Shaping US practice through shareholder resolutions

Stewardship Principles Shaping US practice through allianzgi.com shareholder resolutions November 2022 Record numbers of shareholder resolutions in 2022 have once again demonstrated their important role in the shaping of sustainability and governance practices in the US. Allianz Global Investors recognises its role in the development by having a strong – and regularly evolving – voting policy aligned with themes it deems important. David Shammai The role of shareholder resolutions Senior Stewardship Institutional investors help drive changes Key takeaways Analyst in practice – The use of shareholder proposals In the US, shareholder resolutions have played in the US is growing – and AllianzGI a significant role in shaping corporate practice is strengthening the link between around governance and sustainability matters. the themes it deems important and Most resolutions are filed by smaller shareholders, engagement and research activity. often non-governmental organisations and – But voting on shareholder resolutions 1 individuals , yet require broader shareholder alone should not define the boundary support. Therefore, institutional investors hold of stewardship reach and, on some an influential role and responsibility – and occasions, AllianzGI sought to extend its AllianzGI has a strong track record for voting on message via director elections. shareholder resolutions. – For 2023, AllianzGI will continue to An example is the current high prevalence of monitor emerging themes to inform proxy access2, which is available in some form at its voting, while strengthening the link over two-thirds of S&P 500 companies. Although between voting, engagement, and the number of resolutions filed requesting the sustainability research. adoption of proxy access fell from 51 in 2016 to 9 last year (and 8 year-to-date), the successful promotion of this topic has meant proxy access run of shareholder resolutions last year. While has become mainstream practice. Any resolutions the number of these resolutions fell from 17 now tend to focus on amendments instead last year to only 7 this year, the proportion of adoptions. of companies releasing their EEO-1 report3 Something similar has happened on resolutions rose from 4% in September 2020 to 11% in for diversity reporting following a successful September 2021.4 We believe these figures 1. Source: Nili Y. and Kastiel K., The Giant Shadow of Corporate Gadflies, 94 Southern California Law Review 569 (2021) Univ. of Wisconsin Legal Studies Research Paper No. 1523. 2. The ability of a group of long-term shareholders to nominate board candidates. 3. Federally mandated annual report, requiring companies with at least 100 employees to provide information on gender, race and ethnicity by job categories. 4. Source: Figures published by www.justcapital.com Value. Shared.

Shaping US practice through shareholder resolutions Exhibit 1: shareholder proposal outcomes 700 600 500 400 300 proposal numbers200 100 0 2018 2019 2020 2021 2022 Voted/pending Omitted Not voted/withdrawn Source: Sustainable Investments Institute (Si2). Data as at 1 July, 2022. will continue to rise. These public disclosures go beyond voting decisions on shareholder resolutions are based on an the legal requirement to file the form with the Equal overall assessment of the relevant resolution theme.8 Employment Opportunity Commission. Our guidelines are reviewed annually and published, so we These examples illustrate that when there is genuine can signal our expectations on relevant topics and focus momentum and wide support for shareholder resolutions, themes – this helps inform and possibly influence potential they are driving changes in practice and that shareholder filers and companies. In addition, we publish our voting 9 resolutions reflect a dynamically evolving agenda. This record for transparency on how we act on our policies. evolution extends beyond a simple count of resolutions on a Typically, we support longer-term focused resolutions, with a certain topic. particular focus on corporate practice and transparency. We Record number of resolutions point to sustainability focus tend not to support resolutions that are too granular, overly In 2022 a record number of resolutions were filed and restrictive, likely to impose an unreasonable administrative voted on (see Exhibit 1). The rising number of shareholder burden or where we believe a company has already resolutions appear to reflect the greater focus on demonstrated reasonable progress. sustainability topics and a changing regulatory environment, especially as set by the Securities and Exchange Commission (SEC). In recent years, rule changes made it much easier for filers to initiate resolutions and more difficult for the AllianzGI’s voting record in the first companies to challenge them via a “no-action” request to 5 the SEC to exclude shareholder proposals. Recently, as a half of 2022: postscript to this year’s voting season, the SEC has proposed AllianzGI supported 90% of the 20 resolutions several amendments to narrow certain exclusions of shareholder proposals.6 related to greenhouse gas emissions. Allianz Global Investors’ approach And 63% of the 24 resolutions related to We expect companies to deliver on sustainability improved climate change reporting. Our approach to proxy voting is laid out in the AllianzGI Source: Allianz Global Investors Global Proxy Voting Overview. Data as at 30 June, 2022. 7 Global Corporate Governance Guidelines. We expect companies to incorporate sustainability in their strategy, addressing material environmental and social topics. Our 5. Shareholder Proposals: Staff Legal Bulletin No. 14L (CF), U.S. Securities and Exchange Commission, 3 November 2021 6. Source: Press release 2022-121: SEC Proposes Amendments to Shareholder Proposal Rule, U.S. Securities and Exchange Commission, 13 July 2022 7. Allianz Global Investors Global Corporate Governance Guidelines, available www.allianzgi.com 8. AllianzGI Sustainability and Stewardship Report 2021 9. Allianz Global Investors Global Proxy Voting Overview 2

