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Global manager turns to proxies to influence change

ESG

US$429 billion* multi-asset manager Neuberger Berman is ramping up pressure on both sides of capital markets with its NB Votes campaign. The group, which was founded eight decades ago, is adopting a more transparent and potentially powerful approach to ‘engagement’ with the companies in which they invest client’s money.

In a recent paper prepared by their ESG Investing Team, including Jonathan Bailey and Caitlin McSherry, the group outlines their preferences and focus areas for 2021 and beyond. Through their NB Votes initiative, the group is seeking to provide more transparency into their proxy voting intentions throughout the annual meeting season and make their expectations of investee companies clear.

The key driver of this initiative, according to the authors is the fact that ongoing engagement and management of this kind ‘is an important part of creating value for clients. Whilst 2021 is only the second year in which Neuberger will be disclosing their proxy positions well in advance of annual and other meetings, they have already been highly active, engaging with over 30 companies in each year, including Kellogg, Netflix and Facebook among others.

  • The opaque world of proxy voting has gained attention in Australian markets this week with the Federal Government flagging changes to the powerful but secretive lobby groups, hence Neuberger’s focus on transparency is likely a welcome approach. Whilst the primary focus of being more active in their voting is to deliver better outcomes for investors, they also hope to encourage and gain interest from other asset managers to follow their lead.

    In 2021, the group is “seeking to enhance and expand our efforts to include more votes on a wider range of topics, from diversity and gender pay parity to human rights to climate disclosure, all with the goal of providing insights into our expectations and decision-making.” More specifically, they are targeting four real outcomes from the NB Votes process.

    The first is to improve transparency for their clients and the company to whom they are providing capital, whilst at the same time demonstrating their nuanced judgement of important issues. As primarily active managers the group cannot take simple positions on complex issues, but must be as active in their proxy voting as they are in portfolio management. They also hope to improve company practices but also clarify their expectations to other companies that may also be seeking capital. Finally, they hope to encourage others managers, both large and small, to adopt the same practice to challenge the status quo and seek better outcomes.

    Neuberger has highlighted three key areas of focus for their fighting, as they choose their battles; diversity, climate change and political spending. In the first instance they want ‘more disclosure of diversity at the board level and across the workforce, as well as information on pay equity’. Climate change will remain ‘front and center’ in their voting, noting that ‘despite the pandemic many companies have continued to make net-zero commitments’ with Neuberger focusing on ensuring progress is being reported and accountability well structured. Finally, political spending is expected to see ‘daylight’ after the Capitol riot in January shone the light on those companies supporting various parts of the political spectrum.

    The authors left investors with two recently examples the first being the decision to signal “our voting opposition to a compensation package at Amerisource Bergen, the wholesale drug company, where we believed executive pay was excessively tied to pro-forma changes to operating results and there was a lack of shareholder-aligned incentive metrics.” The second, “we supported an emissions reduction plan put forth by Ferrovial, a Spanish infrastructure company; however, we warned that submitting its climate strategy to an annual shareholder vote would be an inefficient way to gather shareholder views on the topic.”

    The NB Votes initiative has clearly placed Neuberger among the global ESG leaders in the asset management industry as the unfortunate ‘greenwashing’ trend looks set to continue elsewhere. They conclude by offering a short disclaimer, noting that whilst “proxy voting is a central element of engagement and ESG investing generally…..it is just one element, along with research, process, data and broader outreach, which converge to potentially identify material drivers of performance and impact.”

    *Source: Neuberger Berman, as of 3/31/2021.


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