SHAREHOLDER ENGAGEMENT REPORT - VOTING RIGHTS EXERCICE AND ENGAGEMENT LYXOR International Asset Management
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SHAREHOLDER ENGAGEMENT REPORT
VOTING RIGHTS EXERCICE AND ENGAGEMENT
LYXOR International Asset Management
Financial Year 2020
EDITORIAL
In 2020, the Covid-19 crisis added to the global climate emergency and
highlighted the close links between biodiversity, climate, health and society.
Let’s not make this year the year of fatalism, but the year of awareness and a
"climate awakening". The world of finance must take greater responsibility in
meeting the challenges we face and act collectively to limit the rise in
temperature to below 2°C.
As an engaged and responsible asset manager and shareholder, LYXOR has the
ability to influence the companies in which we invest and redirect capital
towards the development of a low carbon economy. We are convinced that
responsible investment creates long-term value for society and shareholders.
Listening to our clients, who are increasingly concerned by the ecological
transition, and based on our fiduciary responsibility, LYXOR uses its power as a
Florent Deixonne, shareholder to prepare a more sustainable future and to adapt to the
Head of Socially challenges of an ever-changing environment.
Responsible Investments
Our shareholder engagement is evidenced in concrete terms in three key figures for 2020: €14.7 billion of
assets voted on, €2.6 billion of assets under management with climate-linked engagement and 19% of votes
against at general meetings, testifying to our responsibility as shareholders.
In 2020, we strengthened our dialogue with companies on climate change. As part of the drive to increase
global awareness of this sensitive issue, LYXOR has engaged with companies on this necessary transformation,
through initiatives such as the Climate Action 100+, CDP and our three thematic engagement campaigns
(plastics and circular economy, localised water management, responsible cleantech) which have gained
momentum this year. Furthermore, the extension of our engagement in Japan enabled us to contribute to the
drafting of the first climate resolution at a Japanese company, Mizuho.
The climate will continue to be our focus in the new year 2021. In the run-up to COP 26 in Glasgow in
November, we will continue to engage proactively with companies on issues as important as their alignment
with the Paris Agreement, their commitment to achieving carbon neutrality and their integration of climate
change issues at the highest management level. We will continue to encourage companies to direct their
strategic development towards serving society.
We are pleased to present our shareholder engagement report for 2020.
2
CONTENTS
1. Engagement policy 7
Engagement relating to general meetings 10
Engagement relating to environmental, social and
governance issues 13
Engagement relating to climate 16
2. Exercise of voting rights 28
General principles 29
Voting process 30
Overview of votes at general meetings 31
Background and voting scope 31
Analysis of the general meetings season 33
Analysis of votes against 36
Shareholders’ proposals 42
Votes derogating from the voting policy 49
Conflict of interest management 51
Appendices 52
3
KEY FIGURES*
€14.7
A+ 54%
Bn
UN-PRI1 Rating « Active Assets voted on Shares of assets voted on2
Ownership », 2020
447 5,562 19%
Number of general meetings Number of resolutions Average opposition rate at
voted at analysed general meetings
€10.2 €2.6
78
Bn Bn
Assets under engagement Assets under climate Number of companies met
engagement during the course of our
engagement
*The figures presented below correspond to the entire LYXOR Group composed of Lyxor International Asset
Management, Lyxor Asset Management and Lyxor Funds Solutions.
1 United Nations – Principles for Responsible Investment
4
2 Based on equity-type underlying within direct replication investment vehicles. The funds where the exercise of the
voting rights are delegated to an external manager are not taken into account.
INTRODUCTION
LYXOR International Asset Management SAS This policy is reflected in two complementary areas:
(hereafter referred to as “LYXOR”) is a fully owned • An engagement policy showing how LYXOR
subsidiary of Societe Generale Group. This interacts with the companies held in its
document outlines how LYXOR, on behalf of its portfolios;
clients, exercises its role as an engaged and • A voting policy listing the main principles of
responsible shareholder. corporate governance to which the asset
management company adheres and the way
Convinced of the environmental, social and in which these principles are applied when
governance challenges, LYXOR has defined – as an exercising LYXOR’s voting rights at general
extension of its responsible investor approach and meetings.
in line with its adherence to the United Nations
Principles for Responsible Investment (PRI) – a LYXOR’s voting and engagement policy for the 2020
shareholder engagement policy attached to the financial year is available on the website of the
securities held by the CISs (AIFs and UCITS) it asset management company, at the following
manages. address: https://www.lyxor.com/en/engagement-
and-voting-policy-liam-2021
In accordance with the regulation of Articles L533-22 and R533-16 of the French Monetary and Financial
Code, LYXOR reports in this document the conditions under which it applied its voting and engagement
policy. This reports covers the 2020 financial year.
LYXOR’S 6 COMMITMENTS AS A SIGNATORY OF THE PRI
1 2 3 4 5 6
We will We will be We will seek We will We will work We will each
incorporate ESG active owners appropriate promote together to report on our
issues into and incorporate disclosure on acceptance and enhance our activities and
investment ESG issues into ESG issues by implementation effectiveness in progress
analysis and our ownership the entities in of the Principles implementing towards
decision-making policies and which we within the the Principles. implementing
processes. practices. invest. investment the Principles.
industry.
