Phoenix Champions Human Rights Stewardship
Asset owner makes progress on climate and asset manager information-sharing in first year as Stewardship Code signatory.
Human rights controversies are a systemic risk that should form a central part of asset owners’ stewardship strategies, according to one of the UK’s largest asset owners.
“We are a universal owner and exposed to many economies, regions, sectors, countries and companies,” Valeria Piani, Group Chief Head of Stewardship at long-term savings and retirement business Phoenix Group, told ESG Investor. “When building our own stewardship strategy, we knew we needed to look at ESG from both a macro and micro perspective, so we reflected on big negative externalities that pose risks to our portfolios in the long term.”
Just like climate, human rights is a systemic risk, Piani explained. “If human assets are not respected, that will impact us all and also the economy,” she added.
In 2022, Phoenix identified international frameworks – like the UN Guiding Principles on Business and Human Rights (UNGPs) – to inform its human rights policy.
As reflected in the asset owner’s most recent stewardship report, last year marked the first phase of its investment portfolio due diligence to identify salient human rights impacts and act on any findings.
Phoenix conducted in-depth research on ten companies screened against breaches of UNGP principles on human and labour rights, environmental and climate change issues, and anti-bribery and corruption efforts. The asset owner then sent tailored letters and aimed to engage with company management, both directly and through a third-party platform.
Overall, 60% of the companies reported publicly on the controversy they were linked to, and 50% engaged with affected stakeholders and reported remediation progress.
“We’re still working on our due diligence process,” said Piani. “But we’re hoping we can then identify human rights-focused stewardship actions that we can enact directly, through our managers, or a combination of both.”
Last year, Phoenix also joined the UN-convened Principles for Responsible Investment’s (PRI) Advance initiative to further develop its engagement activities on controversies linked to human rights.
Advance, which was launched in 2022, aims to facilitate investor engagements with key companies in the metals, minerals and renewables sector on human and workers’ rights.
“An angle we decided to take on human rights was to link it to our decarbonisation objectives,” said Piani. “That’s why we thought that joining Advance would be interesting, as it is focused on the human rights aspects of decarbonisation through the mining sector and utilities.”
Phoenix analysed six companies targeted by the Advance initiative against the UNGPs, finding that all six companies had policies, due diligence processes and board and management oversight in place. However, they lacked targets and assessments of progress against outcomes.
In January, the PRI published a human rights guide outlining how asset owners can manage human rights in the investment process – in line with both international and national frameworks, laws and regulations.
Meanwhile, the UN Working Group on Business and Human Rights recently clarified how investors should align their ESG and sustainability efforts with responsibilities under the UNGPs.
An ongoing challenge, Piani suggested, is procuring consistent human rights data. She described current availability as “patchy”, emphasising the importance of having reliable information on which to base engagements with portfolio companies.
Earlier this year, the Church Commissioners for England, Aviva Investors and Scottish Widows together launched the Investor Initiative on Human Rights Data (II-HRD) to improve the depth and breadth of corporate human rights data available to investors – both via proxy advisors’ voting policies and advice, and via data providers.
Other stewardship priorities
Phoenix’s 2023 stewardship report also highlighted promising progress on climate-focused engagements.
“Our direct activities will always be a very small subset compared to the high amount of engagement activities conducted by our external managers, so it’s important that we are selective,” said Piani.
Phoenix chose to directly engage with 25 companies representing a combined 42% of financed emissions in highly emitting sectors – including oil and gas, mining, steel, transportation, and cement.
The asset owner met with 23 of these companies in 44 meetings last year, finding that target companies had either committed to or made progress on 40% of Phoenix’s tailored engagement objectives in the last 12 months. The firm’s asset managers separately engaged with more than 1,000 companies on climate through 2,300 meetings, covering an additional 44% of financed emissions in high-emitting sectors.
“It often takes quite a long time to see progress,” said Piani. “After 12 months, a third of the way through the engagement programme, we were quite surprised.”
Last year, Piani joined investor-led engagement initiative Climate Action 100+’s global steering committee, while Phoenix published its first net zero transition plan – which included a pledge to decarbonise its portfolio by increasing allocations to climate-positive investments, and heightening stewardship efforts with carbon-intensive investee companies.
The asset owner is now in the process of increasing its attention to other environmental themes. As such, it began piloting the Taskforce on Nature-related Financial Disclosures framework and the accompanying Locate, Evaluate, Assess, Prepare (LEAP) assessment guidance last year, and joined other collaborative nature-focused initiatives – such as Nature Action 100 and the Finance for Biodiversity Pledge.
According to the code
In its 2022 stewardship report, Phoenix had noted its wish to foster better communication and information flows between asset managers and asset owners.
“The number one priority for any asset owner is asset manager alignment,” said Piani.
This year, the report highlighted increased efforts to engage with external managers to collect more standardised quantitative and qualitative data on stewardship activities across asset classes.
External asset managers voted on 94%-100% of eligible resolutions on Phoenix’s behalf, with all but one manager either maintaining or increasing their support for material ESG-related shareholder resolutions.
Outlining its future stewardship priorities, Phoenix said it would continue working with external asset managers to improve engagement activities disclosure while building up in-house engagement efforts on sustainability themes.
Last year, Phoenix also became a signatory of the Financial Reporting Council’s UK Stewardship Code. Piani described the code as being “pivotal” to the development of the firm’s engagement strategy.
“It intends to support constructive dialogue,” she said.
At ESG Investor’s Stewardship Summit earlier this year, the FRC’s Head of Stewardship Andrea Tweedie reflected on progress since the code was introduced, and on signatories’ evolving needs. This followed an announcement from the watchdog that it would review the code to ensure it still supports economic growth and competitiveness.
“Reviewing the code is a healthy process – everything has to be reviewed to be fit for purpose,” Piani added. “The review might also be an opportunity where we can make it very clear that engagement is about building a two-way conversation, [and] not about being imposing – but about being constructive.”
The revised code is due in early 2025, with the likely implementation slated for the following year.
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