Special report: The year in review

THE YEAR IN REVIEW

Key findings from our 2022 corporate dialogues
Jamie Bonham, Head of Stewardship

We engaged 222 companies in our portfolio in 2022, representing 43% of our equity assets under management. This exceeded our 30% target that we set for ourselves at the beginning of the year. In this fast-changing landscape, we find that our corporate engagement program—a longstanding pillar of our responsible investment program—is even more relevant as companies and investors alike navigate the inherent complexities of environmental, social and governance issues.

The priority we place on taking an active role is evidenced by the fact that we were either a lead, co-lead or solo engager for 70% of our engagements, meaning we were actively setting the agenda and engagement strategy, leading the dialogues in meetings, creating the content of letters, and organizing next steps. This gives us a higher degree of influence and control over the engagement process itself, where we believe it is extremely important to be aware of the impact of tone and finding the right balance between supporting the positive developments of internal champions while also knowing when to push for better performance. Effective listening is one of our strongest tools, as it allows us to best align our requests with existing corporate strategy.

That said, we also find great value in lending our voice to support the work of other investors who have taken the lead on topics that are important to us but may be outside our focus themes. Eighteen percent of our engagements were categorized as “light participant,” where we supported letter campaigns and other initiatives but did not play a direct role in the engagements. The largest contributor to this category was our ongoing support of the Business Benchmark on Farm Animal Welfare, which focuses on companies in the food value chain to ensure they are incorporating best practices in animal welfare.

NEI role

Focus Themes

Of our four focus themes for 2022, human rights and inequality were the biggest contributors to our dialogues at 28% and 22% respectively, while net-zero alignment and nature represented 14% and 13%. If you unpack the topics under the theme of human rights, you can see the influence of one of the biggest disruptions of 2022—Russia’s invasion of Ukraine. Most of our human rights engagements were the result of our outreach to portfolio companies with exposure to Russia, as we looked to ensure they were following both the law and spirit of international sanctions. This highlights a key aspect of our engagement program, which is the ability to pivot and re-prioritize our topics when unexpected material issues arise.

The prominence of inequality in our engagements reflects the work we did on equitable compensation, human capital, and diversity, equity and inclusion. Unlike some themes that are often more prominent in relation to certain sectors, these issues apply equally across all sectors, so their prominence is not surprising.

In terms of responsiveness, companies were responsive or highly responsive to our engagement 68% of the time, meaning the company not only responded to our queries, but they also ensured the right subject matter experts and decision-makers were at the table, and we assessed the level of engagement with the topic to be high.

Topic outcomes

Topic responsiveness

Here is just a small sample of positive outcomes we noted among companies we invest in:

• Canadian Natural Resources committed to third-party assurance on its GHG emissions reporting and announced a corporate-wide target of a 40% absolute reduction of GHG emissions by 2035.
• GFL published enhanced reporting aligned with the Task Force on Climate-related Financial Disclosures and announced public targets on GHG emissions reductions, plus enhanced circularity.
• Meta Platforms published its first annual human rights report.
• Canadian Tire made good progress on its diversity, equity and inclusion strategy.

Dialogues categorized as unresponsive (28%) were mostly the result of limited to non-existent replies to our written correspondence. In these instances—depending on the materiality of the concern—next steps would often be to escalate the engagement through either a continued follow-up, targeting more senior staff or even the board, or by voting against key directors responsible for oversight. Note that we don’t always expect a response, as we might simply be providing information and offering perspective, such as when we write to boards to indicate how we intend to vote on specific issues. In those cases, we know from experience that our engagement may still be having an impact as our letters are often discussed at the board level.

We also track progress against the objectives we set out for each dialogue to gauge success and determine if we need to escalate or pivot to a new strategy. Many of our engagements are long-term by nature, and we know going in that it may take years for some objectives to be met. The metrics we track are meant to capture the momentum of change. Six percent of our dialogues achieved their objectives in full and 38% were deemed progressive, meaning the company was actively working to address the issue or the request. We are currently looking at ways to improve progress tracking that captures the nuances of our engagement work so we can better reflect the many small wins that happen along the path to the systemic change we seek. We expect to start reporting on these metrics in 2024.