Cognex
2023
Objective: Encourage disclosure of climate data in line with CDP.
Stage: Resolved.
Update: We successfully closed an engagement for change with Cognex, the objective of which was to get the business to respond to CDP’s non-disclosure campaign (NDC) and provide better climate-related disclosure. On the latter, Cognex had already made significant progress with the publication of its inaugural sustainability report in in the second half of 2022. During subsequent engagements, we were also assured that a response to the NDC (for which we were lead signatory for Cognex) would be forthcoming later in 2023. Confirmation of this duly arrived in October with the release of the 2023 NDC results, enabling us to close our engagement for change.
Next Steps/Conclusions: Resolved.
Intuitive Surgical
2023
Objective: To encourage disclosure of scope 1 and scope 2 emissions.
Stage: Resolved.
Update: We have corresponded extensively with Intuitive Surgical on management of sustainability risks and opportunities in recent years, including on how best it can improve its carbon strategy and disclosure. In that time, the company announced it was committed to aligning its external reporting with recognized disclosure standards, including those used by CDP and that it would issue incremental disclosure in its 2022 sustainability report, which was subsequently published in the first quarter of 2023. The report provided validated greenhouse gas emissions for scope 1 and scope 2 and completed an inventory for scope 3, enabling us to close our engagement for change.
Next Steps/Conclusions: Resolved.
Jardine Matheson
2023
Objective: Encourage improvement on a range of ESG issues, including divestment of coal assets and palm oil assets.
Stage: Acknowledged.
Update: At a meeting in Hong Kong in September 2023, management delivered a robust defense of the company’s approach to both palm oil and coal production. Regarding the former, whilst disposing of the plantations would be the easy thing to do given they are neither financially material nor integral to long-term strategy, management believes this would not be the right thing to do. Astra is committed to supporting the Indonesian economy, of which palm oil is a critical component. The industry is responsible for around two million jobs in the rural economy and supports a vulnerable section of the population. Moreover, the world has no substitute at scale for palm oil, which is an important component of the food supply chain. According to management, Astra should be considered a responsible owner given it goes beyond the standards set by the Roundtable on Sustainable Palm Oil.
Regarding coal, management was clear that there will be no new coal investment. That said, coal remains critical to the Indonesian economy for now, with no cheap power alternatives coming online in the near term. Indonesia has a net zero 2060 target, in accordance with global climate change targets for a just transition, and Astra will be a key enabler through investment in renewable energy and battery minerals. However, it will also continue to operate coal assets responsibly and in line with the country’s decarbonisation plans. Management is adamant that this is the optimal solution and that to divest to a local owner would have a negative environmental impact.
Next Steps/Conclusions: Whilst both these issues call for nuance, we do think that exposure to assets such as palm oil and coal carries risks for JM, whether through pressure on asset owners to divest or costs related to managing the environmental impact. As such, we will continue to engage with management to manage these risks.
Paychex
2023
Objective: Greater board and committee independence.
Stage: Acknowledged.
Update: In November 2023, we initiated an engagement for change with Paychex, the purpose of which is to encourage greater independence at both board and board committee level. In our view, company boards should follow international best practice in terms of corporate governance in order to minimise the risk of mismanagement and the concomitant potential financial implications. On some measures, Paychex falls short of accepted best practice.
In recent years, Paychex has taken some steps to refresh the membership of its board, including the appointment of two new non-executive directors. However, we feel that there is more that the company can do to expedite this shift.
In respect of overall board independence, Paychex sits below our expectation of majority independence due to the number of long-tenured directors (we presume directors are not independent if they have served on the board for ten or more years). Whilst we welcome the recent addition of the independent non-executive Theresa Payton, we would like to see further steps taken to refresh membership whilst retaining an appropriate balance of skills and experience.
Similarly, we understand the reasons why Martin Mucci, who recently stepped down as CEO, currently holds the role of chair. However, in such circumstances, it is our strong preference for a lead independent director to provide independent oversight. Ideally, this should be a shorter-tenured independent non-executive director than is currently the case.
Whilst the changes proposed appear significant on first inspection, they could be addressed with some relatively small changes to the current structure of the board by adding more independent directors or replacing a small number of existing long-tenured independent non-executive directors.
Next Steps/Conclusions: Paychex has acknowledged our preferences in this area and the board is committed to further enhancements to the board structure in the years ahead. We will continue to engage with the company in 2024 as it seeks to implement further change.
Engagement for Information
The most common form of engagement, an engagement for information is a meeting or correspondence involving a two-way exchange of information. This dialogue makes a vital contribution to our overall understanding of a company, its management and its approach to sustainability issues.