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Feb 05, 2020

Shaping Trillium’s plans for 2020

Reproductive rights, economic inequality and the opioid epidemic are among the issues Trillium Asset Management will be tackling in engagement or shareholder proposals in 2020. Jonas Kron, senior vice president and director of shareholder advocacy, talks to Ben Maiden about how the firm sets its agenda and how it approaches discussions with companies

Trillium filed nine board or executive diversity proposals in 2019, up from four last year. What’s behind that focus?

These shareholder proposals on executive team diversity were the first of their kind to be filed. This first effort was a proof of concept to see what the results and outcomes would be, and we thought it was very positive both in terms of companies making commitments to improve diversity and, when we did need to go to a vote, getting a majority on that proposal.

How were these proposals different from previous ones?

Diversity proposals before this focused on three different things: workforce diversity, board diversity and LGBT non-discrimination. Executive team diversity had never been called out as its own subject matter in shareholder proposals before. And we’re going to do more of that in the year to come.

Are you seeing a general increase in support for diversity proposals? If so, why do you think that is?

Yes, there has been increasing support: of the top 10 vote-getting proposals, diversity proposals might have been five or six. They’ve been doing quite well. I definitely think investors are seeking this information and are supporting these proposals at higher and higher levels.

Why is that? Probably a couple of reasons. One is that there have been a couple of years of the #MeToo movement and generally growing awareness of workplace conditions for women and racial minorities and the challenges [they face]. There’s been increased attention from investors in general on human capital management, and diversity is an important part of that. As an illustration, the SEC put out a series of questions for updating corporate disclosure requirements for Form 8K and Form 10K, which called out human capital management particularly as an area of interest.

There is also a growing body of financial and academic research showing that companies with more diverse workplaces perform better financially.

What are some of the other key issues you will be bringing proposals on in 2020?

On the social side, we’re going to file proposals or do dialogues on reproductive rights, economic inequality, drug pricing and the opioid epidemic, and let’s call it ‘tech-lash’, for lack of a better term: a focus on the social impact of technology companies.

Are those all new areas for you as a firm?

Economic inequality no, we’ve been working on that for several years. Reproductive rights is also something we’ve worked on and written about over the last few years. We’ve participated in broad investor coalitions on drug pricing and opioids, but this is the first year we’ll be doing some of our own work on it.

How do you determine which issues are on your agenda for the upcoming year? Is it a continuing process that evolves as you talk with companies?

Every summer we assess the previous year and think about where we want to focus our attention in the year to come. We are active investors, so two of our first questions are which companies do we hold, and which do we hold the most of? Looking at those companies, we ask ourselves what material ESG issues a company is facing and needs to address. Then we look at the impact these companies have on the environment or on society.

Next, we gauge whether there is a short-term way forward or if this is more [about] playing the long game and engaging in a multi-year effort. Finally, our clients are with us because they understand the importance of environmental and social issues. So we think about what is important to them from a values point of view.

When you go through that… you get down to the companies and the issues you’re going to work on. We start with the companies, but also with the issues. Some of the environmental issues we’re going to be working on – climate change, pesticides, chemical use and plastic use and waste – are all big issues now at a systemic level. We then say to ourselves, Of those companies we hold, where does it make sense for us to be engaging on climate change, plastics or chemical and pesticide use?

We don’t hold Exxon and Chevron, so those aren’t going to be companies it makes sense for us to engage with on climate change. We do hold transportation companies, however, as well as some smaller energy companies and some industrial companies that emit greenhouse gases, so we will be looking for opportunities to help those companies improve.

Many E and S-related proposals are being negotiated away. For example, Trillium filed 13 workplace diversity proposals in 2018, 10 of which were ultimately withdrawn after the firm secured some form of commitment from the company involved. Why are companies more willing to negotiate around those issues but less so around governance proposals?

I think that has been steadily rising over time. In terms of governance proposals, a lot of [them] are filed by a couple of individuals and there’s not a whole lot in them to talk about. Either the company is going to [make the proposed change] or it’s not. So those tend to just go to a vote or are withdrawn. With the environmental and social issues there’s a lot more room for finding common ground and establishing ongoing dialogues.

In terms of those discussions, who do you tend to deal with at companies?

It varies. [Investor relations] is often part of the discussion, corporate secretaries are often part of the discussion. The general counsel’s office is often part of the discussions, [as are] the executive team and directors.

Are these negotiations helped by the growing level of shareholder engagement that takes place outside of proxy season?

Conversations and meetings happen all the time and they’re good, useful and productive. Shareholder proposals happen with a timeline built into them that I think can be super-helpful to driving conversations forward in a productive way. There’s something about shareholder proposals and their deadlines that focus everyone’s mind on the issue and on finding a solution.

What do you look for in terms of engagement from companies you are invested in?

I think it’s important not to have the PR department running engagements – that’s always a bad idea. PR departments have a very important role to play but when it comes to engaging with shareholders, it’s not a question of PR. Whenever that’s [the department] involved in the engagement with us, it’s not a good sign.

Is it helpful if there is a co-ordinated effort between different teams at a company?

Yes. You want to provide the right person for the right engagement. Sometimes that means it needs to be someone from the board; sometimes it means it needs to be someone from the executive team. Sometimes IR is completely appropriate. Sometimes the group that is responsible for sustainability is the right [choice]. Sometimes it’s the general counsel. You need the right person for the right job.

This article originally appeared in the latest Corporate Secretary special report.