Latest Stewardship activity October


Climate change risks are distinctive and the regulators therefore require a different approach – they will affect everyone, will be correlated and will be non-linear.

Market Developments

(UK) stewardship code published

After a long wait, the updated Stewardship Code has been published in the UK. This updated code sets a new global standard for stewardship and places the UK once again at the forefront of stewardship. As such, it provides a great frame of reference for our own work here at Martin Currie.

The new code takes effect on 1 January 2020. It was last updated in 2012. The code is focused on anyone acting on behalf of UK beneficiaries whether invested domestically or internationally.

The code also recognises that asset owners and asset managers play an important role as guardians of market integrity and in working to minimise systemic risks as well as being stewards of the investments in their portfolios.

Key changes:

Definition of stewardship: ‘Stewardship is the responsible allocation, management and oversight of capital to create longterm value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.’

  • The code now comprises a set of ‘apply and explain’ principles.
  • The key change is a shift in focus to activities and outcomes, rather than policies and processes.
  • ESG is now mentioned explicitly, reinforcing the increased focus it receives across financial markets globally.
  • There is a requirement to report annually on stewardship activity and its outcomes – this will be used to assess whether an organisation can be a signatory to the code.
  • Signatories are required to explain their organisation’s purpose, investment beliefs, strategy and culture and how these enable them to practice stewardship.

Process to become a signatory to the new code:

Organisations wanting to become signatories to the code will be required to produce an annual stewardship report explaining how they have applied the code in the previous 12 months. The Financial Reporting Council (FRC) will evaluate reports against its assessment framework, and those that meet the reporting expectations will be listed as signatories to the code. To be included in the first list of signatories, organisations must submit a final report to the FRC by 31 March 2021. Martin Currie already publish a stewardship annual report but we will continue to build on what we already produce to ensure that we remain at the forefront of stewardship reporting.

Edinburgh played host to the Global Ethical Finance Initiative (GEFI) conference

Two areas of focus for this event were the role of central banks and regulators in addressing key issues such as climate change and the recently released Principles for Responsible Banking (PRB). Climate change risks are distinctive and the regulators therefore require a different approach – they will affect everyone, will be correlated and will be non-linear. They are also eminently foreseeable – although it is not clear exactly what will happen and to what extent – the physical risks being higher if we do nothing, whereas the transition risks are higher if more action is taken.

The PRB is seen as an opportunity to rebuild trust and embed a responsible approach to lending and banking overall. It comprises six principles which are global in nature and emphasise engagement with stakeholders. The PRB now has 130 signatories up from a core group of 28 banks who were the original members. These principles will provide a useful engagement tool for us as investors.


Martin Currie

First stage of work to incorporate the UN SDGs into our analysis.

We see increasing interest from our clients in the United Nations Sustainable Development Goals (UN SDGs) and this is evident from the increasing focus we are seeing here in the reports from asset owners – for example, the Australian Super funds. I have spent some time with our investment teams recently looking at more formal incorporation of the UN SDGs into our analysis and engagement. Having already run a teach-in session with our investment team in Australia, I will also be rolling this out across the broader team in the UK. We have also started work on how to align sustainability analysis with the SDGs in terms of using the goals as an additional lens through which to look at companies. In addition, they also provide a useful way to identify and report on certain engagement topics and, as such, can be a useful framework to articulate these engagements to clients. This is an exciting piece of work and we will keep you informed as it develops.


In Australia this month we have engaged with a number of boards including a meeting with Boral, a construction materials and building products supplier. In addition, we have submitted a public written response to the Australian Prudential Regulation Authority (APRA) consultation on inclusion of non-financial metrics in remuneration.

In the case of Boral we met with the chair of the board and the chair of the remuneration committee. The group has been expanding the skill-set and experience of the board as the business has evolved and are looking to add Asian expertise at board level. Our main concern, however, was on remuneration where the short-term and long-term incentive multipliers look relatively high and, as such, we will do a benchmarking exercise around these.

The team in Melbourne also made an excellent submission to APRA regarding APRA’s request for submissions on remuneration restrictions at financial companies. Our central premise is that in relation to remuneration (‘REM’), we believe the majority of measures for both short-term incentives (‘STI’) and long-term incentives (‘LTI’) should be easily identifiable, measurable and relate directly to the company’s performance. To measure success, financial metrics which include relative total shareholder returns (‘TSR’), are very tangible and objective. We believe that if a company is law abiding, treats its staff well, has excellent customer experience and delivers a product or service which has purpose and relevance to the population at large, it will over the long term deliver good financial returns to shareholders. As such, we made a formal request that APRA makes no change to the prudential framework for variable remuneration design to limit the use of financial performance metrics to 50%.

In South Africa, we have continued our long-term engagement with Naspers/Prosus. While our engagement has touched on its ownership structure, the main focus for an extended period of time has been on remuneration. The group has continued to make improvements in the remuneration structure over the last few years – we met with the head of people earlier this year to provide our input to this process. However, there was still a significant vote against remuneration by independent shareholders this year as further progress is still required. The company was keen to speak to us to get further input as part of our ongoing dialogue. The focus was predominantly on increasing the performance element of bonuses and increasing the disclosure around the measures used. We are encouraged by the progress already made and especially at the willingness of the company to continue to engage on the topic.

Finally, in South Korea we were also asked by SK Hynix to an appraisal of its approach to reporting on sustainability. As a semiconductor manufacturer, it faces a range of potential challenges, including water risk, controversial metals and human capital. In fact, the company does a good job in many areas regarding its approach and how it chooses to report. That said, there are areas where we provided guidance on improvement and pointed to some of the very strong examples we see in some of the other players in the sector, both in Asia and in other regions.

Upcoming activity

At the end of November we will be attending the International Corporate Governance Network (ICGN) Stewardship Forum where we are delighted that Martin Currie is on the shortlist for the 2019 ICGN Global Stewardship Awards. The awards recognise excellence around investor stewardship policies and practices. I will also be speaking at this conference.

With the new UK stewardship code now released and the regulatory changes taking place, there is also a session in November run by Freshfields (lawyers) looking at the implications of these changes for asset managers. We also have a number of client meetings over the course of the month including a meeting in Edinburgh with Government Pension Investment Fund (GPIF) of Japan.

Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.

Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other Martin Currie managers, strategies or funds.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.