5
THE GOVERNANCE COMMITTEE
An internal governance committee oversees the implementation of the LYXOR’s voting and engagement
policy. This committee is composed of the following members:
Edouard Auché Florence Barjou Florent Deixonne Raphaël Dieterlin Marc Duval
Secretary Chief Investment Head of Socially Head of ETF & Head of Private
General Officer Responsible Index Product Wealth
Investments Strategy Investments
Marc Noël Philippe Rémy Paul Marouzé Déborah Yomtob
Head of Legal Chief SRI Analyst SRI Analyst
Affairs Compliance
Officer
In 2020, the Governance Committee met three times with an attendance rate of 88%. During these three
meetings, the following matters were discussed :
• Analysis of priority points of attention for the 2020 season
• Analysis of the 2020 LYXOR’s engagement campaigns
• Analysis of the 2020 voting season
• Validation of the 2021 voting and engagement policy
3 88%
Governance Committee meetings in Member attendance rate of the
2020 Governance Committee meetings
6
ENGAGEMENT
POLICY
7
GENERAL PRINCIPES
Convinced that a company’s performance is not based solely on its financial performance, LYXOR now
expects the companies in which it invests to be transparent and to take the extra financial issues they face
into account. Taking these environmental, social, societal and governance issues into account is beneficial to
the long-term performance of companies and therefore in the long-term interest of investors.
In order to promote best practices in this area, LYXOR has thus defined an engagement policy that is
structured around three axes:
• Engagement relating to general meetings
• Engagement relating to environmental, social and governance issues
• Engagement relating to climate
2020 ACTIVITY
In 2020, the Socially Responsible
Investments team of LYXOR had the
opportunity to conduct 118 engagement
campaigns (+80%) with 78 international
companies.
Evolution of the application of the
engagement policy
118
78
65
36 41
32
Engagement campaigns Companies targetted
by an engagement
campaign
2018 2019 2020
8
Breakdown of engagement campaigns by theme
Climate Action 100+
2%
Plastics and
circular economy
9%
Localized water
management
3% ESG
41%
Corporate
governance and
general meeting
45%
Breakdown of companies met by geography
Other countries Belgium
USA 4% 2%
2%
United Kingdom
2%
Spain
12%
Netherlands France
5% 47%
Luxembourg
2%
Japan Italy
2% 5%
Germany
17%
9
ENGAGEMENT RELATING TO GENERAL
MEETINGS
Background
As a representative of the CIS it manages, LYXOR Outside the general meeting period, LYXOR
undertakes to exercise the voting rights attached promotes regular dialogue with companies on
to the shares held by these CIS in order to corporate governance issues such as changes in
promote best corporate governance practices (cf. the composition of the Board of Directors* and its
Part II – Voting right exercise). In order to do so, committees, succession plans, the role and
LYXOR uses its influence before general meetings functions of the Lead Independent Director,
to initiate a constructive dialogue with companies changes in the remuneration policy, etc.
and enrich the analytical work carried out internally
by LYXOR.
2020 Activity
Engagement prior to general meetings is a bilateral dialogue where LYXOR presents its voting principles and
the issuer presents the various points to be discussed at the general meeting. These discussions allow us to
discuss the content of the proposed resolutions on the agenda of the general meetings, to ensure that they
are aligned with shareholder interests and that they comply with our governance principles.
The issuer, which will have discussed with several of its shareholders, will have formed a fairly broad view of
their voting intentions and will thus be able – if necessary – to review the content of its resolutions (be more
explicit, make commitments, review thresholds, etc.) in order to align itself with investors’ expectations and
best practices in place.
In some cases, these exchanges made it possible to clarify certain situations and thus support the resolutions
proposed by the management (cf. Part II – Voting right exercise).
Breakdown of categories of persons met
Executive Officer Lead Independent
1% Directors
3%
Others
15%
Legal department /
Sustainability / CSR Corporate law
26% 5%
Board Secretary
3% Chairman of the board
Investor relations 3%
39%
HR / Compensation
5%
* « Board » may designate the Board of Directors or the Supervisory Board according to the 10
structure of the company.The development of this shareholder dialogue has thus resulted in direct relations between LYXOR and
members of the Board of Directors or Supervisory Board in addition to the companies’ investor relations
officers. Members of Boards of Directors are increasingly available for discussions with LYXOR, aware of the
importance of this bilateral dialogue and the influence that investors can have when voting. Accordingly,
during the 26 engagement campaigns prior to general meetings conducted in 2020, LYXOR had the
opportunity to hold discussions with 11 Chairmen of the Board, 4 Chairmen of the compensation
committee, 3 Lead Independent Directors and 3 Executive Directors.
Among the various topics addressed during these campaigns, the subject of compensation comes up the
most frequently, no doubt because of the growing regulatory developments on the subject, notably the
European directive SRD II. LYXOR expects companies to be transparent about their compensation policy and
to disclose the mechanisms used for granting variable remuneration.
Breakdown of themes addressed during engagement campaigns dedicated
to general meetings
Board organisation Lead Independent Director
1% function
1%
Others
9%
Board composition
21%
ESG
27%
Compensation
Shareholding 28%
structure
3%
Dividend
2% Strategy
Auditors
6% 2%
The question of extra-financial issues is the second most discussed theme, showing the increasing
integration of these issues at the highest level of management within companies. Finally, the issue
of the Board composition and how it operates comes up very regularly. As a representative of many
shareholders, LYXOR votes on the appointment and renewal of the members of the Board of
Directors or Supervisory Board. In this respect, questions may be raised about the choice of
candidates, particularly in terms of the skills brought to the Board, the diversity of members or
their availability. Exchanges between LYXOR and issuers enable better visibility on the choices of
the Board.
11In addition to discussions with the issuer, the engagements dedicated to general meetings make it possible
to initiate dialogue between LYXOR and other stakeholders. Indeed, this 2020 season was marked by a series
of activist campaigns that have a direct impact on companies’ general meetings. Among the various cases of
activism identified in 2020 in Europe, LYXOR was solicited at the Unibail-Rodamco-Westfield general
meeting. As the agenda of the general meeting was modified at the initiative of shareholders, LYXOR talked
to the various stakeholders in order to understand the arguments of each party and position itself in the
best interest of the company and therefore of its shareholders (cf. Part II – Voting right exercise).
