Already one of the most transparent sovereign wealth funds (SWFs) globally, last week the NZ Superannuation Fund (NZS) opened another window to its $40 billion soul with the release of a proxy voting history.
The NZS ‘Voting Reporting Platform’ tracks the fund’s proxy performance dating back to July last year, using data supplied by its corporate vote adviser Institutional Shareholder Services (ISS).
And the log highlights the enormous quantity of corporate voting duties foisted on the NZS as owner of some 6,000 plus companies – mostly by dint of its global index investments. According to the ISS voting data, the NZS responded to over 14,000 proposals (of which, 13,740 came from management and the rest from shareholders) in 1,709 company meetings held from July 1, 2018, to the beginning of this March.
NZS voted against 20 per cent of management resolutions, largely following the ISS recommendations, according the fund’s head of responsible investment, Anne-Maree O’Connor.
“We can over-ride any [ISS recommendation],” O’Connor said. “But we nearly always follow the voting recommendation.”
However, the NZS database doesn’t yet provide an easy way to sort the individual votes into yeahs and nahs or whether they deviated from the ISS calls.
O’Connor said most votes against management proposals concerned director appointments and executive remuneration. For example, in one of its most recent votes, the NZS opposed approving the remuneration report of the ASX-listed fund manager, Magellan Financial Group.
In general, she said the voting guidelines target issues like tenure of auditors and directors or board diversity and independence.
While the fund typically follows ISS advice for global stocks, NZS has a more hands-on role for local companies. NZS owns about $1.8 billion in NZX-listed shares through two external managers (over $600 million split between Mint Asset Management and Devon Funds) and an in-house team, which runs passive and active portfolios.
“ISS gives us a perspective on local stocks that provides an independent understanding based on global standards,” O’Connor said. “But our portfolio managers are closer to NZ companies and can give good insight and considered recommendations [on corporate votes].”
Most recently, NZS has voted against five local company board proposals issued by: Mainfreight; Pacific Edge; EBOS Group; Fletcher Building; and, a2 Milk. The NZ votes against were “mainly for reasons of director independence and over-boarding”, a NZS spokesperson said.
Despite shareholder revolts usually failing to over-turn board proposals, O’Connor said the proxy voting pressure and lobbying from other governance groups was making a difference to corporate behaviour.
“Things can change,” she said. “For example, 10 years ago in NZ the lack of board diversity, independence and committee structure was very concerning.”
The situation in NZ boardrooms – while far from perfect – has improved considerably in the intervening decade, O’Connor said, partly due to institutional investor lobbying through the Corporate Governance Forum (CGF). NZS was a foundation member of the CGF when it launched in 2015.
She said as well as the CGF, other moves including the new NZX corporate governance code and guidelines from the Institute of Directors were raising standards.
“There is a greater awareness now on what good corporate governance looks like,” O’Connor said.
In a statement last week, she said publishing the NZS proxy voting record would provide useful insight for companies, investors and “other stakeholders” into the fund’s own governance efforts.
“Voting is a core part of the NZ Super Fund’s responsible investment approach,” O’Connor said in the release. “Given its importance to shareholder oversight of directors and boards, our aim is for the Fund’s votes to reflect the essential elements of good governance: transparency, board alignment with shareholder interests, long-term strategy, appropriate remuneration, business ethics and shareholder rights.”
NZS also released a new white paper last week detailing its investment approach to climate change. At the same time, environmental lobby group, Greenpeace, urged the NZS to sell down its $550 million holdings in oil and gas companies – information available, of course, under the fund’s show-everything policies.
The NZS white paper, though, points out that divestment “also means forgoing the rights of an owner to demand change”.
“We are seeing an increasing number of shareholder resolutions targeting fossil fuel companies,” the paper says. “These resolutions generally ask companies to assess and disclose the financial risks that climate change poses for their business plans and to outline their strategy for resilience under a carbon-constrained future.”