RIL corporate engagement and governance

The Responsible Investment Leaders (RIL) range has an active corporate engagement and governance program which is overseen by the RIL Ethics Committee. We will be reporting regularly on the work undertaken in these programs.

2007 in review

Corporate Engagement

The RIL corporate engagement approach is to focus on companies held within the portfolio. The RIL Ethics Committee identifies priority engagement themes, which are then implemented in partnership with the RIL manager panel. Our aim is to improve share price performance by assisting companies better manage risks and identify opportunities in areas of their business affected by social and/or environmental factors.

In 2007 the RIL Range continued its corporate engagement focus on Occupational Health & Safety, within an active program. In addition the Range has a focus on Climate Change given the scale of this environmental issue and the potential impact on returns.

Specific initiatives in the area of Occupational Health & Safety in 2007 included:

• Dialogue in partnership with Boston Common continued to focus on global IT companies signing up for Electronics Industry Code of Conduct (EICC). The EICC offers a standards based approach for monitoring suppliers’ performance across several areas of social responsibility, including labour practices, health and safety, ethics and protection of the environment.
• It was pleasing to see, following engagement, that Sun Microsystems have now agreed to sign up for the Electronics Industry Code of Conduct. As part of joining EICC Sun Microsystems have advised that they are conducting internal training for people who deal with suppliers and suppliers themselves. Additionally key elements of the EICC will start to be used in supplier contracts. Sun also noted the value of broad use of EICC is particularly evident when two IT companies are using the same factory – it provides a common language and standard.
• In the area of Occupational Health & Safety, in 2007 there has also been a focus on the automotive sector. Specifically, there have been issues raised about the sourcing of pig iron which is a raw material for car manufacture from Brazil. Media reports have indicated that in some Brazilian work sites there is bonded labour, or effectively, slavery. In addressing this issue, via Boston Common there has been engagement with major automotive companies on signing up to training programs through the Automotive Industry Action Group (AIAG), which will educate the car companies’ suppliers to avoid buying materials from bonded labour.
• One company who has been in dialogue with Boston Common on this issue is Toyota. Toyota has now agreed to sign up to this AIAG initiative.

Climate Change is also a major focus of the manager panel. Activity in this area includes:

• All SRI equity managers within RIL are now signatories to the Carbon Disclosure Project
• AMP Capital is actively contributing to government policy through participation in the Investors Group on Climate Change (as deputy chair). This group has been particularly active in putting forward a framework for carbon emissions trading.
• Henderson released a paper on the draft Climate Change Bill. The paper included suggestion of setting up a central bank style authority with a temperature target, which recommends changes in the price of carbon to reach targeted emission outcomes with associated temperature implications
• Additionally both Henderson and AMP Capital have been following up non-respondents to the Carbon Disclosure Project. In Australia there was targeting of companies in the portfolio with a significant/moderate exposure to carbon risk, and already a number of respondents have indicated their planned inclusion in the 2008 survey.

Corporate Governance

On the matter of corporate governance:

• Through Boston Common AMP Capital co-filed a shareholder proposal to Sun Microsystems in conjunction with lead sponsor ACSME Employee Pension Plan, a major pension fund for public employees. The proposal requested Sun to adopt a policy that company shareholders be able to vote on an advisory resolution in relation to executive officer compensation. The proposal garnered strong support from shareholders with 40.2% of investors voting in favour of the non-binding resolution. [It should be noted that the use of non-binding resolutions associated with executive remuneration is a strategy which is used extensively in Australia (introduced with Clerp 9) and the UK].
• An issue of concern to the RIL Ethics Committee has been the US Securities Exchange Commission potentially amending the power of shareholders in the US to put forward non-binding resolutions on Environmental, Social and Governance issues. Associated with this concern AMP Capital as a house signed the letter put forward through the UN PRI Clearing house addressing this issue – which attracted $1.4 trillion in capital.