Finally, throughout the general meeting season, LYXOR, in line with its role as a committed and responsible
shareholder, reinforced its proactive communication with issuers when opposing to at least one of the
resolutions submitted to the vote was pre-recorded. Thus, more than 230 alerts were sent by LYXOR during
the 2020 general meetings season to inform companies of negative votes.
€6.5
Bn
Share of LYXOR’S AUM under
engagement related to general
meetings
We are convinced that investors can be real players in the energy
transition through increased dialogue and a demanding voting
policy in line with a more sustainable world.
Paul Marouzé,
Socially Responsible Investments Analyst
12ENGAGEMENT RELATING TO
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE ISSUES
Background
Taking into account environmental, social and governance issues is at the heart of LYXOR’s responsible
investor strategy. Discussing with companies in order to understand how they manage extra financial risks
and how they seize the opportunities associated with them is essential. LYXOR therefore considers that it is
the Board’s responsibility to oversee the definition of the company’s extra-financial and climate risks and
opportunities, as well as the strategy implemented by the management with regards to this risk and
opportunity analysis. LYXOR’s objective with this type of engagement is to dialogue with companies to
encourage them to improve their Corporate Social Responsibility (CSR) practices.
2020 Activity
Like engagement prior to general meetings, engagement on environmental, social and governance issues is
beneficial for both the issuer and the shareholder. According to LYXOR, the main benefit of this type of
engagement is to increase knowledge on these subjects. Every company, depending on its sector,
geographical locations and its value chain, is confronted with different environmental, social and societal
issues. These discussions allow issuers to better understand investors' expectations and sometimes their
positioning in relation to their peers.
€6 Bn
Share of LYXOR’s AUM under
engagement relating to ESG issues
13Prior to each campaign, LYXOR thus identifies the most important issues for each of the companies it is
planning on talking to, then analyses the company’s positioning in relation to its sector and peers, and then
discusses its ambitions and action plans with the company.
In 2020, LYXOR was able to discuss environmental, social and governance issues with 41 companies.
While, as mentioned above, every company faces its own environmental, social and governance risks and
opportunities, certain topics are addressed without regard to the sector, geographic location or size of the
company:
1. Decarbonization targets and action plans: several companies with which LYXOR has been in dialogue
announced in 2020 a commitment to achieve “net zero emissions” by 2030 or 2050 and an alignment with a
1.5 or 2°C scenario. Below are three examples of best practices in various sectors:
Atos is committed to achieving « net zero
emissions » by 2035, setting the most
demanding decarbonization targets in its
sector.
BP also announced in 2020 its ambition to
become a net zero company by 2050 for all its
operations. It is the first oil company to make
such a commitment, setting an example for
other oil and gas companies.
Legrand aims to eliminate its net greenhouse
gas emissions by 2050 on all its activites, in line
with a 1.5°C future.
2. Measures implemented to improve the quality of life at work for employees as well as targets for
reducing inequalities: in addition to targets for the proportion of women on Boards of Directors, the issue of
the place of women on the Executive Committee and among the highest management levels is increasingly
addressed and implemented in a concrete manner with quantifiable and measurable objectives.
20%
Of women at executive level in European and
American companies, compared to only 3% in
Japanese companies3.
3 Gender Equality Global Report & Ranking 2021 143. The role of the company and its impact on one or more of the Sustainable Development Goals defined
by the United Nations: the Covid-19 crisis threatens the progress already made towards achieving the
Sustainable Development Goals, with a particularly worrying impact on Goal 3, which aims to ensure healthy
lives and promote the well-being for all at all ages. None of the 17 SDGs is being spared by this crisis, starting
with the first one, which aims to end poverty in all its forms everywhere. An additional 71 million people are at
risk of falling into extreme poverty in 20204.
These meetings also provided an opportunity to discuss how ESG and climate issues are dealt with at the
highest level of the company, i.e. the Board of Directors or Supervisory Board, in line with the
recommendations of the Task Force on Climate related Financial Disclosures (cf. Part I – Engagement relating
to climate).
Finally, in light of the Covid-19 health crisis, LYXOR also talked to companies about the measures put in place
during the pandemic for employees and society. Questions around the protection of the physical and mental
health of employees, the framework and flexibility of remote working and the support for a stable wage were
also raised in order to ensure the commitment of companies to protect their human capital.
4 https://www.un.org/fr/coronavirus/articles/COVID-19-puts-2030-agenda-to-the-test
15ENGAGEMENT RELATING TO CLIMATE
International politics really took hold of the subject at COP 21 by
adopting the Paris Agreement (2015), which made it possible to
define climate change ambitions at international level: to maintain
the increase in global temperature below 2°C and further efforts to
limit this increase to 1.5°C by 2100. Once the framework is defined,
What are « science-based targets » ? it is necessary that everyone tackles the issue and develops practices
Science-based targets provide a to resolve the problem.
clearly-defined pathway for
companies to reduce greenhouse LYXOR therefore decided to focus its engagement campaigns on the
gas (GHG) emissions, helping issue of climate change, as it is undoubtedly one of the major
prevent the worst impacts of climate challenges of the 21st century. The choice of climate change as a
change and future-proof business major thematic engagement campaign is in line with LYXOR’s socially
growth. Targets are considered responsible investor policy and its climate policy.
science-based if they are in line with
what the latest climate science To date, LYXOR conducts four thematic climate engagement
deems necessary to meet the goals campaigns:
of the Paris Agreement – limiting
- Climate Action 100+
global warming to well-below 2°C
above pre-industrial levels and - Localized water management
pursuing efforts to limit warming to - Plastics and circular economy
1.5°C. Joint initiative of CDP, UN - Responsible Cleantech
Global Compact, World Resources
In addition to the engagement campaigns mentioned above and
Institute (WRI) and WWF, Science
presented in the rest of this report, LYXOR joined the CDP Science-
based Targets identifies and
promotes innovative approaches Based Targets (SBTs) campaign in 2020. The latter proposes that
that enable companies to set GHG investors who are signatories to the CDP (formerly the Carbon
reduction targets that are ambitious Disclosure Projetc) play a key role in the adoption of science-based
and meaningful, but also consistent climate targets in the corporate sector, by collaboratively engaging
with their industry. companies on this matter. This unique campaign builds on CDP’s
tried and tested collective engagement mechanism to accelerate the
adoption of science-based targets in the corporate sector. LYXOR
joined this initiative in 2020 to mitigate climate risks to which LYXOR
funds may be exposed.