Shaping US practice through shareholder resolutions Improving action on climate change is a key focus This year’s data suggests that the level of support for environmental and social (E&S) resolutions has been mixed. AllianzGI’s voting record in the first The number of resolutions receiving majority support has risen, yet, on average, the level of support has lowered half of 2022: (see Exhibit 2). Another trend has been the rising number AllianzGI supported 94% of the 17 resolutions of resolutions not voted on or withdrawn. This typically on human rights risk assessment. happened when a shareholder filed a proposal but, following an engagement process, decided to withdraw the And 96% of the 27 resolutions related to proposal and it was ultimately not put to any vote. While lobbying disclosure. this means there is no voting record for these cases, it may Source: Allianz Global Investors Global Proxy Voting indicate a rising willingness to engage by the company and Overview. Data as at 30 June, 2022. recognition that the withdrawn resolution would likely have received a high level of support. We maintained our strong support for climate-related resolutions in 2022. In the first half of 2022, we supported to align a decarbonisation strategy with a science-based 90% of the 20 resolutions related to greenhouse gas target. emissions and 63% of the 24 resolutions related to improved climate change reporting. Although this is a slight decline Support for human rights and transparency reforms from the 93% support of 15 resolutions in 2021, this reflects We are highly focused on the social performance of our our decline to support resolutions where the company’s investee companies, especially in the wake of the impact of current trajectory was already sufficiently aligned with our 12 the Covid-19 pandemic , and reflected this in our voting. expectations. We did not support some overly detailed and We supported 16 of 17 resolutions requesting human rights administratively burdensome resolutions. For example, we risk assessments and all 4 resolutions for improving human generally did not support resolutions for a complete stop rights standards and policies. Other focus areas were the of any funding of fossil fuels , instead focusing on efforts practices, especially transparency, on political contributions Exhibit 2: the number of shareholder proposals for environmental and social (E&S) resolutions rose in 2022, but the average level of support for them fell 350 40 37% 300 288 35 250 30% 30% 29% 30 ers 25% 25 200 154 20 % 150 149 146 149 osal numb 15 op pr100 10 50 36 41 5 9 13 19 0 0 2018 2019 2020 2021 2022 Proposals voted Proposals passed Average support Source: PwC Boardroom recap: The 2022 proxy season. Data as at August, 2022. 10. See: Unlocking the “S” in capitalism 3

Shaping US practice through shareholder resolutions and lobbying. We supported all 18 resolutions related to evolve. As such, we continue to monitor these trends to charitable contributions disclosure and all, but one, of the ensure we can play an active role in our stewardship. 27 resolutions related to lobbying disclosure. Lastly, we To achieve this, we are tightening the link between our supported all six resolutions calling for Equal Employment thematic approach to engagement and our voting. We Opportunity (EEO) reporting. Holding directors to account and ensuring appropriate have seen some resolutions, notably climate, that are governance for key topics is integral to our approach. We more nuanced, requiring deeper research to ensure view this as an avenue of escalation for deficiencies in our approach is appropriate. The tight interaction with environmental and social challenges. When a company sustainability research is integral to supporting this. faces sustained employee-related controversies, including We are unconcerned by the rising number of resolutions when our engagement leads us to conclude that this being settled following engagement (and not voted on), follows a failure of governance, we will consider voting since it reflects the power of high-quality engagement against members of the board committee responsible for and active filers of resolutions. However, we caution that the areas of remuneration and human capital. We view the effectiveness of this route is highly dependent on failure to respond to multiple-year low levels of support evolving and fluctuating regulation. An example is the for the advisory vote on pay is a red flag for ineffective various SEC guidance and rule amendments over the past board governance. year or so, which in our view have impacted the number AllianzGI’s focus is on voting and engagement of resolutions filed and the willingness of companies to AllianzGI believes shareholder resolutions will continue to engage. Therefore, at least for now, AllianzGI will continue play an important role in shaping company practice and to focus on voting and engagement to communicate our governance, albeit specific resolution requests will likely views rather than on actual filing of resolutions. 4

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