Milford Asset Management: Engagement Activity and Outcomes - 30 April 2021
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Milford Asset Management: Engagement Activity and Outcomes 30 April 2021
The Milford investment team have always
looked for the best companies. It is clear to us
the best companies are those committed to
sustainable practices and are the businesses
that, over time, will deliver better operational
outcomes, stronger financial performance and
ultimately, higher shareholder returns.
If we decide a company is not operating in
a sustainable way, we affect positive change
by engaging with management and holding
boards to account. By using our influence as
active managers to improve the sustainability
of the business model, we know we are also
increasing a company’s potential to achieve
long-term financial success.
None of the engagement activities summarised
in this document, or the outcomes achieved,
would have been possible had Milford not
owned shares in these businesses.
2
Culture and
Heritage
Protections
3
Culture and Heritage
Protections
Rio Tinto & the
Juukan Gorge
On 24th May 2020, Rio Tinto detonated explosives in the
Juukan Gorge area of Pilbara in Western Australia and, in
the process, destroyed indigenous ancient rock shelters
dating back more than 46,000 years.
While the Puutu Kunti Kurrama and Pinikura On 11th Sept 2020, RIO announced that its
traditional owners acknowledge Rio Tinto Group CEO, CEO of Iron Ore & Group Executive
complied with its legal obligations, they were Corporate Relations were leaving the company.
understandably devastated by the destruction On 3rd March 2021, RIO announced that
of such a culturally significant heritage site. Chairman Simon Thompson would not seek
re-election as a non-executive director at the
The Milford investment team concluded Rio 2022 AGMs, and Michael L’Estrange – the non-
Tinto’s early response was inadequate and executive director who led the internal inquiry
amounted to a cultural failure, rather than into the destruction – would retire from the
simply a shortcoming relating to policy or board at the conclusion of the 2021 AGMs.
execution. In a letter to the board, we expressed
our expectation that heritage standards be As a result of collective stakeholder
immediately strengthened across all divisions. engagement, including a Parliamentary
And that executive remuneration be negatively Inquiry, RIO has gone on to make significant
impacted to reflect the severity of the breach of commitments regarding heritage protections.
the company’s social licence to operate.
At this time, Milford began recording
engagement on Cultural issues separately from
discussions about the Environment, Social issues
and Governance.
4
Culture and Heritage
Protections
BHP AGM Heritage
Resolutions
The devastation caused by Rio Tinto is not an isolated
incident. There is the potential for such an issue to be
repeated by other mining companies, including BHP.
At BHP’s October 2020 AGM, the Australasian Strait Islander organisations and leaders from
Centre for Corporate Responsibility (ACCR) filed across Australia. From those discussions, BHP
a number of shareholder resolutions. ACCR is a committed to extensive changes. The resolutions
research and shareholder advocacy organisation were subsequently withdrawn by ACCR.
focusing on how Australian companies are
managing a range of environmental, social and Milford recognises the issue of heritage
governance issues. The resolution filed with BHP protection extends to mining companies outside
requested a moratorium on activities that would of Australia too. To that end, we co-signed a
destroy cultural heritage sites until relevant laws letter addressed to the world’s largest mining
are strengthened. companies, outlining our expectations that they
improve their processes and standards to ensure
BHP initially urged shareholders to vote events such as the Juukan Gorge blast are not
against the resolution, arguing it would impose repeated. The letter stated that disclosures are
unilateral action on Traditional Owners through currently inadequate and, as investors, we want
its impact on existing agreements. However, greater visibility of company management of
the Traditional Owners in question supported cultural heritage and Indigenous relations.
ACCR’s resolution. Milford was also supportive.
BHP then held discussions with The First Nations
Heritage Protection Alliance. The Alliance is a
coalition of more than 20 Aboriginal and Torres
5
Climate
Change
6Climate Change
Advocating for
Climate Change
Financial
Disclosures
On 15th Sept 2020, James Shaw, the Minister for Climate
Change, announced mandatory climate change reporting
requirements for listed entities and financial intermediaries
in New Zealand.
In an earlier submission to the Government, We also believe “what gets measured, gets
Milford advocated for these mandatory managed”. Requiring management teams and
disclosures. The disclosures will be based on boards to evaluate and publish their company’s
the internationally recognised Task Force on climate related risks and opportunities will
Climate-related Financial Disclosures (TCFD) inevitably lead to greater urgency and increased
framework. strategic focus.
When analysing a company, taking into account Improving climate change transparency also
all available information, both financial and facilitates investor engagement. This is one of
non-financial, is simply what good investors do. Milford’s key priorities as active managers and
We seek to understand a company’s exposure to sustainable investors.
climate change as we would any other long-term
business risk or opportunity.
