AMNT updates Red Line Voting policies to reflect industry progress

The Association of Member Nominated Trustees (AMNT) has updated its Red Line Voting policies to reflect industry and regulation changes, with tougher policies on climate change highlighted as the biggest change to the campaign since its introduction in 2016.

Under the new policies, it is expected that companies will report in relation to the Taskforce for Climate-related Financial Disclosure (TCFD) recommendations, with a further requirement that any corporate lobbying be in alignment with the Paris Agreement.

In the update, AMNT also noted that many fund manager policies on climate change focus on supporting shareholder resolutions on this issue, clarifying however, that “only a tiny minority of companies ever face such resolutions”.

Considering this, it stressed that it is "essential" that climate change voting policies are applied to all companies as climate change requires global action, confirming that the red line on emissions targets has also been updated, for example, changing the 2 degrees target to “well below” 2 degrees.

Alongside climate change updates, the social Red Lines have seen the introduction of requirements in relation to the Modern Slavery Act, with the Red Line on labour breaches updated to include human rights considerations.

The governance section, meanwhile, has been updated to include a linkage of CEO pay to sustainability targets including climate change, alongside a new requirement that CEO pension contributions be aligned with that of the workforce.

There is also a new red line on Audit Committee expertise, which limits non-audit fees in relation to audit fees to 50 per cent, with an additional requirement for a breakdown of fees.

The AMNT explained that in addition to the updates, other developments have led to one or two of the red lines no longer being needed, while good progress on other targets has led to them being revised.

The gender diversity target, for instance, has been increased from 25 per cent to 33 per cent, and now includes a requirement for at least one of four specified board positions to be held by a woman.

AMNT also argued that the market has begun to react more positively towards asset owner demands for their own voting policy, stating that this is “an essential part of their stewardship approach”.

It stated that it is becoming “increasingly clear” that the AMNT Red Line policies can serve several purposes depending on the pension scheme’s approach to the exercise of their voting rights.

For instance, it suggested that the Red Line policies be applied on a comply or explain basis and not as a set of prescriptive voting instructions, explaining that whilst many fund managers still refuse to accept client voting policies in pooled fund arrangements, it remains important that trustees continue to put pressure on fund managers to do so.

It also recommended they be used as an engagement tool to hold fund managers to account and a reporting framework for implementation statements.

Commenting on the updates, AMNT co-chair and Red Lines Voting Campaign founder, Janice Turner, commented: “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 environmental, social and governance (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.”

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