How Coronation Fund Managers commits to responsible investment and ESG engagement

Coronation Fund Managers does more than just invest over R670 billion of its clients' savings for better returns; its mandate includes ensuring funds are invested responsibly and in line with ESG considerations and in 2024, it voted on 6 244 shareholder resolutions as part of this strategy.

South Africa's biggest independent asset manager has released a Stewardship Activities Report, which sheds light on the key interactions that the fund manager implemented in pursuit of not only better financial outcomes for shareholders in corporate deals, such as mergers and acquisitions, but also in the pursuit of improved Environmental, Social, and Governance considerations.

The report is unique in South Africa, as asset managers do not often publicly disclose the reasons for their investment positions in depth. Coronation said it attended 482 shareholder meetings throughout the year on behalf of its clients’ investments, with a significant proportion of these meetings involving South African companies.

“Our voting approach emphasises constructive, pre-emptive engagement rather than formulaic voting, allowing for issues to be addressed before they reach a vote. However, where matters remain unresolved or are not resolved to satisfaction, we will cast a dissenting vote,” the asset manager stated.

Of the 482 meetings at which it voted, at least one dissenting vote was cast in 227 (47%) of these. The number of meetings where dissenting votes were cast varied by region, with the largest percentage of dissenting votes occurring in developed market companies (64% of meetings).

Most dissenting votes were cast on board structure (38%), followed by capital structure (33%). Twenty-six percent of votes against management proposals related to capital structure, with a large proportion opposing blanket authorities to issue shares generally and unconditionally. Resolutions concerning auditors attracted 13% of votes against management, aligning with policy against firms exceeding a 10-year tenure.

The high number of dissenting votes on board structure (38%) was primarily driven by misalignment with governance policies, limited time, and/or insufficient information to adequately assess candidates, leading to a significant number of dissenting votes when board candidates were elected.

Notably, 6% of Coronation’s dissenting votes related to remuneration. The main reasons for voting against remuneration policies included targets set by the company being insufficient to align remuneration with shareholder value creation, inappropriate short-term and long-term incentives, and excessive remuneration not reflective of the value and contribution of executives.

Other reasons included the absence of malus and clawback mechanisms to protect the company from fraud or material misrepresentation, as well as insufficient disclosure of remuneration structures and performance metrics.

In South Africa, the majority of dissenting votes were related to capital structure, particularly board requests for blanket authorities to issue shares generally and unconditionally.

In emerging markets, most dissenting votes were cast against board structure proposals, primarily due to misalignment with governance policies, insufficient time or information to adequately assess board appointments, and the complexity of voting systems.

One of the thematic issues that Coronation engages with the management of companies it invests in is climate change. In 2024, Coronation engaged with 20 focus companies in their South African and Global Emerging Market universes, to assess and advocate for improvements in their climate-related strategies.

For example, Coronation had seven engagements with Sasol in 2024, discussing several issues, including climate change. Sasol is the largest corporate emitter of harmful greenhouse gas emissions in Coronation’s South African investment universe.

“We reiterated the need for Sasol to prioritise sustainable and profitable production, which will be critical for providing the resources to meet its emissions targets,” the report stated.

Coronation also engaged several companies on the appropriateness of their emissions reduction targets. “For example, we requested that TotalEnergies set and disclose scope 3 emissions intensity targets for its gas products, enabling a clearer timeline for the use of this transition feedstock. While the company has publicly committed to reducing scope 3 emissions for oil products, it does not plan to reduce overall scope 3 emissions by 2030.”

“We therefore believe it is appropriate to set gas-related intensity targets to promote more efficient production, even if the company plans to scale up volumes.”

Coronation also considered the appropriateness of climate targets set by Nedbank. “We questioned whether the group's targets for its oil and gas lending portfolio aligned with its ambition to grow in Mozambique and Namibia. The company indicated its board is comfortable that growth in these regions can be accommodated while staying within targets, potentially by reducing exposure elsewhere if necessary.”

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