The Power of Proxy
If 2021 was any indication of what the future holds, we anticipate 2022 to be another eventful one for environmental and social (E&S) proposals at annual general meetings. Last year saw a record number of E&S proposals filed and receive majority support at companies, across markets and sectors. Human capital and climate-related proposals topped the list in terms of the types of proposals filed by shareholders, and in its debut year, management-supported "Say on Climate" proposals successfully passed at every company where it appeared on the ballot.
Looking ahead, we see the potential to be another record-setting year for E&S issues on the proxy. The combination of urgency to address the climate crisis and social injustice, strengthening shareholder activism around such issues, as well as a shifting regulatory landscape make 2022 ripe for an active and insightful proxy voting season.
The growing importance of proxy voting
For TD Asset Management Inc. (TDAM), we see proxy voting as both a right and a responsibility. As active owners, it is a core component of our sustainable investing strategy, alongside engagement and the integration of environmental, social and governance (ESG) factors into the investment process. Our recently updated proxy voting guidelines reflect a principles-based approach to good corporate governance and evolving E&S matters. Some of the notable summary highlights include:
Board Diversity: TDAM expects boards to consider diverse perspectives in its composition and structure and believe that a board (and a company's workforce) should be reflective of its customer base and the societies in which it operates. Boards should seek inclusion of all forms of diversity when they recruit new members, including, but not limited to, people of all genders, people of colour, ethnic minorities, as well as members of the LGBTQ2+ community, and persons with disabilities. TDAM takes a rules-based approach to our proxy voting on board diversity. We will generally vote against or withhold support for relevant directors if less than 30% of the board is represented by women or if there are no apparent racially or ethnically diverse members.
Executive Compensation: TDAM expects compensation packages for the CEO and other management team members to be aligned with the long-term interests of shareholders. Our evaluation of executive compensation proposals, including Management Say-on-Pay resolutions, is done on a case-by-case basis, focusing on the link between pay and performance and plan transparency. We also consider the inclusion of measurable ESG goals in performance metrics to be best practice, and further, expect the compensation committee to consider the broader environment – i.e., the experience of shareholders, its workforce and general public perception, when designing executive compensation packages.
Climate Change: TDAM believes the board should have oversight and accountability of a company's climate action plans. We expect companies to have, at minimum, basic disclosures on their climate strategy and governance, and we strongly encourage disclosure aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) as best practice. We expect high-emitting companies to further provide detailed disclosures on both physical and transition risks, carry out scenario analysis, and set climate reduction targets in line with the 2015 Paris Agreement and the path towards net zero by 2050.
While the above expectations form the foundation of how we assess a company's climate change strategy, we will review and vote on climate proposals on a case-by-case basis, with a careful consideration of relevancy, materiality, cost, and current climate performance.
TDAM's Approach to Say on Climate TDAM will vote on say on climate proposals – either proposed by management or requested of management by shareholders – on a case-by-case basis. TDAM will evaluate the company's climate plan using our evaluation framework. If the plan does not meet our criteria, we may vote against the proposal if put forward by management or support a shareholder proposal requesting the company hold an advisory vote on climate at the next annual general meeting.
When evaluating a climate plan, we will rely primarily on our own due diligence. This includes careful consideration of management and shareholder rationales for supporting or not supporting the proposal, as well as any robust analysis from relevant external research such as that provided by our proxy advisory consultant. Materiality, the strength of the company's disclosures, inclusion of science-based targets, and credible plans to achieve the targets, are key elements of how TDAM will evaluate a climate plan.
Human Rights: TDAM believes the protection of human rights should be a core policy to companies – applicable to home markets and abroad. Too often, we see allegations of human rights abuses across corporate supply chains, such as child labour and forced labour. While unethical and reprehensible on their own, human rights concerns in a company’s operations – whether it be in the supply chain, in-house labour or the local communities – are a major business risk. TDAM will generally support proposals for companies to adopt human rights policies aligned with internationally recognized codes and norms, such as the United Nations Declaration on Human Rights. TDAM will typically support proposals calling for greater transparency on a company’s supply chain labour practices, and human rights due diligence process and performance.
Well positioned for the new season ahead
While 2022 is anticipated to be another busy and interesting year for proxy voting, we believe that the infrastructure we've built – from the guidelines that anchor our vote decisions to the policies and internal procedures established to ensure smooth execution of voting activities – position TDAM well for the proxy season ahead. For more information on proxy voting at TDAM please visit our proxy voting policy page. Proxy Voting Records can also be found on TDAM's Sustainable Investing Page.
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