7Governance
8Governance
Advocating for
investor access
& board
accountability
Government-mandated lockdowns and social distancing
restrictions during the COVID crisis presented exceptional
challenges. The Australian Treasury enacted temporary
reforms to the Corporations Act 2001, allowing companies
to continue to hold AGMs during this time.
One measure was to allow for virtual AGMs. In model, permitting both virtual and in-person
October 2020, Treasury proposed making these access. This would improve access for investors
reforms permanent. not able to attend in-person, while preserving
existing shareholder rights and maintaining
Milford advocated against virtual-only AGMs. board accountability to all investors.
We believe that permanently removing the
in-person meeting requirement will diminish
shareholder rights and materially reduce board
accountability. We supported a hybrid meeting
9Governance
Newcrest
Mining Resolution
Withdrawn
At their 2020 AGM, Newcrest Mining proposed a
number of amendments to its constitution.
One was to allow the board to determine the Milford’s submission to the Australian Treasury
time, place and manner of general meetings. recognised it is primarily the job of regulators
While the company’s intention was to give to provide safeguards for investors. And it is
shareholders a reasonable opportunity to not enough that companies meet only minimum
participate, the amendment could allow the legal obligations. We expect companies to work
company to conduct virtual-only meetings going towards best practice governance standards.
forward. Milford voted against this resolution
and informed the company of our decision.
Ultimately, through lack of shareholder support,
Newcrest Mining withdrew the resolution.
10Governance
Board
Composition &
Remuneration
Milford engage with company boards through meetings,
formal letters and proxy voting, to express our views
regarding best practice board composition. This includes
matters such as remuneration structure, independence,
relevant experience and tenure.
We recognise COVID increased the virtual In calendar year 2020, Milford voted on 1823
connectivity of our world. This has expanded resolutions across 207 meetings. We supported
the effective pool of potential directors for 91% of resolutions, and either withheld votes,
New Zealand companies, to include candidates or voted against, on the remaining 9%. For
living overseas. We have encouraged companies resolutions put forward by management, we
to consider this in their board composition and voted against management in 6% of cases.
renewal plans. In addition, we have encouraged For resolutions put forward by shareholders,
hybrid shareholder meetings, in line with our we voted against management in 51% of cases.
submission to the Australian Treasury. To see Milford’s most recent proxy voting
statistics, please click here.
11Social
Harm
12Social Harm
Dan Murphy’s in the
Northern Territory
Since 2018, Endeavour Group has been pursuing
regulatory approval of a large Dan Murphy’s liquor store in
the Northern Territory. Milford was concerned about the
lack of genuine consultation with local communities by
Endeavour, ahead of the proposed store.
As the destruction of the Heritage sites at On the 29th of April 2021, Woolworths
Juukan Gorge by Rio Tinto shows, there announced that the Dan Murphy’s
are consequences for communities, development in Darwin would not go ahead,
companies and investors when relations in line with the final recommendation of the
with communities are not respectfully and independent review panel. Woolworths’
appropriately managed. Group Chairman, Gordon Cairns,
acknowledged the review’s findings that the
Milford met with the company to express company had not done enough to live up
our concerns. We urged them to focus to best practice engagement with a range
on strengthening their internal processes of Aboriginal and Torres Strait Islander
and extend the terms of reference of the communities and organisations.
independent review they had recently
announced. We followed up this meeting
with a letter to both the Woolworths and
Endeavour boards.
13Social Harm
A Modern Slavery Act in
New Zealand
Modern Slavery comes in many forms. Extreme forms,
such as political prisoners and human trafficking attract
the most attention. But modern slavery also covers far
more common behaviours like forced overtime, unsafe
working conditions and being paid below minimum wage.
Unsustainable businesses do not make good However, there is currently no framework in
investments. If vulnerable workers are being New Zealand prompting or requiring companies
overworked or underpaid, or inputs are being to audit their supply chain or disclose their
sourced at unsustainably low prices, the ethical sourcing policies. “What gets measured,
company’s expenses are lower than they should gets managed” is as true for climate change
be, and reported profits are artificially inflated. disclosures as it is for modern slavery and
Margins and returns are likely to fall as costs are supply chain management. Requiring companies
inevitably forced to rise to appropriate levels. to talk publicly about what they are or are
not doing to address modern slavery will
Further, quality businesses with strong undoubtedly lead to them doing more.
competitive positions do not tolerate
exploitation for the sake of short-term profits. To this end, Milford recently signed an open
These companies have other levers to pull, such letter to the New Zealand Government to
as pricing power, innovation and productivity advocate for implementation of a Modern
improvements. If profitability is so low and Slavery Act.
a company’s competitive position is so
challenged, that management are prepared to
compromise their workforce or supply chain, the
business is not an attractive investment in the
first place.
14Policy updated April 2021
15You can also read
