The Association of Member Nominated Trustees (AMNT) has updated its Red Line Voting policies to reflect industry and regulatory changes since the campaign was first launched in 2016. Click here to access and download.
The biggest change to the Red Lines since 2016 has been the introduction of tougher policies on climate change. In recognition of the global emergency caused by climate change, the new policies expect companies to report in relation to the TCFD recommendations. There is also a requirement that any corporate lobbying be done in alignment with the Paris Agreement.
Another new addition, within the social Red Lines, is the introduction of requirements in relation to the Modern Slavery Act and within the governance section there is a new linkage of CEO pay to sustainability targets including climate change, along with a new requirement that CEO pension contributions should be aligned with that of the workforce.
The market has begun to react more positively towards asset owner demands for their own voting policy, which AMNT continues to believe is an essential part of their stewardship approach. The AMX and DWS pooled funds stewardship solution that was recently launched offers a choice of voting policy, one of which is AMNT’s Red Lines.
There have also been many structural and governmental changes since the first Red Line policies were introduced. The most significant have been the major global agreements on climate change and subsequent UK legislation. Other developments have led to one or two of the Red Lines no longer being needed, or good progress on targets leading to them being revised.
It has become increasingly clear that AMNT’s Red Line policies can serve several purposes depending on the pension scheme’s approach to the exercise of their voting rights:
- Red Line policies should be applied on a comply or explain basis and not as a set of prescriptive voting instructions. While many fund managers still refuse to accept client voting policies in pooled fund arrangements, it remains important that trustees that wish to have their voting policies implemented on a comply or explain basis continue to put pressure on fund managers to do so.
- An engagement tool to hold fund managers to account. Adopting the Red Line policies will offer trustees the opportunity to effectively hold their fund managers to account for their own approach to voting and engagement.
- A reporting framework for Implementation statements. Red Line policies can also be used as a framework by which trustees request voting and engagement information from their fund managers, in order to adhere to their Statement of Investment Principles implementation statements.
The main changes to the Red Lines are as follows:
In recognition of the global emergency caused by climate change, the new policies expect companies to report in relation to the TCFD recommendations. There is also a requirement that any corporate lobbying be done in alignment with the Paris Agreement.
Many fund manager policies on climate change focus on supporting shareholder resolutions on the issue. AMNT notes that only a tiny minority of companies ever face such resolutions and so it is essential that climate change voting policies are applied to all companies as climate change requires global action. The Red Line on emissions targets (E3) is updated, for example changing the 2 degrees target to “well below” 2 degrees.
A new addition within the Social Red Lines is the introduction of requirements in relation to the Modern Slavery Act and the Red Line on labour breaches (S7) includes human rights considerations.
The gender diversity target (S4) has increased from 25% to 33% and now includes a requirement for at least one of four specified board positions to be held by a woman.
There is a new linkage of CEO pay to sustainability targets including climate change, and a new Red Line regarding the alignment of CEO pension contributions to that of the company’s workforce.
There is a new red line on Audit Committee expertise (G9). The limit on non-audit fees in relation to audit fees is now 50% and there is an additional requirement for a breakdown of the fees (G11.)
Commenting on the updated Red Lines, Janice Turner, Co-Chair of the AMNT and founder of the Red Lines Voting Campaign said:
“When we launched our Red Line Voting policies, trustees were astonished by the refusal of many fund managers to reflect the wishes and instructions of their clients. The intransigence and obfuscation from some did not reflect well on an industry that receives fees to serve its clients!
“It has been an ongoing struggle, but things are moving in the right direction. My belief is that the process will accelerate further, particularly since new regulations have made it more and more imperative that pension schemes adopt a voting policy in order to hold their fund managers to account.
"The updated Red Lines reflect current thinking on vital ESG issues, and I urge Trustees to take responsibility and to continue to hold their fund managers and consultants to account to ensure best practice. We have reached a critical point in terms of ESG and stewardship, and it is AMNT’s hope that these Red Line Voting policies will play an important role in helping trustees fulfil their new regulatory responsibilities, particularly those who don't yet have a voting policy.”Janice Turner, founding co-chair of the Association of Member Nominated(AMNT)
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