Harbour puts out first stewardship report as sustainability round up

Harbour Asset Management has included a stewardship report for the first time as part of its annual sustainability report.

Wednesday, July 24th 2024, 5:21AM

by Andrea Malcolm

The stewardship section outlines incorporation of ESG, engagement and voting practices for the year 2023. Harbour uses ISS ESG for monitoring and compliance on exclusions. The key reporting mechanism internally is through Harbour’s risk committee made up of managers across the business as well as a board representative.

Committee meetings are quarterly and involve an update from each business segment including ESG risk. The stewardship programme is externally audited which encompasses a range of operational processes that includes proxy voting activity.

Harbour’s annual Corporate Behaviour Survey is the primary way of comprehensively assessing how well each company in our NZ investment universe is addressing ESG considerations with engagement playing a key part.

Last year’s extreme weather events and the climate disclosure regime were main drivers of climate engagement. Companies with contentious ESG issues such as board composition and executive/director remuneration particularly around company AGMs were also targeted.

The report says there were more companies with contentious director elections and Harbour had several conversations with company chairs justifying these appointments given concerns over independence and too many directorships (overboarding).

There were also a few cases where Harbour says it promoted more transparency in the performance criteria for the long term remuneration outcomes of executives.

During the year Harbour conducted 26 ESG related engagements on ad hoc issues plus engagements it takes part in each year through its Corporate Behaviour Survey. The ad hoc engagements were mostly for NZ companies (23 NZ v 3 Australian).

There were six engagements on climate change and three on social aspects including modern slavery and community impact, as well as continued engagement on AGM resolutions relating to board composition through eight director election engagements, and four on executive/director remuneration. There were also five engagements on miscellaneous ESG issues such as sustainable financing and stakeholder materiality assessments.

Case studies

An example was engagement with a NZ agriculture company significantly exposed to Cyclone Gabrielle resulting in more clarity on the company’s response and the impact on its people and operations. This included a range of support services to its staff such as emergency accommodation, counselling, and financial contributions. Harbour says it will continue to monitor the company’s remediation work and investment into climate adaptation to ensure its resilience to similar events in future.

Another was engagement with senior management and directors of a NZ industrials company on long-standing independence and diversity issues on its board. This has involved multiple interactions and escalation through voting dissent at the company’s annual shareholder meetings. During the latest engagement with the company on the issue last year, the board committed to appointing two independent directors within the next two years which it followed through on with an announcement this year that the board had appointed two female, nonexecutive directors.

In a third case study Harbour met with an NZ utilities company’s new dedicated sustainability manager to provide feedback on its latest sustainability report. The company had made significant improvement in its ESG measurement and disclosure this year, particularly for metrics and targets that spanned across portfolio companies at the group level. Harbour outlined some areas for improvement, such as focusing on progress in tangible sustainability initiatives rather than just policy and providing more detail on climate risks and opportunities.

Voting

The most prevalent voting resolutions that were contentious over the year related to executive remuneration followed by the election of directors. There were less shareholder resolutions filed compared to the previous year for companies in Harbour funds with these primarily focused on climate change.

Climate change resolutions were proposed by shareholders but were often not put to the meeting given they were conditional on the resolutions to amend constitutions which did not carry. Harbour tended to vote against these proposals given requests for climate action or information where in many cases companies were already making solid progress. Examples included the major Australian banks who have joined the Net Zero Banking Alliance, set near term targets in their lending portfolios (sector specific) and committed to the phasing out of financing fossil fuel production.

Overall, in the wider sustainability report, Harbour says despite the polarising status of ESG investing in the US, globally ESG investments are continuing to grow, with global ESG funds adding US$63 billion (source Morningstar) in spite of worsening geopolitical tensions, recession in many parts of the world and challenging economic conditions during 2023.

In New Zealand, funds under responsible investment management rose to a new record NZ$183 billion (source RIAA) in 2023. The growth rate was more modest compared to prior years, suggesting that the market is beginning to mature.

Tags: Harbour Asset Management