ROWAN CLARKE, Investor Relations

As we go into AGM season, the spotlight has again been shone on Environmental, Social and Governance (ESG) matters and the need for companies to demonstrate how they are improving their performance on these issues.

HESTA, one of Australia’s largest investors, has written to all Chairs and CEOs of ASX300 companies urging them to show leadership to improve their ESG performance. HESTA manages $68 billion of superannuation assets on behalf of 950,000 Australians.

The issues that HESTA has singled out are long-term systemic risks such as climate change, social inequality, and biodiversity. Specifically, companies are being asked to set ambitious targets in the following areas:

1. A verified climate strategy, with targets aligned to a 1.5°C transition pathway. As part of this, HESTA wants to see all companies direct greater capital expenditure towards initiatives that will transition to a low-carbon economy.
2. A gender pay gap analysis to be undertaken. As part of this, they are asking companies to set gender balance targets for board and executive roles and develop plans to achieve these targets. It is their desire that companies support the 40:40:20 Vision, which will see women fill 40% of executive roles in ASX300 executive teams by 2030.
3. On social inequality, companies are urged to deepen the processes used to assess modern slavery risk.

The increasing focus on ESG by investors is a subject that we have written frequently on in our blog-series over the past five years. As companies plan for their AGM, it will be more important than ever to consider these issues as they meet with shareholders to discuss AGM resolutions. For many investors support will be less about the resolution itself and more the message they want to send regarding a company’s commitment to and progress on addressing a range of ESG and climate-change related goals.

As Larry Fink, Chairman of BlackRock recently said in his 2022 letter to shareholders, “a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders.” A company’s long-term value will depend on its ability to show an improvement in performance on a wide range of stakeholder issues. Larry Fink further explained that “we (BlackRock) focus on sustainability not because we are environmentalists, but because we are capitalists and fiduciaries to our clients.” Investors are increasingly expecting companies to show an improvement in their performance on ESG metrics, not because these issues are popular in the media, but because they are important drivers of long-term value.

With many of our June year-end clients actively planning for governance roadshows ahead of their AGMs, we are advising them to demonstrate an understanding of their stakeholders and articulate how they are improving their performance on the ESG issues that matter most to them. An important pre-requisite for planning a governance roadshow is ensuring that the company representatives are engaging with the right people and are prepared for the most likely questions to be asked by investors prior to them voting on shareholder resolutions.