards Lifesciences

Seattle Genetics Inc

Anthem Inc

Bristol-Myers Squibb

Enzo Biochem


Norfolk Southern

Lyft Inc

Republic Svcs Inc

Chart Industries Inc


Wolters Kluwer


Boeing Co

Lockheed Martin Corp

Schneider Electric

nVent Electric PLC

Equifax Inc

Cie de Saint-Gobain

Deutsche Lufthansa

SMC Corp

Wizz Air Hldgs Plc

Northrop Grumman Crp

Caterpillar Inc

Daifuku Co Ltd

Primoris Services Co

Uber Technologies In

Information technology

HubSpot Inc

HP Inc

IBM Corp

Accenture PLC

Ciena Corp

Analog Devices Inc

Yamaha Motor

Endava PLC

Itron Inc

PayPal Holdings Inc

Temenos AG

Lattice Semicondctr


BHP Group Ltd

PPG Industries Inc

Impala Platinum Hldg

CF Industries Hldgs

Nampak Ltd

Anglo American PLC


Freeport-McMoRan Inc

Celanese Corp

Real estate

LEG Immobilien AG

Game and Leis Prop

Sun Communities Inc

Goodman Group

NexPoint Residential

Equinix Inc


AES Corp

NRG Energy Inc

Duke Energy Corp

Edison Intl

American Elec Power

Sempra Energy

Exelon Corporation

Eversource Energy


E = environmental, S = social, and G = corporate governance discussions. The companies shown
comprise a complete list of all engagement meetings in which Wellington Management’s ESG Team
participated in 4Q19. These companies are not representative of all of the securities purchased, sold, or
recommended for clients. It should not be assumed that an investment in the companies listed has been
or will be profitable. Actual holdings will vary for each client and there is no guarantee that a particular
client’s account will hold any or all of the companies shown. This material is not intended to constitute
investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities.

4Q19 ESG engagement examples

Financial services company

We spoke with investor relations representatives of a South African financial services company about two climate-focused shareholder proposals on the ballot at their upcoming annual general meeting.

Key discussion topics
Climate change — Transition risks

The company received two climate-change shareholder proposals. The first, to establish a comprehensive fossil-fuel lending policy, was supported by management as a complement to its existing policies and passed with unanimous support. The second proposal, to publish a report on the company’s exposure to climate-related risks, received solid support. The representatives acknowledged that, although they embrace the latter proposal in principle, the resolution’s tight disclosure deadline led them to oppose it, as they felt it left insufficient time to file a complete report. We encouraged them to be transparent about work in progress, particularly suggesting that they provide sector-specific case studies showing how their analytics and risk management integrate climate considerations into their material business exposure. We also shared our expectation that the report cover goals and barriers to implementation. For example, the South African government’s newly updated Integrated Resource Plan outlines continued reliance on coal and gas through 2030, limiting the bank’s ability to transition its lending away from the traditional energy sector.

It was clear that climate change has become a strategic consideration at the company. Management has established an internal working group that includes members of its risk, credit, and treasury teams. The company is pursuing best practices, including joining working groups from the United Nations Environment Programme Finance Initiative and the Banking Association South Africa, with the goals of improving scenario analysis comparability across banks and monitoring competitors’ disclosure for practices to adopt.

Climate change — Physical risks
Given physical climate risks like drought and chronic water scarcity afflicting key markets, we reiterated the importance of including an assessment of physical risks. We shared our Physical Risks of Climate Change (P-ROCC) framework, which the company is sharing with the internal working group for consideration.

We are impressed with the company’s commitment to improving transparency around its climate-risk assessment process and its overall responsiveness to stakeholders. We view the decision to support one shareholder proposal as a signal of the company’s current progress. We are pleased to see functional representatives involved, as climate change is more likely to become part of regular risk management and strategic planning. This engagement reinforced the need to consider energy policies in each of a company’s countries of operation when determining feasibility of strategic changes and measuring progress. We supported both proposals, in line with our voting guidelines.

Airline company

We visited a European airline’s offices to meet with members of the corporate social responsibility team and the chief operations officer. We engaged on the regulatory environment in Europe with respect to climate change, as well as labor management, product safety, and customer experience.

