2021 AGM Season Forecast

Be aware: that won’t be the case this year. Whether your company suffered or succeeded in the pandemic, investors want to get into the nuts and bolts of your long-term survival strategy. Not only that, but their expectations on non-financial reporting are higher than ever before. This is due not just to recent and upcoming regulatory changes but also high-profile pressures, such as Black Lives Matter and prominent environmental campaigning. We expect a sharpened focus on risk management, emerging risks and social aspects as we emerge from the pandemic.

Within such a setting, progressive non-executive directorship has become even more vital in helping companies overcome modern challenges and identifying opportunities for growth. Furthermore, having a thorough plan to engage shareholders and other stakeholders throughout the year is absolutely vital, especially with so many people continuing to work from home. Boudicca from Equiniti advises to:

• Prepare a shareholder engagement strategy that included institutional investors and proxy advisers. Engage with top shareholders and offer meetings with people from your board, including your chair.
• Continue to focus not just on profit, but also purpose. Tell a coherent story aligned to your values and show how the company has considered stakeholders in decision making. Give examples. Include keywords that institutional investors and proxy advisers may search for.
• Use your annual report as a key tool for communicating complex explanations. If you're not fully compliant, strongly explain why.
• Ask an external party to review the annual report and accounts and see if it tells investors what they need to know about viability, risk and how the company is approaching societal matters.
• Engage with your shareholders to understand their views and gain support ahead of putting a new policy to shareholders for approval. What is the new ‘norm’? What factors need to be considered?
• Keep a close eye on policy or sentiment changes from the proxy advisers and institutional investors.
• If you see an issue looming around proxy voting, engage with proxy advisers and corporate governance managers of institutional investors early.
• Send a one-pager with the key points highlighted to the proxy advisers and institutional investors.
• Extend your defence planning to shareholder activism. Undertake risk assessments, particularly around your corporate governance structure, to spot gaps an activist investor could exploit. Track share movement, looking at who's buying and who's selling.

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2020: The year everything changed

COVID-19 was not the only momentous event in 2020. Increased social activism, environmental campaigning and the Black Lives Matter movement, in particular, are creating a genuine sea change in the way the world works. So, what should companies focus on addressing this year in terms of ESG?

Our expectation is that there will be a requirement for better disclosure and enhanced discussion of how the board oversees COVID-19 impacts, climate change, sustainability, diversity and inclusion, and executive remuneration. Linked to this we expect enhanced stakeholder engagement reporting, often combined with the section 172 statement.

COVID-19 has caused a correction to the stock market and during this volatility, asset managers are actively picking stocks as opposed to just indices. The amount of cash going into equities has continued to rise, in particular those dedicated to climate change and ESG funds. 82% of investors are systematically integrating material ESG factors into their investment analysis. 25% of global investment is now linked to ESG performance . Investors are reacting to a change in market sentiment and also client appetites, driven often by millennials who see the environment, gender and other social concerns as reputational issues.

Of course, there are already regulations and recommendations in place to ensure companies focus on ESG issues – the Modern Slavery Act, EU Non-financial reporting directive, Gender pay gap, AIM Rule 26, Wates Principles, UK Corporate Governance Code, EU Shareholder Rights Directive, SECR and UK Stewardship Code – to name just a few. There are already specific targets in place for diversity and gender and when it comes to climate change, the FRC is doing more and more in this area and the government has published 'A Roadmap towards Mandatory Climate-related Disclosures' setting out an indicative path towards mandatory climate-related disclosures for companies by 2023. There’s no escaping that this is the way forward from now on.

The stage is set for a lively AGM season. Shareholders understand that this is not a business-as-usual period. However, they also know that this is no time to pause and take the pressure off because doing so could lead to failure, fast. With limited new regulation to contend with and a practice run for virtual meetings having taken place in 2020, expectations are high that companies will be able to thoroughly address the topics close to shareholders' hearts.

At the same time that they are battling COVID-19, seismic changes are required in many companies to increase diversity, improve employee engagement, and become more environmentally conscious. This is not about tweaking AGM communications. It is about creating genuine change and showing how performance and remuneration match to the purpose and future focus of the company.

To ensure success on the day itself, AGMs need to be an integrated part of an ongoing process to ensure shareholders know how businesses are working every single day to become more sustainable and inclusive. As new generations become shareholders, that direction of travel will not abate. With or without a pandemic, the world has changed.

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boudiccaproxy.com

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[1] Global Sustainable Investment Alliance (GSIA)