Each month an e-bulletin is produced to keep members informed about LAPFF’s activities as well as recent news stories that are relevant to Forum’s engagements and interests.

LAPFF E-Bulletin, May 2017.
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LAPFF E-Bulletin
Volume III, Issue V - May 2017
What's in the Bulletin this month?
This Bulletin focusses on recent news stories relevant to LAPFF’s engagements and interests. It also gives a brief summary of the Forum’s activities in April 2017, which will be described in more detail in the next Quarterly Engagement Report.

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Climate change investment framework seminar
We encourage members to come along to a seminar on LAPFF’s Climate Change Investment Framework, which is designed to help guide members’ approach to the current and future investment risks/opportunities of climate change. Speakers include representatives of LGPS funds from around the country to share their experiences. There are also a number of external contributors including Ben Caldecott of the Smith School, Oxford; David Blood of Generation Investment Management; Lucy Tusa of Mercers, Guy Turner of Trove Research and others. The seminar is taking place on 22nd June, please contact Tessa.younger@pirc.co.uk to register a place. For more information on the event please click here.
Recent engagements
The Forum has engaged with seven companies during April on issues ranging from climate change to employment standards to remuneration. The Forum met with BP, Shell and Rio Tinto on climate change. LAPFF also met Shell to discuss executive remuneration as well as discussing the issue with Smith & Nephew and EasyJet. The meeting with EasyJet also covered issues around climate change, employment standards and the impact of Brexit.

During the month LAPFF also issued a number of voting alerts. On pay LAPFF issued alerts recommending funds oppose the proposed binding pay policy at Smith and Nephew and Carillion. The Forum recommended an oppose vote for GSK’s proposed remuneration policy, as whilst improvements had been made on a number of points, there were still areas of concern that remained. The Forum also issued an alert on Wells Fargo on business standards and on NRG based on a director’s views on climate change which run counter to both the objectives of the company and LAPFF’s policy position. LAPFF also issued a voting alert for the Southern Company recommending members support a shareholder resolution on reporting on strategy for a 2 degree scenario. In line with the voting declaration process initiated for the Shell and BP resolutions, LAPFF encourages member funds to publicly declare how they intend to vote on such shareholder resolutions. The form to do so can be accessed here.
Corporate governance and responsible investment in the news
Barclays to be investigated by FCA and Bank of England over whistleblowing

Jes Staley, Barclays chief executive, is being investigated by financial regulators after attempting to unmask a whistle blower who had raised questions about the suitability of a recently recruited senior executive. Barclays announced that it was under investigation by the FCA and the Bank of England’s Prudential Regulation Authority over the incident. The bank’s internal investigation by law firm Simmons and Simmons found that Staley acted ‘honestly but mistakenly’. However, Barclays admitted it was a serious offence which lead to formal written reprimand and ‘significant’ cut to his bonus.

Shell the focus of corruption claims and allegations that decommissioning could breach international law

The BBC reported that it had seen evidence that top executives at Shell knew money paid to Nigerian government for an oil field would be passed to a convicted money-launderer. And that there was reason to believe that money would be used to pay political bribes. Shell said that it did not believe that its employees acted illegally. The BBC also reported separately that environmental groups were uncertain about whether Shell’s decommissioning plans for Brent field in the North Sea could breach international law because of the lack of disclosure over the plans.

KPMG partners fired over leak of regulator's inspection plans and firm faces investigation by FRC over Rolls Royce audit

KMPG partners, including their head of audit practice in the US, have been fired after the firm obtained ‘improper advanced warnings’ of inspections and shared the improperly obtained information with executives. It was reported that KPMG notified the Securities and Exchange Commission and Public Company and Accounting Oversight Board when the firm learned about the leak. Meanwhile, the Financial Reporting Council have started an investigation into KPMG’s conduct in relation to its audit of Rolls Royce financial statements between 2010 and 2013. The period covers when the British manufacturing company has admitted committing bribery and corruption offences.

PwC fined for audit misconduct

KPMG was not the first Big Four firm to find itself in hot water with regulators. PwC was fined £5m by the FRC in relation to the audit of Connaught, a FTSE 250 company which in 2010 entered administration. The Financial Times reported that the fine was one of the biggest administered by the FRC. PwC was also ordered to pay FRC legal costs and make an interim payment of £1.5m.

Norges Bank calls for end of LTIPs

The chief executive of Norges Bank which houses Norway’s sovereign wealth fund through its investment arm, has called for long-term incentive plans to be scrapped. He told reporters: ‘For us long-term incentive plans should be removed from pay packages. The packages we want in the future are very different from what they are now. They are too complicated… We want simplicity.’ His comments are line with LAPFF’s policy position, held since 2013, which is that such schemes should be phased out.

