Railpen, the £34b railway pension scheme, has set out its engagement and voting strategy for 2024, which includes some key changes and strengthening its overall approach.
The policy reflects what Railpen has identified as its four corporate governance themes: board composition and effectiveness, corporate culture and purpose, remuneration and alignment of incentives, and shareholder rights, risk and disclosure in a way that it believes is accessible to portfolio companies, external managers, members and beneficiaries.
New and extended policies for the 2024 AGM season include 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 said there is a growing body of evidence demonstrating the financial materiality of a company’s treatment of its key stakeholders – this includes suppliers, many of which rely upon stable, predictable payment streams for their ongoing financial viability.
The scheme noted that 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 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.
Railpen has also clarified expectations on company disclosure and just transition considerations.
The scheme noted how ‘climate justice’ is a critical component of the transition to net zero and therefore recognises that good disclosure does not necessarily equate to good practice on financially material ESG issues.
However, the adage ‘what gets measured, gets managed,’ is recognised by Railpen, which is why it has clarified expectations that companies should use IFRS’ S1 and S2 disclosure requirements on sustainability and climate-related risks as a minimum.
Railpen has therefore strengthened its voting on how companies disclose their approach to just transition considerations and implement climate transition strategies.
In addition, 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, and any other company where such individuals hold a board seat.
This aligns with Railpen’s role as co-founder and chair of the $2.5trn (£1.9trn) Investor Coalition for Equal Votes.
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.”
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