LYXOR is signatory of :
16Climate Action 100+
Background
In 2018, LYXOR joined the Climate Action 100+, an international intitiative led by investors to engage
systemically with important greenhouse gas emitters and other companies across the global economy that
have significant opportunities to drive the clean energy transition and help achieve the goals of the Paris
Agreement.
Through this initiative, LYXOR aims to obtain commitments from the Boards of Directors or Supervisory
Boards and/or key executives in order to:
1. Implement a strong governance framework, which clearly states the Board’s responsibility in
addressing climate change risks and opportunities;
2. Take actions to reduce greenhouse gas emissions across the value chain, in line with the Paris
Agreement’s goal of limiting global average temperature increases well below 2°C above pre-
industrial levels and to move, as far as possible, to a 1.5°C trajectory. This implies the ambition to
achieve carbon neutrality (net zero emissions) by 2050;
3. Improve their climate reporting in line with the recommendations of the Task Force on Climate-
related Financial Disclosures (TCFD) and the Global Investor Coalition on Climate Change (if
applicable) to enable investors to assess the robustness of corporate strategies against a range of
climate scenarios, including well bellow 2°C, and to improve investment decision-making.
In 2021, LYXOR is supporting eight companies through the Climate Action 100+ initiative, in working
towards a better consideration of their climate issues, whether in terms of their governance, their strategy
or their ambition vis-à-vis the climate.
2020 Activity
Due to the global pandemic in 2020, progress under Climate Action 100+ has been slowed. Nevertheless,
this has not prevented investors from making progress in establishing a dialogue with the companies
involved: eight conference calls with investors enabled stakeholders to set objectives and then assess the
progress of the action plans.
17In response to the urgency of the climate crisis, Climate Action 100+ announced in August 2020 the
creation of the Net-Zero Company Benchmark which brings together 159 companies from multiple
sectors, including the companies followed by LYXOR. Investors, NGOs at the forefront of climate research,
and corporate stakeholders have collaborated to develop robust, equitable indicators applicable to local
markets and across sectors. The aim is to provide investors with a tool that is both transparent and robust
to better understand the commitment to the climate by companies that emit the most GHG. This initiative
will reconcile the expectations of investors and the actions of companies for which climate risk is
constantly increasing. The results of company assessments will be used by the signatories to inform their
actions during year five of the initiative.
Decarbonization of the whole economy will require action by energy players, on both the supply and
demand sides. That is why the initiative’s lead investors sent a letter to all Climate Action 100+ companies,
that included three requests:
• Communicate in accordance with the new Climate Action 100+ Net-Zero Benchmark;
• Set a long-term ambition to achieve net-zero emissions by 2050 or sooner across all material GHG
emissions;
• Collaborate with Climate Action 100+ to develop and implement net-zero transition action plans for
the sector and the entire value chain.
The goal is to have an impact beyond the 159 companies engaged under CA100+. Large companies have
to easily contribute to reduce scope 3 emissions because of their significant financial resources, their
influence on suppliers and consumption patterns.
In 2020, several companies announced their desire to become carbon neutral as a result of investor
engagement. For example, 43% of signatory companies have now set a clear ambition to reach net-zero
GHG emissions by 20505. However, analysis shows that only 10% of companies have set targets which
cover the most material scope 3 emissions for their sector.
Climate Action 100+ and LYXOR have seen progress in the area of governance. More than three-quarters
of companies now disclose clear evidence of Board and Board committees involvement in climate change
risks5.
€1.2
Bn
Share of LYXOR’s AUM under
Climate Action 100+ engagement
5 2020 Climate Action 100+ Progress Report
18
18The Task Force on Climate-related financial As a collaborative member of the Climate
disclosure (TCFD) initiative was created in 2017 to Action 100+ engagement group, LYXOR
provide a framework for companies and other welcomes Renault’s public support for the
organizations to develop more effective, clear and TCFD recommendations, one of the
transparent climate-related financial disclosures initiative’s area of progress.
through their existing reporting processes. The
disclosure recommendations are structured
around four thematic areas that are intended to
interlink and inform each other:
• Governance
• Strategy
• Risk Management
• Metrics and targets
Better information will allow companies to
incorporate climate-related risks and
opportunities into strategic decisions. Investors
have an important role to play in influencing the
organizations they invest in to provide better
climate-related financial information.
Enel, co-filing of a climate resolution at the annual general meeting of an Italian company
In May 2020, LYXOR, in collaboration with 25 institutional investors, representing approximatively 2.2% of
the share capital, co-filed a resolution at the general meeting of the Italian company Enel S.p.A. This
resolution concerned an alternative list of candidates for election to the Board of Directors, including a
candidate who is a former executive of a wind energy company.
As part of the Climate Action 100+ investor coalition with Enel, LYXOR decided to participate in this
collaborative engagement campaign. The appointment of a highly qualified Board member should help Enel
to take action on climate change and meet the science-based targets the company set in September 2019
and ensure that its scope 1 and 2 emissions match the reductions required to keep global warming well
below the 2°C scenario.
