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Hermes To Vote Against Re-Election Of Nomination Committee Chair At Rio Tinto plc Due To Lack Of Progress On Diversity

Posted on April 11, 2017 at 12:25 PM

It's the Rio Tinto AGM tomorrow - and Hermes Investment Management intends to put its votes firmly behind stated policy on gender diversity as a priority.

"Due to the lack of diversity and a credible plan to address this imperative issue, and consistent with our voting policy, Hermes EOS recommends voting against the re-election of Jan du Plessis in his capacity as chair of the nominations committee at Rio Tinto plc" it says in an engagement note. (my emphasis)

"Diversity is an issue of great importance,and it will be a key area of focus in our voting activity throughout the AGM season. Earlier this year Hermes EOS wrote to the Chairs of Boards of FTSE 350 companies and announced our intention to support the long-term aspiration that company boards, and all levels of management, should reflect the diversity of society across dimensions such as race and gender.

Therefore, we have taken the decision to vote against the re-election of the chairs of the nominations committees of FTSE 100 companies if their boards have fallen significantly short of the target that 25% of directors are women by 2015 and they are unable to demonstrate credible plans to achieve the 2020 target of 33%. Support for these targets was announced by Government in 2010 and while progress has been made at many companies in the years since, others have fallen behind.

Following changes to the board earlier this year, including the appointment of three male non-executive directors, only two out of the 12 Rio Tinto board directors are women, which falls significantly short of the 25% target. Although the company has stated its commitment to diversity and to seeking to ensure better gender balance in future appointments to the board, we believe Rio Tinto must demonstrate a credible plan and a serious commitment to reaching the 33% target by 2020" says Bruce Duguid, Stewardship Director within the Hermes EOS team at Hermes Investment Management. (again, my emphasis)

The 2017 AGM season also marks the first year of new climate change risk reporting requirements for mining companies Anglo American, Glencore and Rio Tinto. This follows the passing of resolutions last year, with the support of more than 95% of shareholders, requesting further disclosure of carbon-risk reporting and the company’s actions to manage them.

Last year’s resolution, which was supported by Rio Tinto’s Board, prompted the company to prepare a special publication on its approach to managing climate change risks, which was published on 10th March. The report includes details of the company’s greenhouse gas reduction targets to 2020, a description of low carbon scenarios considered and a range of low carbon technologies that the company is investing in.

This year, investors from the Institutional Investors Group on Climate Change (IIGCC) are attending the AGMs of the most carbon-exposed UK companies, including Anglo American, Glencore, BP and Royal Dutch Shell, to welcome elements of the new reporting and identify areas for improvement.

Hermes, which is coordinating IIGCC members’ response to the mining company resolutions, says it welcomes Rio Tinto’s first report.

"However, it is our view that significantly greater information and disclosure is required from Rio Tinto in future to meet investor expectations" it says.

"We welcome the company’s reporting of the low carbon scenarios it considers. However, investors are seeking more tangible disclosure of financial risk, including the company’s estimate of value-at-risk under these scenarios and its strategic response. Further disclosure is needed in order to meet the draft recommendations of the Financial Stability Board’s Taskforce on climate-related financial disclosures (FSB TCFD)" says Mr Duguid.

I last covered the FSB TCFD on Forbes here. Businesses need to start showing how they are adapting their business models.

Rio Tinto's refreshed public policy on climate change "confirms it is seeking a substantial decarbonisation of the business by 2050. We would now like to see details of the company’s long-term strategy to decarbonise its mining and smelting operations, consistent with the Paris Agreement goal to limit climate change to 2°C or even below. This should include the level of investment in low carbon research and development and for stretching greenhouse gas emissions targets to be included in the executive remuneration scorecard" he adds.

It's good to see institutional investors walk the walk - and not just the talk. On a personal note, all my worlds appear to be coming together. As it happens, I see Bruce Duguid is speaking at an event on Systemic Rick and Corporate Governance held at Cass Business School on May 10 - and I am moderating  a panel.

Systemic risk and corporate governance should, in my view, be seen as far more closely aligned in the mind's eye than they have been.


Categories: Investors, Scrutiny, Diversity