As many shareholders are discovering, change is possible when mechanisms of influence join forces to form a critical mass. Fidelity International’s Emilie Goodall, Head of Stewardship, met with Matthew Roberts, Associate Director, Stewardship and Tina Chang, Associate Director, Sustainable Investing, to explore how Fidelity strives to make a meaningful difference on behalf of its clients.
“Fidelity has developed a stewardship approach that uses multiple levers to encourage companies to adopt strategies and practices that support a net-zero transition.”
Annual general meeting (AGM) season is a time of year when investors can exercise their fiduciary duty to influence corporate behaviour. This sees stakeholders pursue better long-term outcomes for themselves and society. Increasingly, that leverage is being used to drive improvements in environmental, social, and governance (ESG) performance that will help companies combat climate change and reach the world’s net-zero goals.
In fact, that fiduciary duty is not confined to an AGM. It is being exercised year-round through a comprehensive stewardship strategy that maintains ongoing constructive engagement with executives, stakeholders, and policymakers. In 2023, Fidelity conducted 1,758 interactions globally with 1,336 separate companies on ESG issues, most with C-suite or board members.
“That level of engagement indicates the seriousness with which ESG factors are taken,” says Goodall.
AGMs – a decisive juncture in the pursuit of sustainable outcomes
AGMs are an opportunity to take that engagement further, representing “a critical moment where we can intensify our dialogue and express our position through voting and shareholder resolutions,” adds Goodall.
Of the 3,753 shareholder meetings worldwide at which Fidelity could cast votes in 2023, 45 per cent saw Fidelity vote against management on one or more proposals. In 23 per cent of those, the issues were related to environmental and social topics. That said, Fidelity also uses its vote to support companies making effective progress.
Fidelity is known for its fundamental research-driven approach to investment. The same philosophy drives the company’s engagement programme, backed by proprietary sustainability tools such as an ESG ratings system covering over 4,000 issuers.
In 2023, two key issues dominated the corporate engagement landscape: climate change and deforestation.
Climate change – Fidelity’s climate engagement programme focuses on the biggest emitters in any investment portfolio and on any themes relevant to reducing climate risk, such as thermal coal or climate finance.
“Fidelity has developed a stewardship approach that uses multiple levers to encourage companies to adopt strategies and practices that support a net-zero transition,” says Roberts.
“We use voting to complement and enhance our climate engagements. Our guidelines establish a basic set of expectations on corporate climate-change disclosures, governance, and strategy. In 2023, worldwide we voted against the directors of 62 companies that failed to meet those expectations,” he continues.
Engagement works. In 2021, for example, Fidelity communicated with a UK asset manager that fell short of its climate disclosure expectations. It was discovered that the company’s ambition level was much higher than it had conveyed, and in 2022, it formally joined the Net Zero Asset Manager initiative.
Deforestation – Fidelity signed the financial sector commitment letter on eliminating commodity-driven deforestation in 2021 in recognition that logging is a material risk affecting companies in certain sectors, particularly agriculture.
In 2023, Fidelity took this further by announcing new voting guidelines targeting portfolio companies with high deforestation risk. These will be implemented in this year’s voting season.
“We have spent the last two years building our stewardship approach to tackling this risk,” says Roberts. He points out that organisations with material deforestation exposure must have a plan to address any associated risk.
Under Fidelity’s guidelines, the company will vote against directors at companies with high deforestation risk exposure that are not adequately monitoring and dealing with it.
“Voting is a powerful tool, but it has to be done in a nuanced way, with aligned expectations on set milestones communicated clearly with companies,” notes Chang.
For example, since 2019, Fidelity has been engaging with one of the largest dairy producers in China. Initially, this was triggered by corporate governance concerns surrounding a lack of gender diversity. After initial engagement failed to result in change, Fidelity used voting to escalate the issue, ultimately a female director was appointed in 2021.
A multi-faceted approach to engagement
Engagement covers a whole range of activities: calls, meetings, written correspondence with companies, dialogue with policymakers, as well as voting. This universal approach, coupled with the deep level of corporate access afforded to a company of Fidelity’s size and scale, makes it a potent tool that helps investors meet their financial and ethical goals.
Yet, investors are entitled to wonder whether engagement works. There is still a transparency gap between voting and engagement activity across the industry. As a result, investors are increasingly demanding evidence that engagement leads to progress and positive outcomes.
“Therefore, we are working on an engagement tracking tool, which is intended to help us track and report on the progress of engagements by our sustainable investing team,” explains Roberts.
As an active manager, Fidelity is in a solid position to implement business practices that can help meet investors' financial and non-financial goals and move the world toward a more sustainable future.