The Italian "voto di lista" system for the election of Board members facilitated this shareholder initiative.
Independent in Italy, minority shareholders have the right to put forward Board members at the company's
general meeting. As a co-filer of this resolution, LYXOR actively supported the list proposed by the minority
shareholders.
Following a very close vote between the two lists, the list submitted by the minority shareholders (including
LYXOR) obtained more than 51% of the votes in favor and was therefore adopted. The appointment of this
expert to Enel's Board of Directors should help the company to shift from fossil fuels to more sustainable
solutions such as wind and solar energy, as Enel's ambition is to be carbon neutral by 2050.
19Plastics and circular economy
Background
The European Commission6 has adopted a new action plan for the circular economy - one of the main
blocks of the European "Green Deal", Europe’s new agenda for sustainable growth. In this action plan, the
European Commission predicts that plastic consumption should double within the next 20 years. But for
now, 40% of the plastic is only used once7. It is therefore essential for all stakeholders (companies,
suppliers, investors, regulatory bodies, etc.) to think about a sustainable integration of plastic in a circular
economy.
It is in this dynamic that in 2020, LYXOR joined a collaborative engagement campaign on the theme of
plastic and the circular economy8. The objective is to understand with key players what the stakes of
plastic are and how to integrate the associated risks throughout the value chain.
Three sectors (packaging and consumer goods, electronics and automotive) have thus been identified as
having an essential impact on this theme. Among these sectors, LYXOR, in collaboration with the other
investors active in this campaign, has selected some twenty companies with a direct or indirect impact on
this topic in order to engage in dialogue.
Throughout this initial three-year engagement campaign, LYXOR and the various stakeholders are
addressing key issues, such as life-cycle analysis, which is crucial in establishing a circular economy, or the
quality of recycled materials and the confidence in the material, one of the main challenges to increase
the use of recycled plastics.
The campaign’s engagement strategy is based on the Ellen MacArthur Foundation’s initiative to accelerate
the transition towards a circular economy. The foundation aims to promote a new plastics economy, and
recommends three primary steps for companies and other stakeholders:
• Decouple from fossil feedstocks;
• Create an effective after-use economy;
• Reduce leakages.
These steps are in line with the concept of a circular economy.
6 https://ec.europa.eu/environment/circular-economy/index_en.htm
7 https://www.nationalgeographic.co.uk/10-shocking-facts-about-plastic
20
8 Engagement campaign coordinated by SustainalyticsTo measure the progress of the campaign, each company is evaluated according to 6 KPIs:
• Governance and reporting, in order to evaluate integration of circular economy principles intro
strategy, Board-level consideration of this issue and the quality of public reporting;
• Risk and impact assessment, in order to verify identification of plastic use intensive parts of the value
chain and implementation of measures to address risks and impacts;
• Input in the production and utility during use, this will look at the extent to which companies use virgin
plastic products during production processes and the longevity of a company’s plastics material during
the use phase;
• Recycling practices and after-use, in order to assess whether the company discloses an operational
framework to facilitate recycling or whether it sets quantified targets in terms of recycling;
• Innovation, this reflects how far the company invests in innovation (through R&D or otherwise) aimed
at reducing the lifecycle impacts of its operations.
• Stakeholder cooperation, to indicate the extent to which the company cooperates with other
stakeholders in this area and participates in joint initiatives, such as material recovery projects and/or
pollution prevention programs.
In addition to assessing the commitment of companies, LYXOR explores practical issues regarding the
establishment of a circular economy and exchanges on best market practices in order to find sustainable
and accessible solutions for all stakeholders.
Through this engagement campaign around plastic and the circular economy, LYXOR contributes to three
of the seventeen Sustainable Development Goals defined by the United Nations:
2020 Activity
In 2020, LYXOR engaged with nine international companies and conducted eleven campaigns on the
theme of plastics and circular economy. LYXOR hopes to contribute to the transformation of the packaging
and consumer goods, automotive, electronics and chemical industries alongside leading European,
American and Japanese companies.
In addition to bilateral discussions, a virtual roundtable was organized with all the stakeholders involved in
October 2020 to explore on the challenges and opportunities around the circular economy. This dialogue
between investors, including LYXOR, eight companies from the sectors concerned and three other
stakeholders identified two areas for improvement: the ‘input’ side of the production process and
strengthening public reporting on circularity practices. The Ellen MacArthur Foundation also presented a
report on the financing of the circular economy.
This thematic campaign has already led to significant progress in current practices, particularly with regard
to governance and reporting. For example, a number of companies in the automotive sector have
announced a high level of inclusion of circular economy principles in their new strategies. Some Boards of
Directors have set up specialized committees on sustainability and/or circularity, whose mission is to
define a sustainable strategy by taking into account waste and environmental risk management. However,
some companies are struggling to bring operational practices up to the same level as their organizational
commitment. The quality of recycled materials needs to be further improved in order to increase the
confidence and use of recycled plastic on the input side.
21A clear improvement in the innovation indicator is observed between 2019 and 2020, suggesting that
companies have become aware of the importance of this issue. This has not prevented the establishment
of targets for the inclusion of recycled plastic in products, for example, by some companies in the
electronics sector. Companies are increasingly innovating to make products suitable for recycling or reuse
at the end of life. Increased collaboration between companies and other stakeholders may be needed to
transform individual innovations into top-level circularity practices across the Board. All packaging
companies participating in this engagement campaign have joined the Ellen MacArthur Foundation’s
Global Commitment and have therefore been able to increase their score on the commitment to achieve
100% recyclable plastics by 2025. In addition, companies in the food sector have joined forces in the
NaturALL Bottle partnership to launch a packaging made of 75% bio-sourced plastic in 20209.
