Railpen updates Global Voting Policy for 2024

Railpen develops voting approach on late payments to suppliers, the just transition and shareholder rights, while calling for companies to “resist the race to the bottom” on corporate governance.

Today Railpen, fiduciary and investment manager of the £34 billion railway pension schemes, publishes its Voting Policy for 2024. The global policy sets out Railpen’s engagement and voting priorities, and how it will take voting decisions in the best interests of members of the railways pension schemes at domestic and international AGMs in 2024.

The global voting policy reflects Railpen’s four corporate governance themes of board composition and effectiveness, corporate culture and purpose, remuneration and alignment of incentives, and shareholder rights, risk and disclosure in a way that is accessible to portfolio companies, external managers, members and beneficiaries.

There are some new and extended policies for the 2024 AGM season, including the introduction of voting sanctions for UK companies that have continuously paid their small- and medium-sized suppliers late, or have a long-standing record of outstanding payments. Railpen has also clarified expectations on company disclosure and just transition considerations.

Late or outstanding payments to suppliers

There is a growing body of evidence demonstrating the financial materiality of a company’s treatment of its key stakeholders – this includes its suppliers, many of which rely upon stable, predictable payment streams for their ongoing financial viability. A record of late or outstanding payments to suppliers can increase a company’s operating costs over the medium-term, as well as damaging goodwill amongst both suppliers and customers.

From 2024, where a UK company has since 2018 been consistently and each year paying its suppliers late, or has a record of outstanding payments, Railpen will consider a vote against the Report and Accounts and/or any relevant executive directors.

Climate disclosures and the just transition

Climate justice is a critical component of the transition to a net zero and resilient future. Railpen recognises that good disclosure does not necessarily equate to good practice on financially material ESG issues. However, “what gets measured, gets managed”, which is why Railpen has clarified expectations that companies should use IFRS’ S1 and S2 disclosure requirements on sustainability- and climate-related risks as a minimum.  Railpen has also strengthened voting lines on how companies both disclose their approach to just transition considerations and implement climate transition strategies that better manage the risks and opportunities arising from a just transition.

Voting against ‘dual-class enablers’

Differential voting rights dilute the ability of minority shareholders, like Railpen, to effectively hold companies to account. Railpen believes that long-term corporate success requires the shareholder voting rights to be directly linked to the shareholder’s economic stake.  Therefore, Railpen will continue to support ‘one share, one vote’, and - for all new company IPOs with dual-class share structures and a sunset clause of more than 20 years from the date of the IPO – be minded to vote against the election of all individual board members both in their capacity as a director at that company and at any other company where these individuals hold a board seat. This aligns with Railpen’s role as co-founder and chair of the $2.5 trillion Investor Coalition for Equal Votes (ICEV).

Michael Marshall, Head of Sustainable Ownership at Railpen, said: “We believe that thoughtful voting alongside constructive engagement with portfolio companies supports our objective of enhancing long-term investment returns for beneficiaries. Our global voting policy allows us to exercise our voting rights systematically, consistently, and in a way which is in beneficiaries’ best interests.

“Railpen’s Sustainable Ownership team is critical to ensuring the assets we are invested in can grow and prosper over the long-term, that is why we believe engaging with companies is so important and voting is a fundamental tool to help us push for positive change to drive real impact on behalf of our members.”

Caroline Escott, Senior Investment Manager at Railpen, added: “Although policymakers in the EU and the UK may be considering a “race to the bottom” on corporate governance standards, in 2024 we will continue to use our voice to advocate for the strong shareholder rights and effective corporate governance, which ultimately benefit both investors and companies. Shareholder protections and robust standards are fundamental to sustainable value creation – and a policy debate which pits essential corporate governance  against thriving economies is not only inaccurate but also counter-productive.

“For 2024, we have additionally extended our voting policy to focus on companies that consistently pay suppliers late, to ensure that executive remuneration better incentivises company executives to focus on long-term performance, and to encourage better disclosure of just transition considerations.”