Sustainability Digital – March 2021

NBIM prepares to up voting transparency

Norwegian fishing village at the Lofoten Islands in Norway. Dramatic sunset clouds moving over steep mountain peaks

The world’s largest sovereign wealth fund says that voting is one of the most important tools to safeguard its assets. Ahead of the AGM season getting underway, NBIM – which owns the equivalent of 1.5 per cent of every listed company – plans to publish its voting decisions five days ahead of corporate meetings in a bid to increase transparency.

As corporate boards begin to prepare for the 2021 AGM season, one of the most important investors in the world is also preparing to up the pressure on issues close to its heart. This year, Norges Bank Investment Management, investment manager for Norway’s giant $1.3 trillion oil fund, plans to publish its voting intentions five days ahead of AGMs in the 9,000 plus companies it owns in a bid to increase transparency in its influential voting strategy – and encourage other investors to become more active owners.

NBIM, which has 70 per cent of its assets in stocks, 28 per cent in fixed income and the rest in property is only allowed to deviate slightly from its reference index of stocks and bonds. But it is developing an increasingly active ESG strategy.

“We want to give more information to the market and encourage all large shareholders to be open about how they use their voting rights,” said Line Aaltvedt, a spokeswomen for the fund, adding that the latest move is the fruit of a prolonged strategy. “In 2008 we started reporting on individual voting decisions on an annual basis. In 2013, we started reporting our voting decisions the day after the meeting and in 2019, we started offering a rationale for every vote against the board’s recommendation. Now in 2021, we have started to announce our votes five days in advance of the meeting.”

NBIM has developed a systematic approach to its voting strategy based on clear principles.

“This is the only way to handle voting at 9,000 companies in a consistent and predictable manner,” said Aaltvedt.

The process has involved rewriting NBIM’s public voting guidelines to boost detail, and building a proprietary system that processes all voting decisions and publishes them on NBIM’s website ahead of shareholder meeting. Last year NBIM voted on 121,619 resolutions at 11,871 shareholder meetings and began publishing an explanation whenever it voted against a corporate board’s recommendation. It’s a heavy workload for the small team.

“We have five people who are involved in shareholder voting, with the support of our portfolio managers who have a deep understanding of our largest holdings,” she said.

Data is key to the process. NBIM is “constantly expanding” its database with governance and sustainability data that is then used to analyse and monitor risks across the portfolio, selecting companies for further research or follow-up. “We use this data to calibrate our voting in different regions and markets. With better data, we are able to make better voting decisions.”

Issues-based engagement

A key issue through 2020 has been engaging and voting to push investee companies to improve sustainability reporting. NBIM carried out more than 4,000 assessments of companies’ governance structures, strategy, risk management and performance metrics regarding sustainability last year, and is encouraged by companies improved sustainability reporting.

“We see a significant improvement in companies’ climate reporting compared with 2019. The improvement is in all sectors”, says chief governance and compliance officer, Carine Smith Ihenacho, commenting after the publication of NBIM’s 7th report on responsible investment last week. Other key milestones last year include NBIM stepping up its engagement with banks (16 through 2020) to integrate climate risk into their lending and financing decisions.

Audit quality has become another focus, particularly in the UK.

“We are already using our voting rights to hold boards to account for their relationship with the auditor,” said Aaltvedt. “In 2020, we voted against the appointment of an auditor in 195 cases, or 3.3 per cent of the total. The main reason for voting against an auditor was that we had not received sufficient information to assess the auditor’s independence.”

The future of the AGM

As to whether the prospect of another season of virtual AGM’s will harm investors’ ability to engage and vote, NBIM’s view of digital meetings is positive. Moreover, travel restrictions have actually made corporate boards and management more available for dialogue, said Aaltvedt. “We welcome the attention given to virtual and hybrid formats for holding shareholder meetings. Virtual meeting formats and efficient voting chains can increase the information available to shareholders and ensure equal treatment of all shareholders regardless of their location.”

That said, the cancellation of many investor conferences led to fewer meetings in 2020 than in the year before. “The pandemic also lead to many companies’ postponing their shareholder meetings in 2020, particularly in markets requiring physical meetings,” she concluded.

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