In 2021, LYXOR will continue its commitment to this theme, focusing on the implementation of the goals
set and the integration of the new European action plan for the circular economy.
Average progress per KPI for the
Plastics and circular economy campaign*
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Governance & Risk, Impact & Input & Utility Recycling & After- Innovation Stakeholders
Reporting Mitigation Use
March 2019 November 2019 November 2020
*Each of these indicators is scored out of 2.
€1 Bn
Share of LYXOR’s AUM under
engagement related to the plastics
and circular economy campaign
9 https://www.danone.com/fr/impact/planet/packaging-positive-circular-economy.html
22Localized Water Management
Background
According to the United Nations10, water scarcity affects more than 40% of the world’s population and is
expected to continue to increase with climate change. Apart from the impacts most associated with water
– droughts, floods, extreme weather events and rising sea levels – it is inherently connected to various
other key challenges including climate change, food security, involuntary migration, or biodiversity, etc.
Reaching far beyond Sustainable Development Goal 6, dedicated to access clean water and sanitation,
water is paramount for the achievement of most other SDGs.
It is for these reasons that the UN General Assembly launched the Water Action Decade (2018-2028)
initiative to mobilize action that will help transform our water management. Aware of the growing
challenge of this resource, LYXOR launched a collaborative thematic engagement campaign on water
management in 202011.
Three sectors (food and beverages, the fashion industry and the mining industry) were thus identified as
having a major impact on this theme. Among these sectors, LYXOR, in collaboration with the other
investors active in this campaign, has selected some twenty companies with a direct or indirect impact on
this topic in order to engage in dialogue.
This engagement campaign places emphasis on local water management, which is why two basins that are
highly exposed to climate risks and essential for many actors have been chosen as case studies. Tiete, in
Brazil, and Vaal in South Africa were selected as the two focus river basins for this engagement. The
companies selected for this campaign are exposed to activities in one or both of these basins.
Most companies are aware of the importance of water management issues but do not make them a
priority. The objective of this campaign is to remedy this phenomenon so that all companies can integrate
these issues throughout their value chain. The starting point for good management of water-related issues
is to properly map the risks and associated impacts that fall under the direct and indirect control of
companies.
In order to measure the progress of the campaign, each company is evaluated according to 6 KPIs:
• Water governance, to assess a company’s commitment to water management and consider the
environmental/water management system, as well as attention for water challenges in the value chain;
• Water risk and opportunity management, to focus on risk assessments, physical climate risk scenario
analysis, water-related business opportunities and engagement with suppliers;
• Water quantity, to explore a company’s approach to monitoring its water withdrawals and
consumption as well as to improving its water efficiency;
• Water quality, the quality-related aspects analyzed focus on the companies’ efforts to manage water
pollution and restore ecosystems where appropriate;
• Integrated water resources management, to evaluate each company’s acknowledgement of the need
and its involvement in basin-level collaboration to manage water impacts and risks collectively and to
assess any company measures in connection to the human right to sage drinking water and sanitation;
• Public water management, to evaluate a company’s efforts in the specific river basin to monitor the
availability of local water supply, maintenance and investment into water infrastructure and local
enforcement of regulations, and to inform itself about local water crisis management procedures.
10 https://www.un.org/sustainabledevelopment/fr/water-and-sanitation/
11 Engagement campaign coordinated by Sustainalytics 23In addition to assessing companies' practices, the idea is to mobilize them more on this topic, in other
words, to ensure that companies' approach to water risk assessment and management:
• Proactively and effectively contributes to long-term business continuity;
• Is environmentally sustainable;
• Respects the development needs of the countries concerned.
Through this engagement campaign around localized water management, LYXOR contributes to four of
the seventeen Sustainable Development Goals defined by the United Nations:
2020 Activity
In response to the water crisis that is already having dramatic consequences and could paralyze our global
society in the coming decades, LYXOR supported in 2020 four international companies in improving their
water management. These companies belong to the critical sectors identified for this thematic campaign,
namely food, beverages and mining. The diversity of nationalities of the companies involved reflects the
global nature of the water management crisis: South Africa, Belgium, the Netherlands and Mexico.
The health crisis has made this support even more relevant and essential, as countries such as South Africa
have been hit hard by the restrictions on water management caused by the pandemic. Also affected by
the increasing number of natural disasters in 2020, companies with more physical links and headquarters
in the target basins have voluntarily committed to participate in this campaign, suggesting a strong
awareness of the value of these dialogues on water management. This year was an opportunity to build
trust between companies and committed investors and to take stock of water management. Public
reporting appears to be largely an accurate representation of the corporate approach to water issues.
The focus is currently on reducing the quantity of water used, to the detriment of water quality, for which
commitments rarely exceed the regulatory framework. There are wide disparities between the companies
involved in water management: some focus on the immediate security of water supply for the company,
while others favor a more sustainable perspective in consultation with regional stakeholders. The most
advanced companies should lead by example and share their expertise in water management with the
other actors involved in this initiative.
In 2021, LYXOR will assist companies in improving the first four indicators enabling the implementation of
a more sustainable water management policy. Public water management and integrated water resource
management will be addressed in more detail once companies have a better understanding of the issues,
risks and opportunities related to water management. The ultimate goal is to share learnings and best
practices from the operations of the companies and their respective sectors in order to encourage joint
efforts in basins outside of those currently studied (Tiete and Vaal).
24Average Progress per KPI score for the
localized water management campaign*
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Water governance Water risk & Water quantity Water quality Integrated water Public water
opportunity resources management
management management
April 2020 September 2020
*Each of these indicators is scored out of 2.