Key discussion topics
Climate change — Transition risks
We discussed climate-related business risks, including the new “flight shaming” trend on social media and the potential for consumers to substitute train travel for air travel, given rumors of broader taxation of short-haul flights in central Europe. Airlines that offer more nonstop and/or long-haul flights will likely be better positioned. Although the company has the least exposure among its competitors to short-haul flights, it has introduced training initiatives to decrease fuel consumption, such as working with air-traffic control to reduce circling at airports. It is also committed to maintaining one of the most modern fleets of any European airline. The company has not yet seen flight shaming negatively impact European customer demand. On the contrary, it intends to capitalize on the growing propensity among central Europeans to travel.

The airline is the most efficient in Europe in CO2 emissions per passenger-kilometer, and it intends to reduce emissions by an additional 30% by 2030. The audit committee oversees this evolution through fleet purchases and nearly 70 efficiency initiatives. Nonetheless, the company acknowledged that as a low-cost carrier, its ability to pass through additional carbon costs is limited compared to legacy airlines. The company noted that some low-cost carriers are considering hedging carbon prices, although that is not a common practice yet.

Labor management
The company faces less labor risk than a major competitor for two reasons: Its labor force is nonunionized, and it operates in countries with flexible labor regulations. We like aspects of the corporate culture. Management emphasizes mutual respect throughout the hierarchy and supports career development through training and internal mobility. All crews are trained at a central location, where they are encouraged to identify and report safety or operational issues. Executives interact with employees directly through site visits and monthly meetings with a crewmember council to address pain points. Dedicated board oversight of culture reinforces the value they place on people management.

Product safety
The company’s stringent auditing measures include pursuing an IATA Operational Safety Audit (IOSA) certification (rare among low-cost carriers in Europe) and conducting audits of airport safety standards, such as lighting and air-traffic control before entering a new market. The company understands that ensuring an environment where crewmembers are not afraid to report issues is an important means of maintaining a strong safety record.

Customer experience
The company monitors customer feedback through questionnaires and a mobile application. Customer-survey results are strongly correlated with on-time performance. EU61, a European Union regulation that requires airlines to compensate customers for delays, is effective at improving customer satisfaction, but it creates a financial burden for the airline. The company is also addressing customer complaints related to its fee structure by enhancing transparency.

This engagement reaffirmed the fact that low-cost carriers are generally more carbon efficient per passenger than legacy airlines. We find this company well positioned, even among low-cost carriers, amid stronger European climate regulations. Corporate culture appears strong, with crewmembers appreciated as essential to business success. From an ESG perspective, we prefer the company to its competitors due to its constructive approach to a variety of regulatory pressures and consumer trends.

Health care equipment company

Our ESG and equity analysts hosted several meetings over the quarter with the company’s remuneration committee chair and newly appointed CEO to discuss a recent change in leadership and approach to executive compensation.

Key discussion topics
Management succession
The company and its outgoing CEO mutually agreed to separate due to tensions over remuneration. This was a bit of a surprise, as the CEO had only been in the role for 18 months.

The new CEO, who has served as a nonexecutive director at the company for almost two years, had long been considered a potential CEO candidate. He has a strong background managing a global medical technology business and is well respected by the rest of the management team, thanks to their collaboration during his tenure on the board. He affirmed his intentions to maintain the same approach to the company’s business development strategy and continue the cultural transformation initiated by the former CEO.

Executive compensation
Prior to the leadership transition, the board had already been considering several changes to its executive pay plan. These include simplifying the annual bonus structure, designating a greater proportion of pay from its long-term incentive plan (LTIP), providing more transparency and rigor toward LTIP targets, and lowering pension opportunities to align with the UK market. The new CEO fully supports the modified plan, and the board is reassured that pay is not the most important driver of his engagement. While the board had not solicited feedback from other executives, it ensured us that its pay for other named executive officers is competitive for the region, and that most of the key executives have made personal commitments to remain at the company.

While the CEO transition was unexpected, we believe it is unlikely to damage company culture or business momentum. We do wonder whether the board should have been more proactive in addressing the known discontent of the prior CEO. Nonetheless, we like that the new CEO, by virtue of his seat on the board, has been involved with and supportive of the strategic and cultural changes implemented by the outgoing CEO. Overall, we find him to be highly credible, with relevant experience and a commitment to the company’s long-term strength. This is an example of the talent retention risk facing companies operating globally, given the divergence of executive pay levels and structure between Europe and the US.

Please see the important disclosure page for more information.


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