Signatories disclose stewardship reports and show improvements over 2017
A good management practice among institutional investors is the disclosure of annual stewardship reports, in which the assets describe the actions performed in the previous year to ensure good corporate governance practices of the companies they invest in. The signatories to the Amec Stewardship Code – available here – are expected to submit their report on a yearly basis. By now, 11 signatories have already delivered the document.
Some signatories are submitting their reports for the second consecutive year. This allows an analysis on the progress of the topic among investors that invest in the Brazilian capital markets. Teorema and Itaú, in addition to the US manager Cartica Capital, for example, reported remarkable achievements compared to the previous year, communicating their efforts towards promoting the best management practices in invested companies on a direct and comprehensible way.
This year, Teorema included a table listing its participation in the shareholders’ meetings of the companies it invests in, informing the name of the representative responsible for the vote and the method used – distance, in person or proxy voting. Ms. Cristiana Affonso Ferreira, founding partner and director responsible for Teorema’s compliance, risk and control areas, said that the asset has been focusing on enhancing its stewardship practices and that the team reviewed all manuals and management policies last year. “We included the table in the report to show this evolution and our focus on participating actively, on a diligent and transparent manner,” she said.
“We included the table to record the participation in shareholders’ meetings in the beginning of 2018 to organize our agenda and list the votes. Originally, the table was intended to fulfill a requirement imposed by the Brazilian Financial and Capital Market Association (Anbima), but we eventually noticed its importance as a governance tool,” Cristiana explained. She also stated that Teorema’s team started to include ESG factors in investment processes and have been increasingly supervising invested companies and seeking to actively participate in the meetings. Additionally, it also participates in boards of directors, what enables the fund manager to expand and make stewardship practices more and more effective.
A highlight in Itaú’s report is the inclusion of graphics and diagrams that make readers’ understanding easier. Mr. Renato Eid Tucci, head of the beta strategy and ESG integration areas at Itaú Asset Management, pointed out that the asset has been improving the document content over the years, showing that the issues related to the good management of funds have become more and more mature in Brazil. According to the fund manager’s report, it engaged with 35 companies from 15 different economic sectors to collect information about Environmental, Social and Governance (ESG) factors and encourage the companies to adopt the best practices. Eid also told that one of the invested companies changed its compensation proposal after engaging with them.
Another point that Eid highlights is that the management company has been participating more actively in shareholders’ meetings. In 2017, it participated in more than 40 meetings, in 2018, in more than 45 meetings, and in 2019, in more than 50 meetings. Before that, Itaú Asset Management had to participate if it had at least 5 percent of the company’s capital or if 10 percent of the net investments of its investment funds were composed of the company’s shares. Today, the triggers are of 3 and 10 percent, respectively.
US-based Cartica Capital reported three engagement cases: with the logistics company Rumo, the food company M. Dias Branco and the pulp producer Klabin. Mr. Mike Lubrano, corporate governance and sustainability director, says that Cartica has always reported its engagement initiatives and that, as it invests in few companies, it can exercise the activism more effectively in each of them.
In the case of Rumo, Cartica focused on influencing the company’s board of directors to nominate members with distinctive experiences to become more diverse and started to conduct a more detailed analysis of ESG factors. In the case of M. Dias Branco, a family company, it concentrated in including independent members in the company’s board of directors. Yet in the case of Klabin, the fund manager was against the controversial proposal submitted by the company’s board of directors to acquire the Klabin brand and other six brands with the objective of eliminating the payment of royalties for the use of the founding family’s name.
Mr. Lubrano says that the stewardship reports are relevant for several groups, in addition to Cartica’s investors. “If companies start to realize that investors are focused on good management practices and that this is a consistent practice, they will become more open to engagement,” he says. The document is an important source of information for other audiences that interact with the company, such as employees and groups concerned with the responsibility of the supply chain, employees’ safety and diversity in the boards of directors. “With these reports, they can realize that shareholders are often allies of these causes,” Lubrano concludes.