€190
M
Share of LYXOR’s AUM under
engagement related to the localized
water management campaign
25Responsible cleantech
Background
Technological advances, the evolution of economic forces and the climate emergency are disrupting the
daily lives of many industries and billions of people. LYXOR believes that clean technologies can play an
important role in the transition to a low-carbon economy. The sector has already experienced strong
growth in recent years. For example, renewable energy capacity is expected to increase by 50% over the
next five years, thanks to solar photovoltaic (PV) and onshore wind technology12. This dynamic attracts
significant investments, especially in the transport sector with the expansion of the production of vehicle
batteries13 for example with the aim of electrifying transport.
The growing demand for these products poses new environmental, social and governance challenges,
including the recycling of products such as wind turbine blades or vehicle batteries, which have received
far less attention than the upside benefits of these technologies. It is advantageous to integrate these
issues and promote circular business models for recovering materials when products reach the end of
their life cycle.
It is in this context that LYXOR initiated in 2020 a thematic campaign on clean and responsible
technologies14. The objective of this engagement campaign is to implement a holistic approach to assess
and manage ESG risks associated with the development of this type of technology.
Three sectors (companies that manufacture wind turbines, solar photovoltaic panels and electric vehicles
and/or vehicle batteries) were then identified as having a major impact on this theme. Among these
sectors, LYXOR, in collaboration with the other investors active in this campaign, has selected some twenty
companies with a direct or indirect impact on this topic in order to engage in dialogue.
To measure the progress of the campaign, each company is evaluated according to 5 KPIs:
• Governance, to assess the company’s commitment the strategy for environmentally and socially
sustainable production and sourcing;
• Operational risk management, to ensure that the company has implemented policies and objectives to
integrate environmental and social risks;
• Supply chain management, to verify that the company proactively identifies and assesses
environmental and social supply chain risks;
• Circularity, to assess the company’s lifecycle approach from design to product recovery to minimize
adverse environmental impacts;
• Stakeholder engagement, to ensure that the company actively collaborates with authorities and other
stakeholders to promote sustainable production, deployment and/or recycling.
In addition to assessing companies’ practices, this campaign aims to identify potential points of vigilance
and improvement and work together in the search for sustainable solutions.
12 https://www.iea.org/reports/renewables-2019
13 https://www.iea.org/reports/global-ev-outlook-2020
14 Engagement campaign coordinated by Sustainalytics
26More specifically, this thematic engagement aims to:
• Apply a life-cycle approach to clean technology products;
• Catalyze more sustainable production of some of the most popular cleantech solutions;
• Explore ways to more effectively address environmental and social risks in production and supply chain.
Through this engagement campaign around localized water management, LYXOR contributes to five of the
seventeen Sustainable Development Goals:
2020 Activity
As this campaign was initiated at the end of 2020, the first discussions around this new theme took place
in early 2021 and will continue throughout the year.
€800
M
Share of LYXOR’s AUM under engagement related
to the responsible cleantech campaign
27EXERCISE OF
VOTING RIGHTS
28GENERAL PRINCIPLES
In the long term, good corporate governance must result in an improvement in the company's performance.
In order to do so, shareholder engagement is essential. By exercising its voting rights, LYXOR can contribute
to improving the economic and financial performance of the companies in which it invests on behalf of its
clients, with the aim of encouraging the adoption of best practices and mitigate the risk of business failure.
The 6 pillars of good corporate governance according to LYXOR
Protection of long-term interests and shareholders rights
Independence and diversity of Board of Directors
Balance of the company’s financial structure
Fair and transparent executive compensation
Quality and integrity of financial information
Concentration of environmental and social responsibility
29VOTING PROCESS
Before the general meetings, the dedicated Sustainable and Responsible Investments team carries out a
detailed analysis of the governance of companies for which LYXOR will exercise its voting rights.
The composition of the Board, the separation of the functions of Chairman and Chief Executive Officer, the
diversity policy, the compensation policy, the respect of shareholders’ rights, the dividend policy are among
other topics analyzed by the team and discussed during engagement meetings.
Regarding compensation issues, LYXOR has developed its own methodology for evaluating the compensation
policies implemented by issuers.
Moreover, LYXOR uses the services of an external provider to support it. This proxy advisor establishes
analysis and provides voting recommendations according to LYXOR’s voting guidelines. LYXOR relies on these
recommendations but retains the final decision. After conducting a market survey of the different providers,
LYXOR currently uses the services of ISS (Institutional Shareholder Services).
Where electronic vote is possible, voting is cast through a Proxy Exchange Platform on which LYXOR inputs
its voting instructions. In exceptional cases where electronic voting is not possible, voting forms are filled out
according to LYXOR’s voting policy and sent to the relevant issuers by post.
The formalization of voting decisions takes into account international corporate governance standards as
well as the regulations and corporate governance codes in force in the various countries.
30OVERVIEW OF VOTES AT GENERAL MEETINGS
Background and voting scope
In 2020, LYXOR has exercised its voting rights on the following scope:
• French and Luxembourgish Funds (Fonds Communs de Placement – FCP) and SICAV15
• Securities of issuers domiciled in Europe: in order to prevent excessive costs inherent in the voting
process, LYXOR participates in general meetings when the consolidated holding represents more than
0.10% of the company’s capital
• Securities of issuers domiciled in the United States: LYXOR exercised its voting rights on its largest
consolidated holdings
• Equity securities of issuers domiciled in Japan: LYXOR exercises its voting rights on its largest
consolidated holdings
As of this section, the data presented are specific to the management company LYXOR International Asset
Management, including the funds in management delegation of LYXOR Fund Solutions.
For 2020, the voting scope included 55 funds16 and concerned 408 companies through 447 general
meetings. Voting rights were exercised by correspondence or through Proxy Exchange Platforms.
