Railpen publishes 2023 Voting Policy

Railpen, which manages £35 billion on behalf of the railway pension schemes, has published its Voting Policy for 2023 today. The global policy sets out Railpen’s engagement and voting priorities, and how it will take voting decisions on behalf of the members of the railways pension schemes at domestic and international AGMs in 2023.

The global voting policy reflects Railpen’s ongoing corporate governance themes of board composition and effectiveness, remuneration and alignment of incentives and shareholder rights, and risk and disclosure.

For the 2023 AGM season, Railpen has introduced new voting policies on cybersecurity, climate transition plans and biodiversity, and mental health. It has also enhanced its voting and engagement positions on dual-class share structures, fair pay and the treatment of gig economy workers, and modern slavery.

A change in proxy season approach

As part of Railpen’s commitment to exercising the full range of its ownership rights, and building upon the more proactive approach to AGM questions taken last year, in 2023 the business will consider pre-declaring voting intentions on specific resolutions. It believes that doing so sends an important signal to the company and the market. Railpen values open dialogue with companies and therefore will continue to notify companies of voting intentions in advance to support effective engagement, where they are priority holdings.

Climate transition

Railpen wants to ensure that net zero pledges are turned into real action in 2023. This year’s Voting Policy sets out its view that a good transition plan should: set out a company’s decisions on decarbonisation and adaptation in a comparable way, with clear quantification of interim targets and milestones; focus on material actions, activities and accountability mechanisms; account for biodiversity loss, natural capital impact and social impact as key externalities; clearly link targets, financial planning and capital allocation; and, where offsets are used, adhere to best practice principles.

Railpen urges portfolio companies to consider how they can better appraise and account for nature-related risk and redirect capital allocation decisions towards nature-positive outcomes. They will consider voting in support of resolutions which encourage companies to address drivers of biodiversity loss.

Although mindful of the ongoing challenges in accessing the best possible data, reporting and analysis of these risks is evolving and to support its assessment of companies’ transition plans, Railpen will use its proprietary framework and the UK Transition Plan Taskforce (TPT) best practice guidance.

Addressing cybersecurity risk

Cybersecurity risk is substantially growing as we shift to an increasingly digital world following a move to hybrid working arrangements driven by the pandemic.

Building on its longstanding engagement with at-risk companies on cybersecurity – both directly and as part of the UK Cybersecurity Coalition – in this year’s Voting Policy, Railpen asks companies to explicitly disclose the governance and oversight structures in place to identify and manage cyber risks, as well as provide timely reporting of any breaches and the measures taken in response. Where these risks are not deemed to be appropriately managed, Railpen will vote against the Chair of the Audit Committee, or other Committee, and will consider voting against the Report and Accounts.

Workforce treatment and Mental health

An engaged, motivated and supported workforce is vital for sustainable financial performance. Railpen expects portfolio companies to engage meaningfully with their workforce and demonstrate its healthy corporate culture in the context of its business model and strategy. This extends to indirectly employed workers –  third party, self-employment, casual or seasonal.

In 2022, Railpen carried out research with the Chartered Institute of Personnel and Development, (CIPD), the High Pay Centre and the Pensions and Lifetime Savings Association (PLSA) which found that only 13% of annual reports of the UK’s largest companies discussed mental wellbeing in relation to health and safety or risk assessment. This is despite the clear materiality of mental health to a company’s ability to attract and retain employees.

To ensure companies are focused on the mental as well as physical health of their employees, Railpen will continue to engage with portfolio companies in other jurisdictions on disclosures around, and activities on mental health, with the expectation that it will apply a voting sanction in future years where there has been insufficient progress. This aligns with its commitment to the CCLA Corporate Mental Health Benchmark.

Michael Marshall, Head of Sustainable Ownership at Railpen, said: “The world is constantly adapting and we need to ensure that we are ahead of major sustainability and governance challenges so we can effectively engage with portfolio companies on behalf of the members of the railways pension schemes. Laying out a clear, defined voting policy allows us to highlight our expectations of performance on key ESG risks in a way that is accessible to our portfolio companies, our external managers and our beneficiaries.

“In the 2023 AGM season, we will continue to exercise our votes on those resolutions where we believe our vote will have the most impact. We take our role in enhancing the long-term investment returns of our beneficiaries extremely seriously, and doing so in a way that benefits the world around us and the needs of our members now and in the future.”

Caroline Escott, Senior Investment Manager at Railpen, added: “For 2023, we will continue our workforce treatment focus through intensifying our scrutiny of companies’ approach to fair pay during the cost-of-living crisis, as well as their work to support good mental health during what continue to be difficult circumstances for all.

“This year we have also explicitly flagged our expectation that portfolio companies look after their entire workforce, including both directly- and indirectly-employed workers – and effectively communicate to shareholders the steps they are taking to do so. Our previous research with the CIPD, PLSA and High Pay Centre found that many of even the largest UK companies fail to appropriately discuss their support for indirectly-employed workers. This is an issue for many firms, but especially for those in the ‘gig economy’ – where it is particularly important for investors to be able to gauge the rights granted and level of support provided to workers.”