Shareholder concerns over pay continue during AGM season

Executive pay continued to make the news with reports that WPP have moved to curb CEO Sir Martin Sorrell’s future pay outs to reduce further disputes with shareholders. Meanwhile Aggreko withdrew planned changes which would have introduced a new Directors Remuneration Policy and a new restricted share plan after the level of support from shareholders was lower than expected. Satellite company Inmarsat narrowly avoided defeat over pay by its shareholders with 49% voting against its remuneration report (and 53% when including abstentions refusing to back the report). BT has cut its chief executive’s pay package by £4m too as a result of an accounting scandal. The company has also revealed that it will cut 4,000 jobs worldwide.

Fund firms ease proxy pressure amid business ties according to new study

According to a new study, whilst shareholder resolutions calling on companies to address climate risks have received unprecedented support, asset managers have frequently voted in favour of management and failed to support the resolutions. The report by 50/50 Climate Project also found voting practice was even more management-friendly at companies which they had business relationships.

Major companies and investors call on G20 to act on climate change

The chief executives of 27 global business, including HSBC and Unilever, have called on G20 governments to adopt recommendations that call on companies to disclose climate-related financial risks. The business leaders, representing $4.9 trillion AUM, issued an open letter to G20 nations to impose actions that promote transparency. Similarly a letter signed by LAPFF and 200 global investors (representing $15 trillion AUM) urged the G7 to stand by the Paris Agreement and push ahead with its implementation.

Investors secure landmark climate risk win at Occidental

LAPFF has issued a number of voting alerts, such as the one for Southern Company, backing shareholder resolutions requesting companies undertake analysis and publish reports on climate change impacts consistent with the Paris Agreement. A recent shareholder meeting saw for the first time a climate change resolution passed at a major US oil and gas company (Occidental).

NRG Director Re-elected Despite Opposition

LAPFF also issued a voting alert on the re-election of one of NRG Energy directors, Barry Smitherman. Mr Smitherman had made comments stating that climate change was not real and that he was ‘battling’ against what he described as the climate change ‘hoax’, positions which not just went against LAPFF’s views on climate change but also the company’s. In the end, a higher than usual number of (7.5%) of votes were to oppose the re-election of Mr Smitherman.

ESG integration helps returns and reduces instability survey finds

According to an investor survey conducted by State Street Global Advisers, integrating environmental, social and governance factors into investment policies generates returns and reduce volatility. The survey of 475 institutional investors from around the globe found eight in 10 were satisfied or very satisfied with returns from ESG investments and seven out of 10 indicated that ESG strategies had assisted in keeping volatility in check. Similar findings were found in a survey of investors conducted by EY. They found an increased interest in non-traditional financial information and enhanced focus on ESG factors (which had moved from governance issues to an equal interest in environmental issues, primarily climate change).

Financial Choice Act set on reform to US financial regulations, including on shareholder proposals

The US House Financial Services Committee has voted in favour of the Financial Choice Act, which would exempt some financial institutions from capital and liquidity requirements. It would also introduce a new bankruptcy code provision intended for large financial institutions after criticism that Obama’s reforms reinforced the idea that some banks were too big to fail. Tucked away in the detail, however, are reforms which would drastically increase the ownership requirements for filing shareholder proposals. The bill has been hailed by Republicans as replacing the Dodd-Frank regulations which they see as strangling growth. However, Democrats are set to oppose its current form with one Congresswoman arguing that ‘it would bring harm to consumers, investors and the whole economy.’

Wells Fargo directors re-elected despite shareholder disquiet

Shareholders re-elected all the directors at Wells Fargo, the company embroiled in a scandal which saw staff create fraudulent accounts. However, some directors were narrowly re-elected including the board chairman and three members of the board’s corporate responsibility committee, all receiving the backing of less than 60% of the votes. LAPFF issued a voting alert on Wells Fargo recommending member funds support a shareholder resolution requesting a review business standards following the scandal, which has led to significant fines. The resolution received 22% of the vote.

21st Century Fox face scrutiny for second high-profile sexual harassment scandal

As the lead up to the decision on Rupert Murdoch’s 21st Century Fox bid for Sky hots up - a matter that LAPFF has been heavily involved in company engagement over in the recent past - Bill O’Reilly, the Fox News star, has been fired amid a growing sexual harassment scandal at the 21st Century Fox subsidiary. Revelations that Bill O’Reilly was likely to receive as much as $25m dollars as part of his exit package have been met with ‘outrage.’ This follows another high-profile case last year involving Roger Ailes the network’s former chairman, who received $40m pay out. The New York Times reported that the total amount of paid out by 21st Century Fox related to sexual harassment allegations at Fox News was now more than $85m – with as much as $65m in exit packages. These revelations are also being heard first-hand by Ofcom in relation to 21st Century Fox’s takeover bid for Sky. A former news guest who made sexual harassment allegations met with Ofcom in London and is arguing that the culture at Fox News casts doubt on 21st Century’s ability to satisfy takeover rules. The news channel is also facing further legal troubles after employees issued a suit alleging racial discrimination and harassment.
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