Evolution of the number of general meetings voted
447 +183%
Progression of the voting scope
between 2017 and 2020
200 208
158
99%
2017 2018 2019 2020
Attendance rate in general
meetings17
15 Except the vehicles using a method of synthetic replication which are designed to track a financial exposure through a
performance swap. Therefore, the returns of the vehicles do not depend on the return on the shares held by these funds. All
dividends and profits are swapped with a market counterparty.
16 See Appendix 1
17 Rate restricted to the voting scope determined by the management company. LYXOR International Asset Management's
attendance rate at general meetings across all general meetings held by issuers in voted funds, is 10% (on the basis of 4,673
general meetings).The reasons why some votes could not be exercised are mainly related to malfunctions in the chain of
transmission of orders, and/or specific constraints such as blocking shares.
31Europe
346 general meetings
4 281 resolutions
23% opposition rate
United States Japan
44 general meetings 53 general meetings
496 resolutions 733 resolutions
7% opposition rate 7% opposition rate
In 2020, LYXOR extended its voting scope to two new markets: the U.S. and Japan. While some types
of resolution proposed at general meetings are common to all markets, such as the election of Board
members or the amount of the dividend, others are specific to each markets. Accordingly, while voting on
executive compensation has been widespread in the United States since the Dodd-Frank Act and in Europe
since the European SRD II Directive, shareholders do not have the opportunity to approve executive
compensation in Japanese companies. For more details, please refer to the Analysis of the general meeting
season section.
32Analysis of the general meetings season
General meetings are essential annual meetings where shareholders and management can discuss a wide
range of issues such as the company’s strategy, its positioning or, for the past few years, its ambitions in
terms of social and societal responsibility.
In 2020, the general meetings season was profoundly impacted by the global Covid-19 pandemic, which led
to their digitalization. Due to health restrictions, general meetings were held either in a closed-door
environment or in a hybrid format (interactive digital format), where shareholders still had the opportunity
to ask questions to the Board. Due to health and legal constraints, some companies had to limit exchanges
with shareholders, which sometimes had an impact on shareholders' right to information.
The market slowdown due to the pandemic and the need to manage liquidity in an uncertain economic
environment led some Boards to question the relevance of continuing to pay dividends (particularly banks in
Europe following the European Central Bank’s decision). In addition, in some countries such as France,
certain government assistance programs prohibited companies applying for loans or other grants from
paying dividends. Many companies also decided to put share buyback programs on hold in order to maintain
liquidity.
Finally, regarding executive compensation, some companies announced that executives had offered to
reduce their fixed compensation and/or waive part or all of their variable compensation in solidarity with
employees and stakeholders, some of them donating these sums to charities or NGOs. In some companies,
Board members also waived their remuneration for the 2020 financial year while the number of meetings
increased significantly in order to cope with the health and financial crisis.
Breakdown of resolutions voted on by category
44.6%
21.4%
15.6%
11.1%
5.1%
1.5%
0.4% 0.4%
Antitakeover Capitalization Directors Compensation Reorganisation Shareholder Routine & Miscellaneous
Related Related & Mergers Proposals Business
33While the composition of the Board of Directors or Supervisory Board remains the main subject voted on at
the general meetings regardless of the geographical area, other issues are specific to certain areas, or even
certain countries. Indeed, as the graph below shows, while compensation issues account for nearly 20% of
the resolutions voted on by LYXOR in Europe, they represent only 3% of the resolutions voted at the general
meetings of Japanese companies. Issues relating to the company’s capital, such as capital increases, are not
a subject on which the shareholders of Japanese companies must vote, even though they represent 14% of
the resolutions voted on by LYXOR in Europe.
Breakdown of voted proposals by category and geographic zone
86%
75%
34%
26%
18%
14% 12% 9% 6% 3% 4%
3% 2% 0% 2% 5%
0% 0%
Capitalization Board Compensation Reorganisations and Routine business Shareholder
mergers proposals
Europe United States Japan
In 2020, LYXOR International Asset Management voted on 5,562 resolutions and voted against or
abstained on 19% of these resolutions. However, the average opposition rate differs from one region to
another.
Breakdown of resolutions voted by Lyxor International Asset
Management in 2020
FOR 4,509 81%
AGAINST 1,007
19%
ABSTENTION 46
Total number of resolutions voted on 5,562
Average opposition rate by geographical zone
23% 7% 7%
34
Europe United States JapanEvolution of the opposition rate from LYXOR
International Asset Management LYXOR International Asset
Management fully expresses its
23% fiduciary responsibility to its clients and
22% votes against resolutions that are
19% contrary to its voting policy.
Whether on matters of compensation,
Board composition, strategic
13% operations or financial transactions,
LYXOR International Asset
Management’s vote is guided by a
detailed analysis of the proposed
resolutions in order to contribute to
improving the economic, financial and
societal performance of the companies
in which LYXOR International Asset
Management is invested.
2017 2018 2019 2020
The decrease in LYXOR International Asset Management's average opposition rate in 2020 is mainly due to
the opening of two new markets to voting: the USA and Japan. Indeed, the average opposition rate in these
countries is much lower than in Europe (7% vs. 23%), for several reasons:
• The voting scope defined by LYXOR in 2020 was mainly European (Japan representing 12% of the voted
general meetings and the USA only 10%), which limits the number of resolutions on which LYXOR could
vote against;
• One of the main subjects criticized by LYXOR is executive compensation. However, this subject is not
currently put to a vote for the shareholders of Japanese companies.
Average opposition rate by country
35%
28%
24%
22% In 2021, LYXOR will
18% strengthen its
16% 15% presence in the
14%
12% United States and
7% 7% 7% Japan by doubling its
4% voting scope in these
0% markets.
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